ITO WARD-24(1), NEW DELHI V. SOUTH ASIAN HOSPITALITY SERVICES PVT LTD., NEW DELHI

ITA 337/DEL/2023

AI Insights

The case involves cross appeals by South Asian Hospitality Services Pvt. Ltd. and the ACIT, Central Circle 29, against the order of the Commissioner of Income-tax Appeals-30, New Delhi, for the Assessment Year 2017-18. The primary issues revolved around the rejection of the assessee's books of account and the subsequent estimation of income, as well as the addition made under section 68 for cash deposits during the demonetization period. The Tribunal found that the books of account maintained by the assessee were sufficient and correctly audited, and that the additions made by the Assessing Officer were not justified.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314369 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2017-2018
• Other Referred Cases: Kulwant Rai vs. CIT, Jaya Aggarwal vs. ITA, Janani Infrastructure Pvt. Ltd. vs. ACIT, Smt. Sunita Dhadda vs. CIT, ACIT vs. DKB Infrastructure Pvt. Ltd., Baldev Raj Charla vs. ACIT, Anupama Chaudhary vs. ITO, Smt. Neeta Breja vs. ITO, Kanpur Steel Co. Ltd. vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAHIL KUMAR BANSAL
• Assessee Lawyers: V. K. AGARWAL
• Keywords: Business income; Rejection of books of accounts; Income from undisclosed sources; Principle of natural justice; TDS; Capital asset converted into stock in trade
• Section: 143(3); 142(1); 68; 131; 44AD; 145; 133A; 40(a)(ia)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’: NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.337/DEL/2023 (Assessment Year: 2017-18) ACIT, Central Circle 29, vs. South Asian Hospitality Services Pvt. Ltd., New Delhi. 40/43, 2nd floor, C.R. Park, New Delhi – 110 019. (PAN : AAGCS7752N) ITA No.341/DEL/2023 (Assessment Year: 2017-18) South Asian Hospitality Services Pvt. Ltd., vs. ACIT, Central Circle 29, 40/43, 2nd floor, C.R. Park, New Delhi. New Delhi – 110 019. (PAN : AAGCS7752N) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri V.K. Agarwal, CA REVENUE BY : Shri Sahil Kumar Bansal, Sr. DR Date of Hearing : 19.02.2025 Date of Order : 07.05.2025 O R D E R PER S.RIFAUR RAHMAN,ACCOUNTANT MEMBER : 1. These are cross appeals filed by the assessee and Revenue against the order of ld. Commissioner of Income-tax Appeals-30, New Delhi (hereinafter referred to ‘Ld. CIT (A)’) dated 21.12.2022 for Assessment Year 2017-18. 2 ITA No.337 & 341/DEL/2023 2. Brief facts of the case are, the assessee filed its return of income for the assessment year 2017-18 on 30.10.2017 declaring loss of Rs.290,19,970. The case was selected for scrutiny through CASS and notices u/s 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee through ITBA system along with the questionnaire. The assessee filed its response from time to time through the Authorised Representatives. The case was selected for scrutiny after survey proceedings initiated u/s 133A of the Act for the following reasons :- (a) The assessee has reported lesser amount of disallowable u/s 40(a)(ia) of the Act in the return of income based on the audit report in Form 3CD. (b) Undisclosed income has been reported on the ITBA AIMS portal after the online verification of the cash deposits during the demonetisation period. (c) Higher turnover reported in the service tax return compared to the ITR. 3. During the assessment proceedings, the AO observed that the assessee regularly disclosed the loss returns during the AYs 2013-14, 2014-15 and 2016-17 respectively. Further he observed that the auditor has reported the collection of TDS and non-deposits of the same in the Central Government Account. He further observed that the assessee has declared 3 ITA No.337 & 341/DEL/2023 turnover and claimed huge expenses, the auditor has also found various discrepancies in the books as the assessee does not maintain regular books, the same was also found during the survey report. By relying on the above reports, he proceeded to reject the books of account u/s 145(3) of the Act. In order to determine the taxable income, he proceeded to estimate the income by adopting the rate mentioned u/s 44AD of the Act, even though the turnover reported by the assessee is at Rs.6,04,54,198/-. 4. Further, the AO observed that a total cash of Rs.1,28,30,720/- was deposited during demonetization period and on enquiries, it was submitted that the assessee has received funds from the sale of shares of Hanung Toys and Textiles Ltd, the same was credited in the Indian Bank, Hauz Khas to the extent of Rs.1,94,21,371/-. During the period, the assessee has withdrawn Rs.121.90 lakhs and held opening cash balance of Rs.19.74 lakhs. It has cash accrual of Rs. 1.71 lakhs, the same was utilised to make the deposits during the demonetization period. It was submitted that the cash was withdrawn for purchase of agricultural land. Hence, due to non materialisation of the same, the cash was redeposited. After considering the same, he found not acceptable, proceeded to make the addition u/s 68 of the Act. 5. Aggrieved with the above order, the assessee preferred an appeal before ld. CIT(A)-30, New Delhi. After considering the detailed submissions, ld. 4 ITA No.337 & 341/DEL/2023 CIT(A) has sustained the addition on estimation of income @8% and deleted the addition made u/s 68 of the Act by observing as under: “10. Ground no.4: In this ground the appellant has challenged the addition to Rs.48,36,336/- made by the Assessing Officer on estimation basis after rejecting the books of account of the assessee on the basis of following observations: i. The assessee does not maintain regular books. ii. The surveying officer has also pointed that the assessee does not keep regular books. iii. The auditor has pointed out the discrepancy in audit report. The Assessing Officer in the assessment order has noted that Survey u/s 133A of the Income-tax Act was conducted at the corporate office of the appellant on 15.03.2017. During the Survey operation the statement of the Director of the company was recorded on oath in which he had admitted that the company does not maintain regular books of account and that the data received through daily sales report (DSR) from various restaurants owned by the appellant are used at the end of the year for preparing books of account of the relevant year. The books are prepared on the basis of details of monthly sales and expenditure as per the DSRs maintained in the computer. The AO further observed that the assessee company had made sales on account of delivery orders, bulk orders, corporate sales and catering etc. which were not reflecting in the DSRs of restaurants and no separate account was maintained for such activities carried-out by the appellant. Director of the company in his statement under oath had admitted that the details of such sales are not maintained and no records of bills and vouchers in respect of these sales were available. The mode of receipt of such sales is mostly in cash. The Assessing Officer has also observed that the auditor of the assessee company has remarked adversely regarding the maintenance of regular books of account. The Assessing Officer has accordingly rejected the books of account of the appellant and estimated profit at the rate of 8 per cent of the total turn-over reported by the appellant in its books. …………. 10.3 In view of the above facts, I find that the books of account of the appellant are neither correct nor complete. Therefore; the decision of the AO to reject the books of account is correct. As the findings of the Ld. AO is mainly based on the statements of the Director and the remarks of Auditor in the audit report, and not on the findings in Survey Report, I do not find any defect in the order for AO not confronting the Survey Report. The appellant had also in response to question no.22 stated that the sales relating to delivery 5 ITA No.337 & 341/DEL/2023 orders, bulk ordering, corporate sales and catering etc. is 15 to 20 per cent of the turn over recorded on DSRs. 10.4 In view of these facts the profit shown by the appellant cannot be relied upon and also the ratios declared by the appellant cannot be accepted. The Assessing Officer estimated the profit at the rate of 8 per cent of the total turn-over by taking cue from the provisions of section 44AD. I find that the reference of section 44AD, made by the AO is basically for the purposes of taking support for the estimation of profit by the appellant. I find that the estimation of net profit at the rate of 8 per cent made by the AO is very reasonable in the case of the appellant considering his nature of business (which not only includes running of restaurants but also catering, corporate sales and bulk supplies) and considering the admission of appellant that the sales relating to delivery orders, bulk orders, corporate sales etc are not maintained/ recorded properly. Accordingly, the addition made by the AO amounting to Rs.48,36,336/- is considered justified and is hence sustained. 6. With regard to addition u/s 68, ld. CIT (A) held as under :- “11.4 It is noted that the appellant had opening cash in hand amounting to Rs.17,04,627/- which has increased to Rs.l,22,76,559/- at the end of October, 2016 due to cash withdrawals from the bank. Apart from the regular cash withdrawals and deposits shown by the appellant there was substantial cash withdrawal in the month of June and July 2016. The opening cash in hand, cash withdrawal and cash deposits in the bank are verifiable facts and figures which cannot be subject of manipulation. The opening balance is verifiable from the closing balance of last year's financial statements and cash withdrawal and deposits from the bank statement. There is no adverse finding from the AO as far as the opening cash balance, cash withdrawals and cash deposits are concerned. There is also no evidence on record that the cash withdrawn in the month of June and July was spent by the appellant and was not available for deposit during the demonetization period. The appellant has submitted that the money was withdrawn for the purposes of purchase of agricultural land and that the deal could not be materialized which has resulted into cash in hand of Rs.1,34,82,685/- as worked out by the appellant. I find that the gap of few months (around 3-4 months in this case) between the cash withdrawn and cash deposited cannot be the sole reason for the rejection of appellant's explanation. The decisions of the jurisdictional High Court in the cases of Kulwant Rai (supra) and Jaya Aggarwal (ITA 315/2005/ 13th March, 2018) are also in support of these findings. In the case of Kulwant Rai, the assessee had cited withdrawal of a sum of Rs. 2 lakhs from his bank account as the source for cash found during search and the same was not accepted by the AO on the assumption that such withdrawn amount may have been spent for some other purposes. The court held that in the absence of any material in support of the view that withdrawals were spent for some other purpose, the Tribunal was right in treating the withdrawals as source of cash found. Similar is the case of the assessee where cash withdrawals from bank accounts are the 6 ITA No.337 & 341/DEL/2023 source of subsequent cash deposits into the bank accounts which cannot be rejected in the absence of any material in support of the view that withdrawals were spent for some other purposes. Further, in the case of Jaya Agarwal, the jurisdictional Court held that where the assessee withdrew cash of Rs. 2 lakhs from bank account to buy property and re-deposited cash of Rs.1,60,000/ - from the amount withdrawn after more than 7 months as the deal could not be finalized, principle of preponderance of probability as a test is to be applied and is sufficient to discharge the onus. The case of the assessee is also similar since cash withdrawals from bank are shown as source for subsequent cash re- deposit even if made at a gap of a few months. 11.5 In view of the above facts and judicial position, I find that the appellant had sufficient cash in hand to explain cash deposit of specified bank notes amounting to Rs.1,14,20,620/ - in the bank account during demonetization period. The cash in hand in the appellant's case was built from the \"opening cash in hand\" and \"cash withdrawals from the bank\" which were verifiable and are not in dispute. Accordingly, the addition made by the AO u/ s 68 amounting to Rs.1,28,30,720/ - cannot be legally sustained and is hence deleted. These grounds of appeal are allowed.” 7. Aggrieved with the above order, both the assessee as well as the Revenue are in appeal before us raising following grounds of appeal: “Assessee’s Appeal (ITA No.341/Del/2023) 1. The Ld. CIT(A) grossly erred on facts and law in holding that books of account of the appellant are neither correct nor complete. 2. The Ld. CIT(A) grossly erred on facts as well as in law in confirming the rejection of books of account of the appellant. 3. The Ld. CIT(A) grossly erred on facts as well as in law in confirming the addition of Rs.48,36,336/- u/s 44AD of the Income Tax Act, 1961 being 8% of turnover of Rs.6,04,54,198/ -. 4. The Ld. CIT(A) grossly erred on facts as well as in law in confirming the income of the appellant at Rs.48,36,336/ - against the returned loss of Rs.2,90,19,970/-.” “Revenue’s Appeal (ITA No.337/Del/2023) 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.1,28,30,720/- made u/s 68 of the IT, Act, without appreciating the finding of the AO as assessee failed to produce the supporting documents in support of its claim for cash deposits during demonetization period during assessment proceedings.” 7 ITA No.337 & 341/DEL/2023 8. At the time of hearing Ld AR submitted as under: 1. The appellant filed the Return of Income on 30.10.2017 u/s 139(1) declaring the loss of Rs. 2,90,19,970/-. The Ld. A.O competed the assessment vide order Section 143(3) dated 26.12.2019 by making the following disallowances/additions: i) Declared loss of Rs. 2,90,19,970/- was disallowed u/s 145 of the IT Act,1961. ii) Addition of Rs. 48,36,336/- u/s 44AD by rejecting the books of accounts. iii) Addition of Rs. 1,28,30,720/- on account of cash deposited in the bank. 2. Survey u/s 133A of the Act was done on the premises of the appellant on 15.03.2017. During the year, the appellant was running restaurants on a franchise basis and was also engaged in providing consultancy in hospitality services. The appellant was maintaining regular books of accounts which were duly audited. Ground No 1, 2 & 4: Rejection of Books of Accounts and Disallowance of declared loss: 3. The appellant is a private limited company and maintains regular books of accounts which are duly audited. The corporate office of the appellant company receives daily sales reports (DSR) from the restaurants and these DSRs are maintained in the computers by the accountant. DSRs contain details of sales and expenses of respective restaurants. The data received through DSRs is used at the end of the year for preparing books of accounts of the relevant year. In fact DSRs are a part of regular books of accounts because they are depicting the revenue as well as the expenditure. The Ld. A.O rejected these books of accounts u/s 145(3) holding that these are not regular books of accounts and is just a colorable device. [ Para 4.2 of the Asst. Order]. 4. The Ld. AO referred the statement of Sh. Pravin Juneja, director of the assessee company, recorded u/s 131(1A) during the course of survey proceedings u/s 133A in the case of assessee on 15/03/2017. Just on the basis of reply to Q.10 in the statement, the Ld. AO concluded that the assessee did not maintain regular books of account. However, he ignored 8 ITA No.337 & 341/DEL/2023 Q.11 (page-35) wherein Mr. Juneja said that although the company is not maintaining books of account in desired format for A.Y. 2016-17, the company’s internal reporting system is designed in such a way that the same provides the required details of sale, expenses, stocks etc. He further stated that the books are made as per the required format immediately after 31st March. 5. The system of maintaining books as explained by Mr. Juneja is a normal business practice in this trade. Books of accounts are prepared in proper format only after 31st March, i.e., after ending of the financial year and get finalized after audit thereof. In the meantime, all the records are maintained in computerized system only. Therefore, the inference drawn by the Ld. AO that the assessee did not maintain books of account is completely incorrect. Relevant questions and answers from the statement are reproduced hereunder: Q 11. As per reply to Q. No. 8 & 10 above it is observed that you have maintained no books of accounts from 01.04.2016 to 15.03.2017 in any form whatsoever what do you have to say regarding this? Ans: Although we are not maintaining books of account in desired format for AY 2016-17. However, our internal reporting system is designed in such a way that the same provide the required details of sell, expenses, stocks etc as per their requirement. The books will be made as per the required format immediately after 31st March with the all informations and bank statements. Q.17 With regard to M/s South Asian Hospitality Services Pvt. Ltd. please state whether all the sales from your various restaurants outlets are recorded in the daily sales report (DSR)? Ans. As per our present format the sales done in the restaurant premises are reflected in the DSR. Sales of delivery, Bulk Ordering, Corporate Sales, Catering etc. are not reflected there. However, the same into account while making the final P & L A/c and Balance Sheet. Q.18 Please state if you are maintaining any separate account for the sales other than those reflected in the DSR as stated by you in response to Q.17 above? 9 ITA No.337 & 341/DEL/2023 Ans. We are not maintaining any separate account for the same however we are aware about the sales figures not reflected in DSR offhand as routine. Q 21 Regarding sales of delivery, bulk ordering, corporate sales, catering you have stated no response to Q.18, above that you don’t maintain any separate account and are only aware of such sales in an offhand manner. In view of the same how can the figures of turnover reported in your service tax and income tax return be considered genuine? Ans. These figures are in the respective restaurants, and we have internal system to check the same as we check our total consumption against the sales. These figures are currently available with us and are fully shown in the service tax return (if required) as and when filed and total sales in annual P & L A/c is fully reflected. 6. The Ld. AO rejected the books of account on the basis of survey report. [Para 4.1,4.2 &4.3 of the Asst. Order]. However, a copy of such survey report was not provided to the assessee company. By now it is judicially settled that a document cannot be used against the assessee without providing an opportunity to rebut the same. Reliance is placed on the following case laws:  Kishmichand Chella Ram vs. CIT, 125 ITR 713 (SC) “It will, therefore, be seen that, even if we assume that this letter was in fact addressed by the manager of the Punjab National Bank Ltd. to the ITO, no reliance could be placed upon it, since it was not shown to the assessee until at the stage of the preparation of the supplemental statement of the case and no opportunity to cross – examine the manager of the bank could in the circumstances be sought or availed of by the assessee. It is true that the proceeding under the income-tax law is not governed by the strict rules of evidence and, therefore, it might be taken into account as evidence. But before the IT authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statement contained in it by asking for an opportunity to cross – examine the manager of the bank with reference to the statements made by him.”  ACIT vs. DKB Infrastructure Pvt. Ltd., 2016-TIOL-565-ITAT- DEL 10 ITA No.337 & 341/DEL/2023 “++…………….If the AO was heavily relying on the Investigation Wing Report then he was duty bound to have provided a copy of the same to the assessee so that he can rebut or bring evidences to prove his case.”  M/s. Janani Infrastructure Private Limited vs. ACIT (ITAT Bangalore); 698/Bang/2018 “….60 We have held that the sole basis of reopening of the assessment is the information received from the CBI. It is an undisputed fact that AO did not supply those materials to the assessee and also did not confront them with the assessee. Hence, we are of the view that there is clear violation of Principles of Natural Justice. It is well settled proposition of law that the assessing officer is not entitled to rely upon the materials, which were not confronted with the assessee. The decision rendered by Jaipur bench of Tribunal in the case of Smt. Sunita Dhadda (supra) supports the case of the assessee on the above said ground. We have already noticed that the above said decision of the Tribunal has since been upheld by the Hon’ble Supreme Court in the very same case. Hence, on this ground alone, the additions made by the assessing officer in the hands of both the assessees in the years under consideration are liable to be deleted…….” 7. Therefore, the first and second observation of the Ld. AO as well as survey officer that the assessee does not maintain regular books is completely incorrect. 8. The Ld. AO mentioned that the auditor has mentioned following discrepancies in the books. The pointwise reply of each observation is as under (para 5.5 on p of the assessment order): i) VAT and service Tax not reconciled – VAT is applicable on goods and service tax is applicable on services. Therefore, Service tax return and VAT return is not reconciled. ii) TDS returns not filed – Since, the PAN of the assessee company is not working. Therefore, it is not possible to verify the same. Otherwise also, filing or non-filing of TDS return does not prove the correctness of books. iii) Records not available – There is no such observation in audit report. The books are duly audited and financials of the assessee company are duly signed by the auditor. Moreover, it is not possible to conduct audit of the financials of the company without proper records. 11 ITA No.337 & 341/DEL/2023 iv) conduct audit of the financials of the company without proper records. 9. In addition to the above, the auditor, in audit report, has categorically stated as under:(Page-11 of the PB). (i) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary or the purpose of our audit. (ii) In our opinion, proper books of account as required by law have been kept by the company so far as it appears from our examination of those books. (iii)The Balance Sheet, the statement of profit & loss and the cash flow statement dealt with by this report are in agreement with the books of accounts. 10. In view of the above, it is very clear that the assessee maintained proper books of account for the year under consideration which are duly audited by the auditor. The Ld. AO rejected the books just on the basis of wrong interpretation of statement recorded u/s 131 and without examining the books. The Ld. AO did not point out any defect in the books of account produced before him during the course of assessment. He has not pointed out any incorrectness in the figures depicted in the profit & loss account. Profit & loss account has been rejected on surmises and conjectures. 11. Section 145(3) lays down three conditions for rejecting the books of accounts as under: 1) “Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or 2) where the method of accounting provided in sub-section(1)has not been regularly followed by the assessee, or 3) income has not been computed in accordance with the standards notified under sub-section (2). 12. The Ld. A.O has nowhere held: i) That he is not satisfied about the correctness or completeness of the accounts of the appellant, ii) That the method of accounting as laid down in Section 145(1) has not been regularly followed by the appellant. 12 ITA No.337 & 341/DEL/2023 iii) That the income has not been computed in accordance with the standards laid down in Section 145(2). 13. Since Ld. A.O has not found any violation of the three conditions mentioned in Section 145(3), the books of accounts could not be rejected. Hence, the disallowance of loss of Rs. 2,90,19,970/-declared by the appellant is ex-facie illegal and arbitrary. Disallowance is based purely on surmises and conjectures. Therefore, it is very humbly requested that the loss of Rs. 2,90,19,970/- may kindly be allowed. Ground No.3: Addition u/s 44AD of the Act: 14. After rejecting the books of accounts, the Ld. A.O applied Sec 44AB and estimated the income at Rs. 48,36,336/- @ 8% on the total turnover of Rs. 6,04,54,198/-. Once the accounts have wrongly been rejected, income cannot be determined on estimate basis. Moreover accounts are duly audited. Further, Section 44AD is applicable only if the turnover is upto Rs. 2 crores. Since, in case of the appellant the turnover is Rs. 6.04 crores, section 44AD cannot be applied. Therefore, whole basis of addition is ex-facie illegal, arbitrary and without jurisdiction. The same may kindly be deleted. Departmental Appeal: Addition of Rs. 1,28,30,720/- on account of cash deposit in bank account during demonetization: 15. The Ld. AO has made an addition of Rs. 1,28,30,720/- on account of cash deposit in bank account during demonetization. However, the actual cash deposit during demonetization period was just Rs. 1,14,20,620/-. Infact, it is mentioned by the Ld. AO himself in para 4.1 of the assessment order that cash deposit during demonetization is Rs. 1,14,20,620/-. Further, the same is also evident from the audited financials (Pg: 13 to 29) as well as bank statements of the assessee company. This shows that the Ld. AO has made the addition without considering the facts in proper perspective. 16. The source of such cash deposit was out of the cash withdrawals from the bank. A chart showing month wise details of cash deposit and withdrawals filed before lower authorities is as under :- 13 ITA No.337 & 341/DEL/2023 Month Opening Cash in Hand Cash withdrawal from bank Cash deposit in bank Closing balance April 17,04,627 4,31,636 7,58,900 13,77,363 May 13,77,363 2,29,900 3,97,000 12,10,263 June 12,10,263 29,16,823 5,02,330 36,24,756 July 36,24,756 89,24,548 3,53,808 1,21,95,496 August 1,21,95,496 4,92,199 4,71,513 1,22,16,182 September 1,22,16,182 4,17,314 6,41,219 1,19,92,277 October 1,19,92,277 5,20,382 2,36,000 1,22,76,659 November Till 07/11/2016 1,22,76,659 64,679 70,000 1,22,71,338 Add: cash available on various outlet out of cash sales 12,11,347 Total Cash in hand as on 08/11/2016 1,34,82,685 Cash deposit in bank during demonetization 1,14,20,620 17. The same figure of Rs. 1,34,82,685/- is also mentioned by the auditor in the audited balance sheet (Pg no. 17). Opening cash in hand is appearing in audited balance sheet (Pg no. 17). Cash withdrawals and deposits are duly appearing in the bank statement. 18. From the above chart it is clear that during demonetization, cash was deposited in bank account is out of opening cash and withdrawal form bank which is evident from the cash book itself. Hence, it is clear that the source of cash deposit during demonetization is withdrawals from bank and opening cash in hand. 19. As regards cash withdrawals it is submitted that such cash was withdrawn for purchase of agriculture land in village Dautana Garhi. However, the deal could not be materialized. Thereafter, the appellant company kept the cash with it and started searching for another land. However, in the meantime, demonetization happened, and the assessee had to deposit the cash in bank. 14 ITA No.337 & 341/DEL/2023 20. The Ld. AO made the addition just on the basis of two grounds: i) There is a gap of few months between the withdrawal and deposit in bank accounts (July to Nov) ii) No supporting document has been provided to prove that some property transaction was entered into between the assessee and other party. 21. From perusal of the observations of the Ld. AO, it is clear that it is an admitted fact that the cash was deposited out of the cash withdrawal from bank. The question is just time gap between deposit and withdrawal. The reason for the same as filed before the lower authorities has been explained above that such cash was withdrawn for purchase of agriculture land. Infact, every agriculturist insists for the payment in cash only. Moreover, when the cash is put on the table, one gets a good bargain. However, the deal could not be materialized. Thereafter, the appellant company kept the cash with it and started searching for another land. However, in the meantime, demonetization happened and the assessee has to deposit the amount in bank. Therefore, there is a genuine reason for time gap in re-deposit of cash. 22. Further, by now it is judicially settled that the addition cannot be made or sustained on the basis that there was time gap between withdrawal and deposits. Reliance is placed on the following case laws:  CIT vs. Kulwant rai in 291 ITR 36 (Delhi High Court) “16. This cash flow statement furnished by the assessee was rejected by the AO which is on the basis of suspicion that the assessee must have spent the amount for some other purposes. The orders of AO as well as CIT(A) are completely silent as to for what purpose the earlier withdrawals would have been spent. As per the cash book maintained by the assessee, a sum of Rs. 10,000 was being spent for household expenses every month and the assessee has withdrawn from bank a sum of Rs. 2 lacs on 4th Dec., 2000 and there was no material with the Department that this money was not available with the assessee. It has been held by the Tribunal that in the instant case the withdrawals shown by the assessee are far in excess of the cash found during the course of search proceedings. No material has been relied upon by the AO or CIT(A) to support their view that the entire cash withdrawals must have been spent by the assessee and accordingly, the Tribunal rightly held that the 15 ITA No.337 & 341/DEL/2023 assessment of Rs. 2.5 lacs is legally not sustainable under s. 158BC of the Act and the same was rightly ordered to be deleted…”  ACIT vs. Baldev Raj Charla, (2009) 121 TTJ (Del) 366 27. We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below. We find that this explanation of the assessee was found correct that against these five deposits on dt. 14th June, 1996, Rs. 31,000; 21st July, 1997, Rs. 1,27,000; 18th Sept., 1997, Rs. 22,000; 4th Oct., 1997, Rs. 26,000 and on 7th Nov., 1997, Rs. 52,000 there were sufficient cash withdrawals from AWI and from SBI, Mayapuri, but this addition has been confirmed by learned CIT(A) on the basis that there is time gap between the assessee’s withdrawals from his own partnership M/s AWI or from his own bank. There is finding recorded by the learned AO or by learned CIT(A) that apart from depositing these cash into bank as explained by the assessee, there was any other user by the assessee of these amounts and in the absence of that, simply because there was a time gap, the explanation of the assessee cannot be rejected and hence the addition confirmed by the learned CIT(A) is not correct. We, therefore, delete the same. This ground of the assessee is allowed.”  Anupama Chaudhary Vs ITO; ITA No. 4155(Del)/2009; dt. 27/12/2010 “6.2 We have considered the facts of the case and submissions made before us…………. Other deposits stand explained by earlier withdrawals. Therefore, nothing further can be added to the total income in respect of such deposits. In this connection, we may refer to the decision of “C” Bench of Delhi Tribunal in the case of ACIT Vs. Baldev Raj Charla & others (2009) 121 TTJ 366. In paragraph no. 27, it is mentioned that there was no finding that the money withdrawn was used for any other purpose than re-deposit in the bank account. The existence of time gap cannot be a ground to reject the explanation of the assessee. ………………”  Smt. Neeta Breja vs. ITO; ITA no. 524/Del/ 2017 dt. 25-11-2019 “….11. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case it is not disputed that the amount of cash was explained as available with the assessee in the hands to deposit in the bank. Assessee has substantiated the availability of the cash by producing the cash flow statement, day-to-day cash book, Ledger account of the Bank with narration and the complete bank statement. Same were disbelieved by the learned assessing officer for the only reason that there is an inordinate delay in deposit of the cash in the bank account. 16 ITA No.337 & 341/DEL/2023 12. In the present case also the learned assessing officer or the learned CIT A did not show that above cash was not available in the hands of the assessee or have been spent on any other purposes. Further the coordinate bench in ACIT vs Baldev Raj Charla 121 TTJ 366 (Delhi) also held that merely because there was a time gap between withdrawal of cash and cash deposits explanation of the assessee could not be rejected and addition on account of cash deposit could not be made particularly when there was no finding recorded by the assessing officer or the Commissioner that apart from depositing this cash into bank as explained by the assessee, there was any other purposes it is used by the assessee of these amounts. In view of above facts, the ground number 1 of the appeal of the assessee is allowed and orders of lower authorities are reversed…” “13. In the result appeal of the assessee is allowed.” 23. As regards transaction for purchase of agriculture land, the Ld. AO stated that no supporting documents have been provided to prove that some property transaction was entered into between the assessee and the other party. No agreement to sale or any other legal document evidencing that some property deal was entered into between the assessee and the other party. There was no transaction entered into by the assessee company and the owner of the land as the transaction could not be materialized. Therefore, the question of preparing any agreement to sell or any legal document does not arise. 24. Further, the assessee has duly submitted the correspondences with the land owner Mr. Mansingh Saini before the Ld. AO during the course of assessment proceedings which was ignored by the Ld. AO. From perusal of the correspondences it is clear that vide letter dt. 03/06/2016, the assessee has shown its interest in purchase of agriculture land situated in village Dautana Garhi, Tehsil Chhata, District Mathura, UP. The owner replied the letter of the assessee vide letter dt. 18/06/2016 wherein he has accepted the interest of the assessee and asked for the immediate payment. Accordingly, the assessee withdrew the cash from bank. However, on 11/07/2016, the assessee requested the owner to provide the copy of the documents so that the same could be vetted by the lawyer. However, without giving any reason, he refused to give the same. Accordingly, the deal could not be materialized. 25. Therefore, the basis of addition made by the Ld. AO that there is no agreement to sell and legal document regarding purchase of land is against the material on record which proves that the Ld. AO made the addition without considering the facts in proper perspective. 17 ITA No.337 & 341/DEL/2023 26. In addition to the above, from perusal of the assessment order it is clear that the Ld. AO did not have any cogent material which shows that the cash deposit during demonetization is out of the undisclosed sources. It is also judicially settled that when assessee-company had given an explanation which was reasonable, revenue authorities could treat amount in question as income from undisclosed sources only if there was some other material from which such inference could have been drawn. Reliance is placed on the following case laws:  Kanpur Steel Co. Ltd. Vs CIT; [1957] 32 ITR 56 (ALL. HC) “…Section 69Aof the Income-tax Act, 1961 [Corresponding to section 23 of the Indian Income-tax Act, 1922] – Unexplained money etc. – Assessment year 1948-49 – In pursuance of High Denomination Bank Notes (Denomination) Ordinance, 1946, assessee-company exchanged 32 high denomination notes – Regarding source of these high denomination notes, assessee claimed that these notes represented part of its cash balance – ITO, however, rejected claim of assessee and held that amount represented by those currency notes was suppressed income of assessee – Tribunal, though did not find assessee’s explanation to be false, yet it deleted only a part of amount added back by ITO as income from undisclosed sources – Whether when assessee-company had given an explanation which was reasonable, revenue authorities could treat amount in question as income from undisclosed sources only if there was some other material from which such inference could have been drawn – Held, yes – Whether, since, no other material had been mentioned by Tribunal in their judgment, it could be concluded that amount being value of high denomination currency notes exchanged in pursuance of 1946 ordinance, did not represent income of assessee-company from undisclosed sources – Held, yes.”  DCIT Vs Smt. Veena Awasthi; ITA No.215/LKW/2016; dt. 30/11/2018 “8. We have perused the case record and heard the rival contentions. We find that addition has been made by the Assessing Officer, as is evident from his order, on the ground that he has come to the conclusion that cash deposits were from some other source of income which is not disclosed to the Revenue. Assessing Officer nowhere in his order has brought out any material on record to show that assessee is having any additional source of income other than that disclosed in the return nor Assessing Officer could spell out in his order that cash deposits made by the assessee was from some undisclosed source. All throughout Assessing Officer has raised suspicion on the behavioral pattern of frequent withdrawal and deposits by the assessee. There is no law in the country which prevents citizens to frequently withdraw and deposit his own money. Documentary evidences furnished before the Revenue clearly clarifies that on each occasion at the time of deposit in her bank account, assessee had sufficient availability of cash which is also not disputed by the Revenue. ………. We have also examined the order of ld. CIT(A) and we find that his decision is based on facts on record and is 18 ITA No.337 & 341/DEL/2023 supported by adequate reasoning and, therefore, we do not want to interfere with the order of ld. CIT(A) and accordingly we uphold the findings of the ld. CIT(A) sustaining relief granted to the assessee. 9. In the result, appeal of the Revenue is dismissed.” 27. Hence, the Ld. CIT(A) is fully justified in deleting the addition of Rs. 1,28,30,770/-made by the Ld. A.O. General: The appellant craves leave to add to alter, amend or vary the aforesaid grounds of appeal before or at the time of hearing. The above ground is general. Prayer: 28. In view of the facts and law as discussed above, the following prayer is made. 1) Disallowance of Rs. 2,90,19,970/- may kindly be deleted. 2) Addition of Rs. 48,36,336/- u/s 44AD of the Act may kindly be deleted. 3) Declared loss of Rs. 29019970/- may kindly be accepted as against taxed amount of Rs. 48,36,336/-. 4) Since the Ld. A.O has rightly deleted the addition of Rs. 1,28,30,770/-, Departmental Appeal may kindly be dismissed.” 9. On the other hand, Ld DR of the Revenue supported the findings of ld. CIT(A) on the issue of estimation of income and he brought to our notice the findings at Page 16 of the appellate order and submitted that the books of account was not maintained by the assessee, also the auditor also confirmed the same in his report. The assessee has declared the books result merely relying on the DSRs and non-reporting of certain sales. 10. With regard to department appeal, he submitted that Ld CIT(A) has given relief to the assessee overlooking the findings of AO and relying on the decision of the cases which were based on the individual cases rather than 19 ITA No.337 & 341/DEL/2023 the cases of companies, since the assessee is a company the facts are distinguishable. He heavily relied on the findings brought on record by the AO. 11. Considered the rival submissions and material placed on record. We observed that the assessee has followed the method of recording the business transactions based on the Daily Sales Report (DSR) received from the various franchises and compile the same once in a month. It was also having the sales through delivery orders, bulk orders and corporate sales and caterings were recorded separately. But these information were compiled at the end of the year instead of maintain regular books of account as per the provisions of the companies Act and Other relevant Acts. The same was also reported by the statutory auditor in his report. This being the case, the AO has rejected the books merely relying on the auditor’s report, without bringing on record how the same are complicated. He has proceeded to accept the sales/turnover declared by the assessee and only rejected the expenses claimed by the assessee. We also observed that the auditor also declared the discrepancies of not maintaining the regular books of account and on the other hand, certified the result declared by the assessee. 12. At this stage, let us accept the findings of Revenue authorities be right, on the aspect of rejecting the expenses claimed by the assessee as excessive, however, they proceeded to keep the benchmark as per the provisions of section 44AD at 8%, without bringing on record rationale of adopting of 20 ITA No.337 & 341/DEL/2023 such percentage. It is fact on record that the assessee was declaring losses over the years. This cannot be reason to reject the books of accounts. It is also fact on record that the statutory auditor no doubt qualified the non- maintenance of the regular books of accounts however he accepted the expenses claimed by the assessee and the result. In our view, without bringing on record the rationale to reject the books of accounts u/s 145(3) of the Act, the AO cannot reject the books of accounts merely on the audit qualification of the auditor. We also observed that the AO has not brought on record how he is not satisfied with the correctness or completeness of the accounts, how the method adopted by the assessee against the provisions of section 145(1) of the Act and how the results declared by the assessee in contravention to the section 145(2) of the Act. In our view, the AO has rejected the books of account without any basis and also adopted the rate as per section 44AD overlooking the book results certified by the auditor. There is no rationale brought on record to reject the books of account and adoption of the rate as per section 44AD. Therefore, we are inclined to direct the AO to accept the books results certified by the auditor, this is not the first year of operation and the same method of accounting was adopted by the assessee in the past. There is no change in the business carried on the assessee in the past and also the method of books maintained by the assessee. As long as the results 21 ITA No.337 & 341/DEL/2023 declared by the assessee as backed by the evidence and system adopted to certify the book result, it is sufficient and not ideal. The assessee is managed to control the business by adopting a method based on the DSRs and the same can be traced back to the individual sales in the business, there is no bar to maintain the same considering the fact that the assessee has restaurant in the different locations. The businessman knows the best way to control its business and the result. As long as they are able to demonstrate the books results by whatever method adopted in the business. If the nature of the business is so complicated, the AO had the opportunity to refer to the special auditor. Therefore, we are not inclined to accept the method adopted by the authorities to determine the income of the assessee overlooking the various documents and parallel commercial Acts like GST Act. The assessee also regularly filing other returns of revenue before GST regulations. Therefore, we are inclined to direct the AO to accept the certified book results declared by the assessee and the same result was also certified by the same statutory auditor. Hence the grounds raised by the assessee in this regard are allowed. 13. In the result, appeal filed by the assessee is allowed. 14. Coming to the Revenue’s appeal, we observed that the ld. CIT(A) has considered the facts available on record and found that the assessee has opening cash balance of Rs.17.04 lakhs and the assessee has withdrawn 22 ITA No.337 & 341/DEL/2023 substantial amount in the month of June and July 2016. After considering the cash book and held that the assessee had sufficient sources of cash available in the business. The same was utilised to deposit the cash during the demonetisation period. The relevant facts are very much available on record and the cases cited by the ld. CIT(A) are for the factual findings and the facts of both the cases are exactly same. We observed that ld. DR has expressed issues on relying on the decisions of individual cases on the corporate cases, in our view, for relying on the facts of other cases on the factual matters need not be of the same category of the persons. Therefore, we are inclined to accept the detailed findings of ld. CIT(A) and do not see any reason to accept the same. In the result, grounds raised by the Revenue are dismissed. 15. In the result, appeal filed by the revenue is dismissed. 16. To sum up : appeal filed by the assessee is allowed and the Revenue’s appeal is dismissed. Order pronounced in the open court on this 7th day of May, 2025. Sd/- sd/- (YOGESH KUMAR U.S.) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 07.05.2025 TS 23 ITA No.337 & 341/DEL/2023 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "