SHRI ABDUL GANI ABDUL MAJID KHAN , MUMBAI V. ITO 26(1)(1) NOW ITO 40(1)(1) , MUMBAI

ITA 3196/MUM/2022

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The case involves Shri Abdul Gani Abdul Majid Khan, a small businessman engaged in the manufacture of 'farsan' and wafers, who appealed against the order of the National Faceless Assessment Centre (NFAC), Delhi, which had added a sum of Rs. 19,50,500 as undisclosed income for the Assessment Year 2017-18. The addition was based on cash deposits made during the demonetization period. The assessee contended that these deposits were from regular business transactions and not undisclosed income. The CIT(A) had dismissed the appeal on the grounds of delay without adequately considering the reasons for the delay, which included the illness of the assessee's wife and the fact that the assessee was illiterate and unaware of the legal implications of holding two PANs. The Tribunal, after examining the facts and circumstances, allowed the appeal, deleting the addition made by the Assessing Officer and reversing the decision of the CIT(A).

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302543 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 06-02-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 18-12-2022
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MINI VINOD
• Assessee Lawyers: GANESH SHELAR
• Section: 142(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘SMC‘ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.3196/Mum/2022 (Assessment Year :2017-18) Shri Abdul Gani Abdul Majid Khan B/114, Naik Nagar Kali Bharni, LBS Road Dharavi, Mumbai-400 022 Vs. ITO 26(1)(1) Now ITO 40(1)(1), Mumbai PAN/GIR No.AGQPK7866A (Appellant) .. (Respondent) Assessee by Shri Ganesh Shelar Revenue by Ms. Mini Vinod Date of Hearing 07/02/2023 Date of Pronouncement 03/05/2023 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against the order dated 11/08/2021, passed by NFAC, Delhi for the quantum of assessment passed u/s.144 for the A.Y.2017-18. 2. In various grounds of appeal, the assessee has challenged the cash deposit in the bank account for sum aggregating to Rs. 19,50,500/- as undisclosed income added u/s.68. ITA No.3196/Mum/2022 Shri Abdul Gani Abdul Majid Khan 2 3. The facts in brief are that the assessee is an individual and is engaged in the business of manufacturing of „farsan‟ and wafers catering to the local small hawkers and retailers and selling the items door to door on daily basis. It was noticed that assessee has made cash deposits during demonetization period and has not filed the return of income for F.Y.2016-17. Accordingly, notice u/s. 142(1) was served directing the assessee to file the return of income for A.Y.2017-18. However, as per the AO the assessee did not receive any notice and accordingly, could not file any return of income. The ld. AO issued notice u/s. 133(6) to the banks and called for the bank statements. The ld. AO noted that assessee was served notice u/s. 142(1) on 12/03/2018 on following e-mail ID available in ITBA. [e-mail] 4. AO further noted that all the notices and notice of hearing were served on that same e-mail ID, however, most of these notices sent on e-mail remain uncomplied with. Accordingly, the AO on verification of the bank statement, added amount of Rs.19,50,500/- deposited in cash in the F.Y.2016-17 in the following manner:- Sr. No. Period Amount 1 Pre Demonetization period 54,000/- 2 Demonetization period 11,69,500/- 3 Post Demonetization Period 7,27,000/- Total 19,50,500/- ITA No.3196/Mum/2022 Shri Abdul Gani Abdul Majid Khan 3 5. Before the ld. CIT (A) following details and information were filed:- “1. It would be relevant to bring the fact before your honor that the appellant is a small farsan and wafer manufacturer catering daily to the local small retailers & hawkers selling their items on door to door basis. He is a lower middle class person with a small proprietary business in the name of Suvikar Wafer and Farsan. The appellant has been filing his IT Return regularly since AY 2007-08 vide PAN number AHQPK4850M. However in between he misplaced his copy of original PAN card and in order to have a hard copy he made an application through an agent and instead of getting new card with existing PAN number he has been allotted a new PAN number AGQPK7866A. This new PAN is not used by appellant anywhere except opening of one bank account with Allahabad Bank. Since the banker had asked to submit copy of PAN card and he did not have any copy of earlier PAN card so he submitted copy of new PAN card. Till that time he was unaware that the PAN numbers are different in the newly allotted PAN card then that of earlier PAN card. 1.Due to his little knowledge of law he could not understand the fact that he has been allotted a new PAN number, Moreover, the banker while accepting the PAN as KYC document also failed to verify it with the copy of Income Tax Returns filed by him with different PAN number. 2. The appellant has been filing his income tax returns under PAN AHQPK4850M since fast 13 years starting from AY 2007- 08. For the year under reference, his total sale for the year from his farsan business was Rs 32.81 Lakhs and not profit after expenses was Rs 2,83,554/in this proprietary firm. He has filed return of income for this income with the income tax department under old original PAN AHQPK4850M. ITA No.3196/Mum/2022 Shri Abdul Gani Abdul Majid Khan 4 3. The appellant has also bought materials and ingredients required for his farsan and wafer business which amounts to Rs. 50.86 lakhs as per the copy of profit and loss account for the year under reference. His nature of business was buying raw material and then making farsan and selling it mostly in cash. He used to deposit this cash received on sale and in turn issued cheques to suppliers from whom the raw material etc is purchased. 4. At the time of scrutiny assessment, the Learned Assessing Officer (A.O.) has raised question on the basis of AIR information from Allahabad Bank - for cash deposit of Rs 19,50,500/- in current account held in the name of his proprietary firm - Suvikar Wafers & Farsan relating to the activities of sale and purchase of farsan and wafers. 5. The appellant did not have knowledge of the notices issued to him since the email ID on which notices were sent belonged to his friend and was not checked by him. As soon as the appellant got to know about the assessment proceedings, a reply was filed on 10. 6.2019 vide letter dated 03.06.2019. In this letter, the appellant has clearly mentioned the fact of holding dual PAN without his knowledge and the nature of his business activity. As regards cash deposit; the appellant explained to the Learned AO that he is a manufacturer of Farsan and Wafers - selling to small retailers and hawkers who in turn use to sell door to door mainly on cash basis daily. In his reply he has given complete accounts of the sales and purchases as well as expenses incurred by him for the business carried on by him. He has given complete accounts-profit and loss account and balance sheet for this business as well and all entries of cash deposited in the bank account are full explained. 5. Regarding assessee having two different PAN, it was stated that, assessee before the ld. AO had filed reply on 10/06/2019, ITA No.3196/Mum/2022 Shri Abdul Gani Abdul Majid Khan 5 wherein he has explained about having two PAN cards in his name and informed that only one card was used, other PAN number was issued erroneously to him, as when earlier one was lost, he has applied for new one but it came with different PAN. Regarding cash deposits during demonetization, it was stated that same was out of payment received from supplier and from the customers and immediately after cash payments, payments have been made to the supplier for the purchase of raw materials in cheque and therefore, there was hardly any balance left in the bank account. The payments have been made through cheques for encashment by the raw material suppliers. 6. Another important fact was that appeal before the ld. CIT (A) was filed belatedly for which assessee had given reasons and also filed an affidavit that assessee‟s wife was suffering from illness and was under medical observation for a long period time during the assessment proceedings as well as after the assessment proceedings. Further, assessee is completely an illiterate person having a very small business and limited resources to handle his affairs, therefore, there was marginal delay. The ld. CIT (A) has not condoned the delay on the ground that affidavit was not notarized. Apart from that he has confirmed the order of the ld. AO in the summarily manner:- “5. I perused the grounds of appeal, Assessment Order, Appellant's submission and material available on record. My observations in respect of the grounds raised by the appellant are as follows: 6. Delay in filing the appeal not condoned. ITA No.3196/Mum/2022 Shri Abdul Gani Abdul Majid Khan 6 6.1 As per the information given in Form No.35, the appellant received the Assessment Order dt 30/6/2019 on 26/11/2019 and filed the appeal on 9/12/2019. 6.2 Appellant filed Affidavit dt 29/11/2019 for condonation of delay. In the Affidavit for condonation of delay the appellant stated that delay was because the Assessment Order dt 30/6/2019 was received on 26/11/2019 and his wife was suffering from illness. However, the Affidavit was not notarized. 6.3 The assessee did not bring any material on record in support of the reasons stated i.e. (1) Assessment Order dt 30/6/2019 was received on 26/11/2019 and (II) his wife was suffering from illness. On verification of records, it is noticed that the Assessment Order dt 30/6/2019 was sent to the appellant through e-mail on 30/6/2019. Hence the appellant is deemed to have received the Assessment Order on 30/6/2019. Hence the appellant should have filed the appeal on or before 30/7/2019. However, the appellant filed the appeal on 9/12/2019 with a delay of 132 days. Assessment Order dt 30/6/2019 was served on the appellant on 30/6/2019 through e-mail as stated above. However, the appellant stated that the delay in filing the appeal was due to the fact that the Assessment Order was received by him on 26/11/2019. Delay in filling the appeal cannot be condoned on reasons which are evidently wrong. Hence the delay in filing the appeal is not condoned and the appeal is dismissed as barred by limitation. 7. In result, the appeal of the assessee is dismissed.” ITA No.3196/Mum/2022 Shri Abdul Gani Abdul Majid Khan 7 7. Before us the assessee appeared in person alongwith his authorised representative. At the time of hearing, the assessee was confronted with regard the fact of having two PAN cards and why he was using two PAN, which he clarified that earlier he had PAN Card No. AHQPK4850M, which he was using for filing of income tax return as well as using in all the bank accounts. However, some 13 years ago, he has misplaced the PAN card and had applied for duplicate PAN card through some agent. Therefore, new PAN card was allotted bearing No. AGQPK7866A. Thus, there were two PAN numbers. It is noticed that second PAN was different because there was a mistake of one alphabet in the name. Later on assessee had requested for surrender of the subsequent PAN No. and also gave a letter to the agent and thereafter, the agent helped him in receiving the original PAN card i.e. AHQPK4850M. He admitted that there was a mistake not intimating to the bank for change in PAN card details, because these matters were looked after by his children and nephew and he was not aware of anything, being completelt illiterate. 8. Regarding the cash deposits, assessee in person submitted before that he runs a small business of „farsan‟ manufacturing the name of “Suvikar Wafer and Farsan” which he is operating from his small house. He sells these farsans to small retailers and hawkers and all the payments are received in cash only which he used to deposit in the bank account. After depositing the cash in the bank, he used to purchase raw materials from ITA No.3196/Mum/2022 Shri Abdul Gani Abdul Majid Khan 8 various suppliers through cheque or bearer cheque. When we enquired from him, whether he maintains any kind of books of accounts or how he records his sales and purchase, he submitted that he maintains day to day „parcha‟ (kind of self made vouchers) for sales and even for the purchases he maintains small „parcha / chit‟ and after the transaction is being done, the same is destroyed and a rough note is made in the register, because the amounts transacted in day to day basis are very small amount and are mostly deposited in bank account to issue cheques. He also stated that in last several years he has not made any investment in any movable or immovable asset and all the earnings from sale of farsan is only to meet the daily requirements of his life and his family. 9. When he was enquired how this much of amount has been deposited during demonetization period, he submitted that all the persons to whom sales were made on credit which is normal practice, after demonetization, he started receiving payments from the retailers and hawkers which were even due from last several months. He told he had been selling farsan in loose and entire purchases made by these small hawkers are made on daily basis and as when cash is received, it had always been regularly deposited in the bank account and it is not that in this period only huge amount has been deposited except for the reason that suddenly post demonetization, the persons who were not paying earlier had paid the cash. He also informed that he has some 100 hawkers / vendors to whom he made sales in cash on regular basis. However, when it comes to purchase of raw ITA No.3196/Mum/2022 Shri Abdul Gani Abdul Majid Khan 9 materials he has made payment through cheque out of cash deposited in the bank accounts. 10. We noticed that, the bank statement reflected cash deposits right from 1 st April 2016 to 31 st March 2017, which apparently shows that the major cash have come after 12/11/2016 till March 2017. However, nowhere, the ld. AO or the ld. CIT (A) or the bank has given any certificate or any details as to out of these cash deposits how much were on account of Specified Bank Notes, i.e., notes which were banned. Thus, it is very difficult to say that only Specified Bank Notes have been deposited and not the regular notes. Apart from that, in every year assessee has been showing sales of farsans and wafers manufactured by him in cash to the tune of Rs.16-18 lakhs and in support, profit and loss account for the F.Y.2019-20 and 2018-19 has also been filed. In A.Y. 2017-18 the sales have been disclosed of Rs.32,81,707/- in the return of income for A.Y.2017- 18 filed on 04/02/2018 and the statement and observation of the AO is completely incorrect as return of income has been filed online, the copy of which has been placed in the paper book. 11. Thus, in these facts and circumstances, and after we ourselves have examined the assessee and also perused the relevant documents placed before us, we find that, he is completely illiterate and doing small time business and it is a genuine case where assessee has been regularly depositing cash out of his small business which pattern was there in earlier years also and therefore, cash deposit cannot be held to be undisclosed ITA No.3196/Mum/2022 Shri Abdul Gani Abdul Majid Khan 10 income when assessee has shown sales of more than Rs.32 lakhs in his return of income for the same assessment year. 12. In so far as issuance of double PAN, now that assessee has already surrendered the duplicate PAN and therefore, no adverse inference is being drawn. 13. Accordingly, in the peculiar facts of the case and circumstances the addition made by the ld. AO on account of cash deposits is deleted. 14. In so far as the order of the ld. CIT (A) dismissing the appeal on the ground of limitation, we find that there is only marginal delay as email sent was not his email account as he didn‟t had any at that time and CA or professional who had given his mail did not inform him and when assessee received the order later, there is very marginal delay and for that assessee had filed all the relevant documents and the circumstances of illness of his wife and that she was hospitalized during that period and he cannot file the appeal in time. Instead of examining the facts and circumstances, the ld. CIT(A) has dismissed the appeal simply on the ground that affidavit has not been notarized. Thus, such dismissal of ld. CIT (A) is reversed and appeal of the assessee is allowed on merits. 12. In the result, appeal of the assessee is allowed. Order pronounced on 3 rd May, 2023. Sd/- (S. RIFAUR RAHMAN) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 03/05/2023 KARUNA, sr.ps ITA No.3196/Mum/2022 Shri Abdul Gani Abdul Majid Khan 11 Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy//