MURLI DHAR UPADHYAY,JAIPUR V. ITO WARD 6(3), JPR, JAIPUR

ITA 252/JPR/2025

AI Insights

The case involves Shri Murli Dhar Upadhyay, a distributor of milk, who appealed against the order of the Commissioner of Income Tax (Appeals) confirming the additions made by the AO in the assessment for the year 2017-18. The AO had made additions on account of disallowances under section 40A(3) for cash payments and a lump-sum disallowance of expenses. The Tribunal noted that the case was selected for limited scrutiny specifically to examine cash deposits during the demonetization period, and the AO improperly expanded the scope to include other issues, leading to the Tribunal's decision to set aside the additions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 776570 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2025
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2017-2018
• Appeal Filed On: 21-02-2025
• Other Referred Cases: Collector, Land Acquisition vs. Mst. Katiji and Others, Zenith Processing Mills vs Commissioner Of Income Tax, M/S Sahara India (Firm), Lucknow vs Commissioner Of Income Tax, Central-I & ..., vrindavanlal Gupta V/S ITO Jaipur, Danayya Shavaputrayya Math D S Math, Contractor, Vijayapur vs ITO, H.N. Ravindra vs. ITO, Baljeet Yadav vs. PCIT, Gurdas Garg vs. CIT(A), Bathinda
• Laws Referred To: Income Tax Act
• Court: TRIBUNAL
• Department Lawyers: GAUTAM SINGH CHOUDHARY
• Assessee Lawyers: ASHOK KUMAR GUPTA
• Keywords: Opportunity of being heard; Reasonable cause; Principle of natural justice; Revision of order
• Section: 143(3); 142(1); 263; 40A(3); 43B

Judgement Text

"vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 252/JPR/2025 fu/kZkj.k o\"kZ@Assessment Years : 2017-18 Shri Murli Dhar Upadhyay B-42, Bajaj Nagar, Jaipur. cuke Vs. The ITO, Ward-6(3), Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFPU3647J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Ashok Kumar Gupta, Adv. jktLo dh vksj ls@ Revenue by : Shri Gautam Singh Choudhary, JCIT a lquokbZ dh rkjh[k@ Date of Hearing : 10/07/2025 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement : 16/09/2025 vkns'k@ ORDER PER DR. S. SEETHALAKSHMI, J.M. The assessee has filed this appeal challenging the impugned order dated 25.09.2024, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [ld. CIT(A)], for the assessment year 2017-18. 2. The assessee has raised following grounds:– “1. The assessee is a distributer of Milk of Saras Dairy, Jaipur, Bhilwara and Chittorgarh Dairy. Filed Income Tax Return after conducting audit of books of Accounts on dated 20/10/2017. Case was selected under CASS for Cash depositing during demonetization period accordingly notice 143(2) dated Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 2 21/09/2018 was issued and further notices were issued which were replied sufficiently by the assessee, matter discussed and assessment order was passed by making disallowance of Rs. 5,99,520/- u/s 40A(3) of the Act, and Rs. 1,00,000/- lump sum disallowance against some expenses. Being aggrieved with the order of Ld. AO the asessee filed an appeal before Ld. CIT(A) which was dismissed by the then due to not attending the appellant proceedings by the assessee appellant, hence this appeal is being filed on various grounds which are mutually exclusive, and without prejudice to each other. 2. Initiation and complete proceeding is illegal; Under the facts and circumstances of the case Ld. CITA(A) grossly erred in confirming the invalid and illegal action of Ld. AO while complete assessment proceeding including initiation u/s 143(2) is illegal, invalid and without jurisdiction and barred by limitation hence may kindly be quashed. 3. Violation of Natural Justice: Under the facts and circumstances of the case Ld. CITA(A) grossly erred in confirming the impugned assessment proceedings/order as the 3 same has been framed in violation of the principles of natural justice without granting to the assessee a fair, proper and reasonable opportunity including without issuing specific/proper SCN to the assessee. 4. Under the facts and circumstances of the case Ld. CIT(A) grossly erred in confirming the action of Ld. AO in disallowing of Rs. 5,99,520/- u/s 40A(3) of the act, and Rs. 1,00,000/- on 4 account of disallowances of lump sum expenses without appreciating the facts available on records and without considering them in their true perspective and sense therefore complete addition should be deleted. 5. That the appellant reserves his right to add, amend or alter the grounds of appeal on or before the date of appeal hearing.” 3. During the course of hearing, the Registry has pointed out that there is a delay of 83 days in filing the present appeal before the Tribunal. The assessee has filed an application explaining the cause of such delay which is supported by an Affidavit. 4. We have gone through the averments made in the affidavit and thus, we are of the opinion that the assessee is prevented in filing the appeal in time and we are satisfied that the delay in filing the appeal is Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 3 due to reasonable cause. Thus, the delay of 83 days in filing the appeal by the assessee is condoned in view of the decision of Hon'ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Katiji and Others, 167 ITR 471 (SC) as the assessee is prevented by sufficient cause. Consequently, we condone the delay of 83 days in filing the present appeal and admit the same for adjudication on merit. 5. Succinctly, the facts as culled out from the records are that the assessee is engaged in the business of distribution of milk of Jaipur dairy to the milk booths. He had filed his ITR for the relevant year, declaring total income of Rs.7,11,090/-. The case of the assessee was selected for scrutiny through CASS for verification of “Cash deposited during demonetization period” The assessee was issued various notices on this issue, which were duly replied to the satisfaction of the AO. Assessment was finally completed u/s 143(3) of the I.T. Act assessing income at Rs.14,10,610/- after making addition on account of disallowance u/s 40A(3) of Rs.5,99,250/- and a further lump sum disallowance of Rs.1,00,000/- out of various expenses. Penalty proceedings u/s 270A(1) of the I.T. Act was also initiated. 6. Aggrieved from the order of Assessing Officer, the assessee preferred an appeal before the ld. CIT(A)/NFAC, who dismissed the appeal ex-parte and confirmed the additions made by the AO, stating that Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 4 the appellant could not controvert the findings given by the AO on merits of the issue 7. Now the assessee is in appeal before the ITAT. While pleading on behalf of the assessee, the ld. AR has made the following ground wise submissions:- “BRIEF FACTS OF THE CASE The assessee being an individual, engaged in the business distribution of milk of Jaipur Dairy to the Jaipur dairy booths, filed his original return of income dated 20/10/2017 declaring income of Rs. 7,11,090/-. Further the case of the assessee selected for scrutiny through CASS on the issue “cash deposit during demonetization period” and accordingly notice u/s 143(2) issued on21/09/2018. Further various notices issued to the assessee and the same were duly replied. Subsequently, the Ld. AO passed an assessment order dated 02/12/2019 by making addition on account of disallowance u/s 40A(3) for Rs. 5,99,250/- and on account of disallowance of expenses on lump-sum basis for Rs. 1,00,000/-. Aggrieved by the order of the Ld. AO, the assessee preferred the appeal before Ld. CIT(A) and the same has been decided in the favor of revenue by ex parte order passed on 25/09/2024. In the instant case the assessee preferred an appeal against the order of Ld. CIT(A) dated 25/09/2024 by raising following grounds:- GROUNDS OF APPEAL 1. Initiation and complete proceeding is illegal; Under the facts and circumstances of the case Ld. CITA(A) grossly erred in confirming the invalid and illegal action of Ld. AO while complete assessment proceeding including initiation u/s 143(2) is illegal, invalid and without jurisdiction and barred by limitation hence may kindly be quashed. 2. Violation of Natural Justice; Under the facts and circumstances of the case Ld. CITA(A) grossly erred in confirming the impugned assessment proceedings/order as the same has been framed in violation of the principles of natural justice without granting to the Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 5 assessee a fair, proper and reasonable opportunity including without issuing specific/proper SCN to the assessee. 3. Under the facts and circumstances of the case Ld. CIT(A) grossly erred in confirming the action of Ld. AO in disallowing of Rs. 5,99,520/- u/s 40A(3) of the act, and Rs. 1,00,000/- on account of disallowances of lump sum expenses without appreciating the facts available on records and without considering them in their true perspective and sense therefore complete addition should be deleted. 4. That the appellant reserves his right to add, amend or alter the grounds of appeal on or before the date of appeal hearing. Written Submission Ground No. 1 & 2; No Show Cause Notice before making addition At the outset it is important to mention here that the addition made by the Ld. AO, initially, was not the subject matter of this impugned proceeding as the same was initiated for scrutiny through CASS on the issue “cash deposit during demonetization period”. Whereas the addition made by the Ld. AO on account of disallowance of expenditure on lump-sum basis and; On account of cash payment made to the identified seller (Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. (Jaipur Dairy)) through established transaction after the demonetization before demonization period i.e. within the period of 18/04/2016 to 07/05/2016. The ledger of the Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. (Jaipur Dairy) is annexed at PB 57-58. Further apropos to this ground we submit that in this case the Ld. AO has grossly erred in law and facts in making addition without issuing specific show cause notice before making addition u/s 143(3) of the act which is mandatory requirement of law in the eyes of natural justice which also a fundamental right of the assessee therefore complete disallowance as well as addition should be deleted. By observing the assessment order and complete assessment proceedings it is revealed that whatever information sought from Ld. AO have been submitted by the assessee appellant in due course and before making additions as made by the Ld. AO, he did not issue any Show Cause Notice to the assessee. The additions as made by the Ld. AO completely arbitrary and vague in the air, if during the course of assessment proceedings the Ld. AO asks to produce such specific information or issue a SCN such additions could not have been made. Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 6 For better understanding we are reproducing the relevant portion of section 143(3) of the act :- “On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment:” It is pertinent to mention that from the plain reading of the abovementioned section it is clear that the Ld. AO is required to issue a SCN to the assessee, if he is not inclined to accept the return submitted by the assessee and if he wants to modify the assessment from the return. In this case the Ld. AO violated the principle of natural justice by not providing the opportunity of being heard to the assessee and ignored the trite law that unless a statutory provision either specifically ignores or by necessary implication excludes the application of principle of natural justice. And the requirement of giving reasonable opportunity is generally read into the provision of a statue, particularly when the order has adverse civil consequences for the party affected. Here it is also notable that Ld. CBDT has put a mandatory condition upon Ld. AO regarding following the principle of Natural justice in order to issue show cause notice before making any proposed addition through their Instruction No. 20/2015 dated 29/12/2015 (refer para 4 of instruction). Our aforesaid view is supported by the following decisions:- In the matter of Zenith Processing Mills vs Commissioner Of Income Tax Dated 28 September, 1995 Hon’ble Gujarat High court held as follows:- “It is inherent part of s. 143(3) that where the AO is not inclined to accept the return submitted by the assessee and if he wants to modify the assessment from the return a show cause notice is required to be given to the assessee. Giving of this opportunity will include opportunity to rectify procedural defect, if any, which are directory in nature. If we examine the matter from that point of view we are satisfied that in the present case, the claim made by the assessee was, though not admissible for want of auditor's report on record yet the same was allowed under a mistake by the AO leaving no opportunity to the assessee to complete the requirements. The condition of non-fulfilment of requirement under sub-s. (6A) was made known to the assessee during the proceedings under s. 263 although the assessee asked for an opportunity to Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 7 produce the auditor's report to fulfil the requirement under s. 80J (6A) the CIT ought to have afforded an opportunity to the assessee to furnish that proof and then examined the admissibility of the claim in the light of the proof furnished.” In the matter of M/S Sahara India (Firm),Lucknowvs Commissioner Of Income Tax, Central-I & ... on 11 April, 2008 the Hon’ble supreme Court held as follows:- “15. Thus, it is trite that unless a statutory provision either specifically or by necessary implication excludes the application of principles of natural justice, because in that event the Court would not ignore the legislative mandate, the requirement of giving reasonable opportunity of being heard before an order is made, is generally read into the provisions of a statute, particularly when the order has adverse civil consequences for the party affected. The principle will hold good irrespective of whether the power conferred on a statutory body or tribunal is administrative or quasi-judicial.” Ground No. 3 (A) Genuineness of the transactions because payment made to identified person Apropos to this ground it is submitted that the assessee being an authorised distributor of Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. (Jaipur Dairy), supplies milk to the authorised booths of Jaipur Dairy. During the year under consideration it is submitted that the assessee made purchase of Rs. 18,87,29,849.55and out of this purchase only the following payments was disallowed by the Ld. AO u/s 40A (3)/ Rule 6DD of the act for making payment to Jaipur Dairy :- Date Amount Remarks 18/04/2016 23,240/- Payment made due to business expediency on the direction made by the Jaipur dairy. 22/04/2016 5,18,500/- The said amount paid in cash to Jaipur dairy, after bank hours, due to net work outage in the assessee’s bank. Certificate from Jaipur dairy is annexed at PB 54. Certificate from ICICI is annexed at PB 56. 03/05/2016 31,000/- Payment made due to business expediency on the direction made by the Jaipur dairy. 07/05/2019 26,780/- Payment made due to business expediency on the direction made by the Jaipur dairy. Total 5,99,250/- Payment made due to business Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 8 expediency on the direction made by the Jaipur dairy. Form the amount of addition made it is clear that the cash payment disallowed u/s 40A(3) constitute only 0.31 % of the total purchase made by the assessee. Further it is important to mention that to which payment was made is a Govt. entity, thus its identity and genuineness is not questionable. Since the identity of the seller and genuineness of the transactions are fully established and the Ld. AO have not raised any doubt over the genuineness of the payments and it is submitted that where the genuineness of the payments are not doubted by the Ld. AO, no disallowance u/s 40A(3) could be made. In order to continue business operation effectively, assessee had no other option but to make the payment in cash. Cash payments were made from the disclosed sources being the amount collected from authorised dairy booths of Jaipur dairy. Had the assessee denied the cash payment looking to the provisions of sections 40A(3), the business operation of the assessee got affected badly as the Jaipur dairy does not supply milk to the assessee without depositing the complete collection/payment form dairy booth. In such circumstances, in the business interest and to run the business effectively, the assessee had chosen to make the payments in cash. The payment has been made out of the explained sourcesi.e cash collected from dairy booths of Jaipur dairy. (B) Payment made according to circular dated 31/05/1997 as issued by CBDT [220 {F. No. 206/17/76-IT (A-II)] Under the facts and circumstances of the case the Ld. AO was not justified in making the addition of Rs. 5,99,520/- on account of disallowance under section 40(A)(3) without appreciating the fact that the payment made by the assesse to an identified person. The Ld. AO ignored the fact that the identity of the person, from whom the said payment was made, was clearly established and made to an identified Govt. entity i.e. Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. (Jaipur Dairy). The fact that the identity of the person was identifiable and not fictitious, will automatically exonerate the assessee. The object of the introduction of this sub-section 40A (3) was explained in a circular of the Board vide Circular No. 6P, dated 6th July, 1968 as follows; “ sub-section (3) of new section 40A makes a provision for the disallowance of expenditure incurred in business and profession for which payment is made in an amount exceeding Rs. 2,500/- otherwise than by a crossed cheque drawn on a bank or a crossed bank draft. This provision will apply in respect of payments made after a Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 9 date to be notified by the Government, being a date not later that 31st March 1969. This provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and the reasonableness of the payment.” Thereby in given case both the payments have been made to an identified person, which is govt. entity i.e. Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. hence such transaction should not be objectionable in the eye of law. In support of our above said contention we are relaying on the following judgements: Identical Matter; In the matter of vrindavanlal Gupta V/S ITO Jaipur dated 25/01/2018 (ITA No. 321/JP/2017) hon’ble ITAT JAIPUR hold that : In this matter the assessee made payment in cash of Rs. 59,30,000/- to the JaipurZilaDugdhUtpadakSahakariSangh Ltd. (Jaipur Dairy). 2.1 “During the course of hearing the ld.AR of the assessee prayed that the lower authorities have erred in disallowing the cash payments of Rs. 59.30lacsmade to M/s. Jaipur ZilaDugdhUtpadakSahakariSangh Ltd u/s 40A(3) of the Act by the assessee. The ld.AR of the assessee filed the written submission which has been taken into consideration. 2.2 On the other hand, the ld. DR supported the orders of the lower authorities. 2.3 We have heard the rival contentions and perused the materials available on record. In this case, the AO observed that the assessee made payments of Rs. 1,14,64,000/-on various dates (page 2 of assessment order) toM/s. Jaipur ZilaDugdhUtpadakSahakariSangh Ltd (Saras Diary), Jaipur in violation of provisions of section 40A(3) of the I.T. Act, 1961. The AO further noted that assessee made payments of Rs. 55,34,000/-on bank holidays which are excluding the purview of sec 40A(3) of the I.T. Act, 1961. The AO thus disallowed the payments of Rs. 59.30 lacs in violation of provisions of sec 40A(3) of the Act and added the same to the total income of the assessee by observing as under:- ‘’Considering the facts of the case and Rule 6DD of the Act, the exemption is only allowed for the day on which the banks were closed either on account of holiday or strike. Further the plea of the assessee depositing the cash on Monday is not considered as the Monday has not been considered in exclusion. In the light of the above, following expenses in excess of twenty thousand in a day incurred in cash is disallowed and added to the total income of the assessee u/s 40A(3):- Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 10 S.N. Date of payment Amount Paid 1. 20-05-2013 500000 2. 27-05-2013 300000 3. 03-06-2013 600000 4. 24-06-2013 550000 5. 15-07-2013 300000 6. 22-07-2013 450000 7. 16-08-2013 250000 8. 09-09-2013 700000 9. 01-10-2013 480000 10. 7-10-2013 600000 11. 14-10-2013 600000 12. 18-10-2013 600000 5930000 In first appeal, the ld. CIT(A) has confirmed the action of the AO. The assessee is an individual and is engaged in transporting milk from M/s. Jaipur ZilaDugdhUtpadakSahakariSangh Ltd (Saras ) to various Saras Dairy booths on commission basis i.e. @ Rs.49.90 per litre. The work of the assessee included in taking milk from Saras Dairy and distribution of the same to various Saras Dairy booth sand also collection of money from booths and paying the same to Saras Dairy. On such collection of money, the assessee was entitled for commission @ Rs. 49.90 per litre. It is noted that in the case of the assessee the identity of the recipient M/s. Jaipur ZilaDugdhUtpadakSahakariSangh Ltd (Saras Dairy) is well established to whom the entire payment of Rs. 59.30 lacs has been made by the assessee. It is noted that in the entire assessment order there is nota single word doubting the genuineness of payments or questioning the payments in any other way. The assessee collected payments from the dairy booths and got commission @ Rs. 49.90 paise per litre. Thus the assessee was in fact working as an agent on commission basis. Therefore, the payments did not require to be disallowed in his hands. There is no iota of doubt regarding the genuineness of the payments. The Hon'ble Rajasthan High Court in the case of Smt. Harshila Chordiavs ITO (2008) 298 ITR 349 held as under:- Held: (i) that there was no dispute about the genuineness of the transactions and the payment and identity of the receiver were established. The conclusion reached by the Commissioner (Appeals) was correct and the Tribunal by ignoring the scope of clause(j)ofrule6DDasexplainedbytheBoard’sCircularhad erred in reversing the finding reached by the Commissioner (Appeals). The addition of Rs. 40,13,000/- could not be made under section 40A(3).’’ Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 11 In the case of Anupam Tele Services vs ITO (2014), 366 ITR 122, the Hon'ble Gujarat High Court observed as under:- ‘’The terms of section 40A(3) arenot absolute and other relevant factors are not excluded. Genuine andbonafide transactions are taken out of the sweep of the section.’’ Moreover, the contract of this work is in existence since2006 but no such disallowance was made in earlier years. Taking into consideration the above facts and circumstances of the case and the case laws in the case of Smt. Harshila Chordiavs ITO and Anupam Tele Services vs ITO (supra), it is observed that the ld. CIT(A) has erred in disallowing the payment of Rs. 59.30 lacs to the assessee. Thus the solitary ground of the assessee is allowed. 3.0 In the result, the appeal filed by the assessee is allowed.” In M/s A Daga Royal Arts, JaipurVs ITO, Jaipur [ITA No. 1065/JP/2016] wherein it was held that: \"In the entirety of facts and circumstances of the case and respectfully following the legal proposition laid down by the various Courts and Coordinate Benches referred supra, we are of the view that the identity of the persons from whom the various plots of land have been purchased and source of cash payments as withdrawals from the assessee's bank account has been established. The genuineness of the transaction has been established as evidenced by the registered sale deeds and lastly, the test of business expediency has been met in the instant case. Further, as held by the Hon'ble Rajasthan High Court in case of HarshilaChordia (supra), the consequences, which were to befall on account of non-observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore, the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration. The intent and the purpose for section 40(3) has been brought on the statute books has been clearly satisfied in the instant case. Therefore, being a case of genuine business transaction, no disallowance is called for by invoking the provisions of section 40(3) of the Act.\" In case of GurdasGarg vs. CIT(A), Bathinda (supra), the matter which came up for consideration before the Hon'ble Punjab & Haryana High Court, the facts of the case are parimateria to the instant case and the ratio of the said decision clearly applies in the instant case. In that case, the facts of the case were that the assessee was engaged in trading in properties and during the course of assessment proceedings, the AO observed that there are transactions where the payments have been made in excess of Rs. 20,000/- in cash which were disallowed u/s 40A(3) of the Act. The Hon'ble High Court held that rule 6DD(i) is not exhaustive of the circumstances in which the proviso to section 40A(3) is applicable and it only illustrative. The Hon'ble High Court refers to the decision of the Hon'ble Rajasthan High Court in case of Smt. HarshilaChordia v. ITO (Supra) and the decision of Hon'ble Supreme Court in Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 12 case of Attar Singh Gurmukh Singh v. ITO (Supra). The High Court further observed that the Id. CIT(A) has given a finding that the identity of the payee i.e. vendors in respect of land purchase by the appellant was established, the sale deeds were produced, the genuineness thereof was accepted and the amount paid in respect of each of these agreement was satisfied before the Stamp Registration Authority and the transactions were held to be genuine and the bar against the grant of deductions u/s 40A(3) of the Act was not attracted. The Hon'ble High Court further observed that the Tribunal did not upset these findings including as to the genuineness and the correctness of the transactions and it is also important to note that the Tribunal noted the contention on behalf of the appellant that there was a boom in the real estate market and therefore it was necessary, therefore, to conclude the transactions at the earliest and not to postpone them; that the appellant did not know the vendors and obviously therefore, insisted for payment in cash and that as a result thereof, payments had to be made immediately to settle the deals. The Tribunal did not doubt this case.The Tribunal, however, held that the claim for deduction was not sustainable. In view of Section 40A(3) as the payments which were over Rs. 20,000/- were made in cash.TheHon'ble High Court accordingly observed that \"the Tribunal has not disbelieved the transactions or the genuineness thereof nor has it disbelieved the fact that payments having been made. More importantly, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency.\" Disallowance of expense for Rs. 1,00,000/- on lump-sum basis; (A) No invocation of Section 145(3) – Rejection of books mandatory before estimation/disallowance The Ld. AO has not recorded any dissatisfaction with the correctness or completeness of the books of account maintained by the assessee. The books have not been rejected u/s 145(3) of the Income Tax Act, 1961. In the absence of such rejection, the AO cannot make an ad-hoc disallowance of expenses merely on estimate or suspicion. In the absence of rejection of books, the accounts are deemed to be acceptable, and no lump-sum disallowance can be made arbitrarily. Further it is pertinent to mention that there is no significant variation in the expense of the assessee on year on year basis. (B) No defects pointed out in books or vouchers The assessee has maintained proper books of account, and no specific defect in the vouchers or books has been highlighted by the Ld. AO. In such circumstances, the disallowance of ₹1,00,000 on a lump-sum basis is purely arbitrary and not supported by law. Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 13 To support we are relaying on the following case laws: In the matter of ITA No.1286/Bang/2024 Danayya Shavaputrayya Math D S Math, Contractor, VijayapurHon’ble ITAT hold that: “9.3 In view of the above precedents, we are inclined to hold that the adhoc disallowance is not justified without rejecting the books of accounts of the assessee. Accordingly, the grounds of assessee are allowed. 10. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 8th Aug, 2024” Prayer: In view of the above, it is requested to consider the appeal and grant appropriate relief to the appellant.” 8. Per contra, Ld. DR replied upon the orders of Ld. CIT(A). 9. We have heard the rival contentions and perused the material placed on record, as well as the relevant provisions of law and the case laws cited by the Ld.AR in support of his case. Since the appellant has filed a common submission in respect of the legal grounds raised, we are also dealing with them as a consolidated ground. 10. We note from the order of the CIT(A) that from erred in dismissing the appeal without giving a proper finding on the issues raised. The provisions of the Act make it clear that once an appeal is preferred before the CIT(A), then in disposing of the appeal, he is obliged to make such further inquiry that he thinks fit or direct the Assessing Officer to make further inquiry and report the result of the same to him as found in Section 250(4) of the Act. Further Section 250(6) of the Act obliges the Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 14 CIT(A) to dispose of an appeal in writing after stating the points for determination and then render a decision on each of the points which arise for consideration with reasons in support. Thus, once the assessee file an appeal under Section 246A of the Act, it is not open to him as of right to withdraw or not press the appeal. In fact the CIT(A) is obliged to dispose of the appeal on merits. 11. Further we observed from the assessment order that the assessee’s case was selected for scrutiny under CASS for examination of cash deposited during the demonetization period. Notice issued u/s 143(2) does not specify whether it has been selected for Limited scrutiny or Complete scrutiny. During the hearings, the Ld. AR submitted that it was a case of Limited scrutiny. He also referred to the notices issued u/s 142(1) which were part of his paper book, the queries of which related exclusively to the cash deposits made and not on any other issues. On contra Ld. DR could not place on record to show that the case was selected for Complete scrutiny or the case was later converted to Complete scrutiny. Under these circumstances, to our understanding. We have no reason to dispute the contention of the Ld. AR to the effect the case was selected under CASS for examination of cash deposits made in the bank during demonetization period. Therefore, the AO ought to have Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 15 restricted his examination and enquiries limited for the purpose of cash deposits made by the appellant during the period of demonetization only. By expanding the scope of scrutiny beyond the issue of cash deposits during demonetization period, amounts to exceeding the jurisdiction by the ld. AO without following the prescribed procedure and the administrative guidelines under the law. Moreover, we find that pursuant to filing of submission by the appellant on 21.11.2019, no further queries were made by the AO. The AO never made any enquiry relating to expenses incurred by the assessee vide any of the 5 notices issued by him u/s 142(1). Nor did he issue any SCN on the aspect of disallowance of the expenses as claimed by him. However, while finalizing the assessment on 02/12/2019, he made the impugned disallowances totally unconnected with the reasons for selection of case. 12. We observed in Coordinate Bench of ITAT Bangalore in the case of H.N. Ravindra vs. ITO, in ITA No.1065/Bang/2019 held that the case was selected for limited scrutiny with respect to cash deposits in bank account during demonetization period (9th Nov. to 30th Dec); disallowance u/s 43B for non-payment of VAT is not within scope of limited scrutiny and in a latest decision rendered on 29.01.2025, ITAT Raipur Bench in the case of Rahul Bajpai vs. DCIT, [2025] 171 Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 16 taxmann.com 500 (Raipur - Trib.) held that - “Where case of assessee was selected for limited scrutiny for examination of specific issue, Assessing Officer could not have ventured into a different issue that did not form basis for taking up case for such scrutiny assessment without getting said limited scrutiny converted into complete scrutiny as per CBDT Circular No.20/2015 dated 29.12.2015”. We rely on the decision of Coordinate Bench in the case of Baljeet Yadav vs. PCIT in ITA No.120/JP/2022 where the issue was concerned with Powers of CIT u/s 263, but the ratio of the decision was in the context that in cases of limited scrutiny selected through CASS for examination of cash deposited during demonetization, addition on no other ground can not be made. 13. Taking into facts and circumstance of the case and decisions, we find substance in the Ld. AR's claim that the A.O had traversed beyond the scope of his jurisdiction and made the said addition. As the case of the assessee was selected for limited scrutiny for verification of cash deposited during demonetisation, therefore, the A.O. could not have ventured into an issue that did not form the basis for taking up the case for such scrutiny assessment. We are of the view that as per the criteria for Manual selection of cases issued by CBDT vide its Instruction No.04 of 2018, there was no scope for converting the cases of Limited scrutiny Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 17 to Complete scrutiny, as existed in the CBDT Circular No.20/2015 dated 29.12.2015. The A.O had traversed beyond his jurisdiction and made the impugned addition(s) of Rs.6,99,520/-. Therefore, on the basis of our aforesaid observations, we are of the considered view that the addition of Rs.6,99,520/- (supra) made by the A.O is liable to be quashed for want of valid assumption of jurisdiction by the A.O while framing the \"limited scrutiny\" assessment vide his order u/s.143(3) of the Act, dated 02.12.2019. Thus, the addition of Rs.6,99,520/- made by the A.O. is vacated for want of valid assumption of jurisdiction. 14. Consequently, ground no. 1& 2 raised by the assessee are allowed. Since we have considered the assessee's appeal on technicality, the other merit-based ground becomes educational and does not require a finding. The appeal of the assessee in the result, stands allowed. Order pronounced in the open Court on 16/09/2025. Sd/- Sd/- ¼ jkBkSM+ deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 16/09/2025 *Santosh vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- Murli Dhar Upadhyay, Jaipur. 2. izR;FkhZ@ The Respondent- ITO, Ward-6(3), Jaipur Printed from counselvise.com ITA No. 252/JPR/2025 Sh. Murli Dhar Upadhyay, jaipur. 18 2. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File { ITA No. 252/JPR/2025 } vkns'kkuqlkj@ By order lgk;d iathdkj@Asst. Registrar Printed from counselvise.com "