INCOME TAX OFFICER WARD 3(1) , LUDHIANA V. GAURAV KUMAR, LUDHIANA

ITA 412/CHANDI/2024

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which had favored the assessee, Shri Gaurav Kumar, in a dispute concerning the addition of Rs. 1,78,96,190 to his income for AY 2017-18 under Section 69 read with Section 115BBE of the Income Tax Act, 1961. The addition was initially made by the AO based on alleged bogus purchases and unexplained cash deposits during the demonetization period. The CIT(A) removed the addition, citing procedural errors and lack of substantial evidence from the AO. The Tribunal found that the CIT(A) had not adequately addressed key issues such as the genuineness of the cash sales and the need for cross-examination of suppliers, leading to the decision to remand the case for a fresh assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 107995 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Other Referred Cases: Parnami Pump & Projects Pvt. Ltd. Vs DCIT, ACIT vs. M/s Kewal Singh
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIVEK VARDHAN
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Set aside; Unexplained investment; Rejection of books of accounts; Bogus purchase; Principle of natural justice; Bogus
• Section: 142(1); 143(2); 69; 133(6); 145(3)

Judgement Text

"आयकरअपीलीयअिधकरण,चǷीगढ़Ɋायपीठ“ए”, चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी क ृणवȶ सहाय, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM&SHRI. KRINWANT SAHAY, AM आयकरअपीलसं./ ITA No. 412/Chd/ 2024 िनधाŊरणवषŊ / Assessment Year : 2017-18 The ITO Ward 3(1), Ludhiana बनाम Shri Gaurav Kumar Prop. Gourav Creation Near State Bank of India Brahmpuri Ludhiana- Punjab- 141008 ˕ायी लेखा सं./PAN NO: ADHPK8545N अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राजˢ की ओर से/ Revenue by : Shri Vivek Vardhan, Addl. CIT सुनवाईकीतारीख/Date of Hearing : 18/03/2025 उदघोषणाकीतारीख/Date of Pronouncement : 16/04/2025 आदेश/Order PER LALIET KUMAR, J.M: This is an appeal filed by the Revenue against the order of the Ld. CIT(A)/NFAC, Delhi dt. 19/02/2024 pertaining to Assessment Year 2017-18. 2. In the present appeal, the Revenue has raised the following grounds: 1. That the Ld. CIT (A), NFAC, New Delhi has erred in ignoring the fact that Assessee had made purchases on credit even after having sufficient cash in hand and bank balance. 2. That the Ld. CIT(A) has erred in ignoring that the AO called for the information u/s 133(6) of the Income Tax Act, 1961 from Sundry Creditors and the Creditors denied to have any transaction with assessee. Thus, the AO confirmed the bogus purchases made by the assessee amounting to Rs. 2,35,16,883/-. 3. That the Ld. CIT(A) has erred in not appreciating the facts that the AO had given sufficient opportunity to explain the cash deposits in his bank accounts. 2 4. That the Ld. CIT(A) has erred in not appreciating the fact that books of accounts were rejected u/s 145(3) of the Act., as the AO confirmed the bogus purchases after denying the purchases by creditors. 5. That the Appellant craves, leave for permission to add, amend, or alter any ground of appeal at the time of hearing. 3. Briefly the facts of the case are that assessee filed his Income Tax Return for AY 2017-18 and declaring a total income of Rs. 9,34,560. Thereafter the case of the assessee was selected for scrutiny under CASS due to an abnormal increase in cash deposits amounting to Rs.1,78,96,190/- during the demonetization period compared to pre-demonetization periods. The Ld. AO issued multiple notices to the assessee under Sections 143(2) and 142(1) seeking explanations for the deposits. In response the Assessee claimed the cash originated from sales to out-of-state parties, with daily cash receipts capped at Rs. 20,000. However, he failed to provide complete customer details like PAN and addresses or transport receipts to substantiate interstate sales. Additionally, two creditors namely M/s Manohar Impex having outstanding balance of Rs.85,16,644/- and M/s Yuvraj Traders having outstanding balance of Rs.1,50,00,239/- had given their submission that they had not made any transaction with M/s Gaurav Creation (Prop. Sh.Gaurav Kumar) during the F.Y. 2016-17, as confirmed through inquiries under Section 133(6). The AO found fake purchases from these parties in October 2016, which were used to increase stock and explain cash deposits. Even after multiple chances, assesseedid not fully respond to the said notices. The AO did not trust book of account of Shri Gaurav Kumar because they had fake entries and no proper proof. So, the books were rejected. During demonetization, Shri Gaurav Kumar deposited Rs. 1,78,96,190 in cash, but he couldn’t explain where the money came from. This amount was added to his income and taxed at a high rate of 60%, making his total income Rs.1,88,30,750. The officer believed Shri Gaurav Kumar made up fake purchases and sales to show the cash as legal. A penalty was also started for hiding this income. The AO also pointed out that Shri Gaurav Kumar did not 3 reply properly to notices and only relied on others’ statements to support his case. 3.1 The AO rejected assessee’s books of account under Section 145(3), due to fictitious entries and lack of corroborative evidence. The cash deposits of Rs. 1,78,96,190/- during demonetization were treated as unexplained investments under Section 69, added to his taxable income. This amount, taxed at 60% under Section 115BBE, raised the total assessed income to Rs.1,88,30,750/. 4. Feeling aggrieved by the order of the Ld. AO, the assessee preferred the appeal before the Ld. CIT(A).The Ld. CIT(A) observed that the Ld. AO rejected the assessee’s books of accounts under Section 145(3) and made an addition of Rs. 1,78,96,190/- under Section 69 read with Section 115BBE, primarily relying on statements from suppliers M/s Manohar Impex and M/s Yuvraj Traders, who denied transactions with the assessee. The AO also alleged that cash deposits during the demonetization period involved old currency notes, citing small cash receipts of Rs. 20,000/- from debtors without addresses/PAN details. 4.1 The Ld. CIT(A) noted that the assessee’s consistent business model of cash sales to small retailers outside Punjab, supported by audited financials, VAT returns, and bank statements. Cash deposits 93.8% of cash receipt aligned with historical patterns, and 94.7% of deposits in the preceding year had been accepted by the department. The Ld. CIT(A) emphasized that the AO failed to verify the currency denomination of deposits or reconcile them with the assessee’s explanation that Rs. 1.7 crore out of Rs. 1.78 crore comprised new currency. 4.2 Ld. CIT observed that, the AO denied the assessee’s request to cross- examine suppliers, violating natural justice. Ld.CIT(A) by relying upon the judgment of Andaman Timbers Industries, held that additions based solely on third-party statements without cross-examination are unsustainable. As a result, the CIT(A) removed the addition, stating that the AO’s decision was based on 4 assumptions and had procedural errors. The penalty under Section 271AAC was also canceled. The appeal was decided in favour of the assessee. 5. Against the order of the Ld. CIT(A) the Revenue came in appeal before us. 6. During the course of hearing the Ld. DR submitted that the Ld. AO was justified in adding Rs. 1,78,96,190 under Section 69 read with Section 115BBE of the Income Tax Act for A.Y. 2017-18, as the assessee, failed to adequately explain the source of substantial cash deposits during the demonetization period. The DR further argued that the AO’s findings were based on credible evidence, including denials from suppliers M/s Manohar Impex and M/s Yuvraj Traders via Section 133(6) notices and Rajeev Goyal’s statement, indicating bogus purchases to inflate stock and justify cash deposits. The Ld. DR pointed out that the assessee’s claim of cash sales to small retailers was not supported by proper evidence. He didn’t provide customer addresses or PAN details. Also, the repeated deposits of Rs. 20,000/- or less even during demonetization made it seem like old currency notes were being accepted, which raised doubts about whether the transactions were genuine. The Ld. DR stated that the AO rightly rejected the books of accounts under Section 145(3) due to these inconsistencies and lack of verifiable details, and that Section 69 was appropriately invoked for unexplained investments, with Section 115BBE applicable to tax such income at a higher rate. Thus the Ld. DR submitted that the addition and penalty should be maintained as the Ld. AO acted legally and based on proper evidence. 7. During the course of hearing, the Ld. AR argued that the assessee had challenged the AO’s addition of Rs. 1,78,96,190/- under Section 69 read with Section 115BBE for A.Y. 2017-18. The assessee contended that the cash deposits including Rs. 1,70,01,195/- in new currency during demonetization came from 5 genuine cash sales in his garment trading business, and the business model followed for 6-7 years and previously accepted by the Department. 7.1 The Ld. AR further submitted that the assessee’s audited books, bank statements, and VAT returns supported his claim, but the AO rejected them without pointing out any specific defects. He argued that Section 69 was wrongly applied to recorded sales income. Additionally, the AO relied on unverified statements from suppliers without allowing cross-examination, which the assessee disputed. 7.2 The Ld. AR also contended that Section 115BBE could not be applied retrospectively. Alternatively, if any addition were to be made, it should be limited to the Gross Profit rate rather than the full amount, for which following judgments relied upon by the assessee: Parnami Pump & Projects Pvt. Ltd. Vs DCIT (ITAT Delhi)- I.T.A. No. 1843/DEL/2018 ACIT vs. M/s Kewal Singh in ITA No. 664/Chd/2016 order dated 08.02.2017 7.3 Finally, Ld. AR requested the deletion of the addition and penalty proceedings, stating they were baseless and based on estimation. 8. We have heard the rival contentions and perused the material available on the record. In the present case, we find that the Ld. AO rejected the assessee’s books of accounts under Section 145(3) and made an addition of Rs. 1,78,96,190/- under Section 69 read with Section 115BBE, primarily relying on third-party statements from suppliers, i.e, M/s Manohar Impex and M/s Yuvraj Traders and allegations of bogus cash sales during the demonetisation period. It is the case of the assessee before the Ld. CIT(A) as well as s before this bench that the assessee wide latter dated 27.12.2019 had asked the Assessing Officer to grant the opportunity of cross-examination of Sh Rajiv and Neeraj Goyal . However Assessing Officer had passed the order on 28.12.2019, thereby making the additions in the hands of assessee. The Ld. CIT(A) has deleted the addition 6 for the reasons given in the impugned order. The perusal of the impugned order shows that the Ld. CIT(A) had recorded the submission of the assessee in para 6 and thereafter had allowed the appeal of the assessee. The order clearly shows that the reasons for arriving at the conclusion of the Ld. CIT(A) are missing. The Ld. AR had explained during the course of argument that the copy of audit report in the form of Form CD, partywise list of purchaser giving the details of address, PAN and amount were given besides that the list of creditors including Manohar Impex and Yuvraj Traders with the respective VAT returns were also provided. In fact during the course of arguments our attention was drawn to the VAT forms submitted by , assessee pertaining to Manohar Impex and Yuvraj Traders. However, a perusal of the impugned appellate order reveals that there is no discussion or reasoning offered in support of the conclusion by the Ld. CIT(A) . The CIT(A) has failed to discuss or examine the following issues:  Whether the said suppliers had filed VAT returns showing the impugned sales;  Whether a bank-wise deposit trail supported the genuineness of cash sales made by the assessee during the demonetization period;  Was the cross-examination of the two key persons (Shri Rajiv and Neeraj Goyal) warranted, and why was it not ensured by exercising the CIT(A)’s coterminous powers? 9. Accordingly, in view of the foregoing observations and in the interest of justice, we deem it fit to set aside the impugned appellate order and remand the matter to the file of the Assessing Officer for denovo adjudication, with the following directions:The AO shall examine the evidences filed by the assessee, including VAT returns of suppliers, sales ledgers, and bank deposit details.If the assessee so requests, an opportunity of cross-examination of Shri Rajiv Goyal and Shri Neeraj Goyal shall be provided in accordance with law.The AO shall frame a fresh assessment after affording a reasonable opportunity of hearing to the 7 assessee. The assessee is directed to extend full cooperation in the proceedings and avoid unnecessary adjournments. 10. It is clarified that nothing contained herein shall be construed as an expression of opinion on the case's merits. The learned Assessing Officer shall decide the matter afresh in accordance with law and uninfluenced by any observations made in this order. 11. In the result, the appeal of the assessee is allowed for statistical purposes Order pronounced in the open Court on 16/04/2025. Sd/- Sd/- क ृणवȶ सहाय लिलत क ुमार (KRINWANT SAHAY) (LALIET KUMAR) लेखासद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟/JUDICIAL MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकरआयुƅ/ CIT 4. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 5. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "