PERNIA QURESHI CONSULTANCY PVT LTD,NEW DELHI V. DCIT CENTRAL CIRCLE-07, NEW DELHI

ITA 992/DEL/2020

AI Insights

The case involves Pernia Qureshi Consultancy Pvt Ltd, which appealed against the order of the CIT(A)-27, New Delhi, concerning the assessment year 2014-15. The primary grievances included the sustenance of adhoc additions and disallowances made by the Assessing Officer, which were largely based on non-responses to notices under section 133(6) of the IT Act. The Tribunal examined various grounds of appeal, including disallowances related to digital marketing expenses, travel expenses, and other operational costs, which were initially disallowed on the basis that they were unverified or deemed bogus. The Tribunal's decision emphasized the need for a thorough examination of the evidence and proper substantiation of disallowances.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470691 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Other Referred Cases: Ajay Gupta Vs. DCIT, NTPC vs. CIT, CIT vs. Jai Parabolics Print Pvt. Ltd., Cheil India (P) Ltd. vs. ITO, Fancy Wear Vs. ITO, CIT vs. Odeon Builders Pvt. Ltd., CIT Vs. Nikunj Eximp Enterprises Pvt Ltd., CIT-1 Vs. Simit P. Sheth, CIT vs. Bholanath Poly Fab (P) Ltd., Assistant Commissioner of Income Tax Circle-22 (1) New Delhi Versus M/s. Sanvik Engineers India Pvt. Ltd., M/s Becon Construction Pvt. Ltd. Versus ACIT, Central Circle-8, New Delhi, Manoj Sharma Versus ITO, Ward-39(5), New Delhi, Principal Commissioner of Income Tax vs. Pinaki D Panani, Popatlal Nathalal Shah vs Assistant Commissioner of Income Tax, CIT vs. Kanpur Coal Syndicate, Jute Corporation of India, CIT V Union Tyres, CIT V Sardari Lal & Co, CIT Vs. Harjeev Agarwal, PCIT Vs. Pavitra Realcon Pvt Ltd, Best Infrastructure
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P.N. BARNWAL
• Assessee Lawyers: NIRBHAY MEHTA
• Keywords: Set aside; Business income; Additional evidence; Bad and doubtful debts; Unexplained expenditure; Income from undisclosed sources; Document seized; Documents seized; TDS; Source of fund; Deemed to accrue or arise in india; Bogus
• Section: 143(3); 64; 251; 133(6); 69C; 6; 40A(3); 194C

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘F’ BENCH, NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 992/DEL/2020 [A.Y. 2014-15] Pernia Qureshi Consultancy Pvt Ltd Vs. The Dy. C.I.T C–134, Defence Colony Central Circle -07 New Delhi New Delhi PAN – AAGCP 3624 C (Applicant) (Respondent) Assessee By : Shri Nirbhay Mehta, Adv Shri Ashwini Gupta, CA Department By : Shri P.N. Barnwal, CIT-DR Date of Hearing : 25.10.2024 Date of Pronouncement : 20.01.2025 ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- This appeal by the assessee is preferred against the order of the CIT(A)-27, Delhi dated 13.12.2019 pertaining to A.Y. 2014-15. 2 2. The grievances of the assessee read as under: “1. That on the facts and circumstances of the case and in law, the order passed by CIT(A) - 27, New Delhi (hereinafter referred to as CIT (A)), is contrary to the facts and bad in law. 2. That on the facts and circumstances of the case and in law, the CIT (A) was not justified in sustaining the Adhoc addition of Rs.1,11,92,303/- made by disallowing 50% of certain expenses incurred by the appellant company during the year by holding that the alleged expenses remains unverified through notice sent u/s 133(6) of the IT Act by the AO during remand report proceedings. 2.1 That the CIT-A has grossly erred in solely relying upon the outcome of notice issued u/s 133(6) of the IT Act by the AO for sustaining the alleged addition and failed to consider. 2.2 That the action of the CIT-A is not sustainable on account of the fact that out the total notice sent by the AO u/s 133(6) of the IT Act some parties have complied to the notices, however the CIT-A has failed to consider the same. 2.3 That the action of the CIT-A is highly arbitrary & illogical specifically keeping in view of the fact that during the course of remand report proceedings the AO had not asked for latest address of parties nor considered the fact that transactions from these parties have been undertaken long time back and therefore there are 3 good chances that parties might have shifted their office to other place. 3. That on the facts and circumstances of the case and in law the CIT (A) was not justified in sustaining the adhoc addition of Rs.74,64,722/- made by the AO by disallowing 30% of the purchases claimed by the appellant by holding that the alleged purchases remains unverified through notice u/s 133(6) issued by the AO during remand report proceedings. 3.1 That the CIT-A has grossly erred in solely relying upon the outcome of notice issued u/s 133(6) of IT Act for sustaining the alleged addition and failed to consider the fact that during the course of remand report proceedings the appellant had filed & produced all the bills and supporting documents like bank statement etc. to verify the genuineness of the alleged purchases by the AO. 3.2 That the action of the CIT-A is not sustainable on account of the fact that out the total notice sent by the AO u/s 133(6) of the IT Act some parties have complied to the notices, however the CIT-A has failed to consider the same while confirming the alleged addition. 3.3 That the alleged addition made by the CIT-A without application of mind is not sustainable on account of the fact that against the alleged purchases held to be bogus, the assessee company had made corresponding sales and included profits earned on these transactions for calculating the income of the relevant assessment year. 4 3.4 That the CIT(A) has further erred in not considering the fact that the addition made by the AO is not sustainable in law as prior to disallowance of Purchases by treating them as bogus no defect has been pointed out in books of account and same have not been rejected by AO. 4. That on the facts and circumstances of the case and in law the CIT(A) was not justified in restricting the addition of Rs.24,00,000/- made by AO to Rs.12,00,000/-on the basis of contents of seized document Annexure -A1/D1 found during the course of search action. 4.1 That on the facts and circumstances of the case and in law, the CIT- A has further erred in not considering the submission made by the appellant that no addition could have been made in AY 2014-15 on the basis seized document pertaining to AY 2013-14, thus no extrapolation is required. 5. That on the facts and circumstances of the case and in law, the CIT (A) was not justified in sustaining the addition of Rs.22,50,000/- by upholding the contention of the AO that the alleged amount has been paid out of the undisclosed income of the appellant company by partly relying upon the statement of Ms. Pernia Moin Qureshi, Director of the appellant company recorded during the course of search and without considering the fact that actually no payment has been made to Ms.Pernia Moin Qureshi during the year under consideration. 5.1 That the Ld. CIT-A has failed to consider the fact that surrenders income must be correlated with some incriminating material found during the search so as to justify the addition. 5 Reliance in this regard is placed on the decision of Hon'ble High Court in the case of Ajay Gupta Vs. DCIT 81 Taxmann.com 462(Del). 5.2 Without prejudice to the above, the action of the CIT-A is also not sustainable keeping in view of the fact that similar addition on the basis of alleged statement recorded during the course of search of Ms. Pernia Moin Qureshi has also been confirmed in the hands of Ms. Pernia Moin Qureshi in the appellate order passed for AY 2014-15, thus the addition of the same amount in the hands of the appellant company once again would tantamount to double addition of same income. 6. That the appellant craves leave to add, alter, and modify any of the grounds.” 2.1 In the course of hearing before us the ld AR filed a petition dated 16.04.2024 for admission of additional ground as follows: 1. That the appellant wishes to raise an additional ground of appeal in addition to the grounds of appeal raised in the appeal memo in the case of the captioned assessee for the AY 2014-15. 2. That the additional ground of appeal are as under: 3. That on the facts and circumstances of the case and in law, the CIT- Appeals was not justified in confirming the addition of Rs.12,00,000/- on account of cash payment of salary made to Mr. V. Prabhakar u/s 69C of 6 the IT Act as against the addition made by the AO u/s 40A(3) of the IT Act without giving a notice of enhancement u/s 251(2) of the IT Act. 4. That the above request for raising additional grounds of appeal is as per law settled by the apex court in the case of NTPC vs. CIT 229 ITR 383 (SC) followed by the jurisdictional high court in CIT vs. Jai Parabolics Print Pvt. Ltd. 276 ITR 42 (Delhi). 3. Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules. 4. The assessee company is engaged in the business of online trading of Designer Cloths, accessories, shoes etc. The company is also known with the brand name of “Pernia Pop-up Shop”. A search and seizure action has been undertaken in the case of the assessee company on 15.02.2014 along with other group entities of A Moin Qureshi Group. 5. Pursuant to search action, assessment of the assessee was completed u/s 143(3) of the Income-tax Act, 1961 [the Act, for short]. The assessee had filed a return of income declaring a loss of Rs 75,63,909/- on 16.10.2015. The Assessing Officer has completed the 7 assessment u/s 143(3) at Rs 1,67,99,840/-. The AO made the following additions in the assessment order passed for A.Y 2014-15: Particulars of Addition Additions in Assessment Order (Rs.) Confirmed by CIT(A) (Rs.) Addition on account of disallowance of 50% of certain expenses 1,11,92,303/- 1,11,92,303/- Addition on account disallowance of 30% of certain purchases. (Exempt Purchases of Rs.1,33,14,722/- & Vat Purchases of Rs.1,15,67,683/-) 74,64,722/- 74,64,722/- Addition on account of disallowance of cash salary to Mr. V Prabhakar Sastry (CEO of the company) u/s 40A (3) of the IT Act. 24,00,000/- 12,00,000/- Addition on account of salary paid to Ms. Pernia Moin Qureshi u/s 69C of the IT Act 22,50,000/- 22,50,000/- Addition on account of sundry creditors 33,06,719/- Deleted 6. Ground No. 1 is general in nature and needs no adjudication. 7. Ground No. 2 and its sub-ground relates to the adhoc addition of Rs. 1,11,92,303/- made by disallowing 50% of following expenses: • Digital Marketing Rs. 1,12,66,089/- • Travelling Rs. 21,89,779/- • Bad Debts Rs. 7,18,923/- • Director Travelling Rs. 27,01,434/- • Website development Rs. 12,40,757/- • Building Service & maintenance Rs. 4,80,000/- • Transactions charges Rs. 25,10,019/- • Commission Rs. 10,56,825/- Rs. 2,23,84,605/- 8 8. The Assessing Officer has made the disallowance by observing that the assessee has failed to file any reply in response to the notice issued by the AO during the assessment proceedings due to which all the expenses are unverified and a reasonable estimate of 50% of these expenses were considered as bogus. 9. Aggrieved, the assessee went in appeal before the first appellate authority. 10. The ld. CIT(A) confirmed the addition at paras 8 to 8.4 of his order by holding as under: (i) That the Assessing Officer had done sample verification of these expenses by sending notices u/s 133(6) but most of the parties did not respond. (ii) The Assessing Officer had not disallowed the whole expenses but disallowance of only 50% of expenses being made. (iii) That there is no doubt that payments have been made through banking channel but in the absence of verification, claim of the appellant cannot be allowed. (iv) The payment made through banking channels is not a conclusive proof of the genuineness of transactions. 9 11. The ld counsel of the submitted that the company is engaged in the business of online trading of designer clothes and accessories, shoes etc. The assessee company is also known with the brand name of “Pernia’s pop-up Shop.” and operates a website www.perniaspopshop.com. All the alleged expenses had been incurred in respect of e-commerce business in which the assessee company is involved. 12. The ld AR of the assessee vehemently argued that the genuineness of claim for expenditure cannot be denied merely because party to whom payment has been made is not responding to notice issued by Assessing Officer especially when assessee as claimant had filed sufficient documents in support of expenditure. The ld AR placed reliance on the decisions in the case of Cheil India (P) Ltd. vs. ITO 68 taxmann.com 410 and Fancy Wear Vs. ITO 87 taxmann.com 18 (Mum). 13. We have heard the rival submissions and have perused the relevant material on record. We find that the AO has made disallowances, on ad-hoc basis, of various expenses claimed by the assessee. The CIT(A), after considering the additional evidences placed by the assessee before him as also the remand report of the AO, 10 confirmed the certain ad-hoc disallowance and deleted some additions. 14. Considering the nature of expenses, we deem it fit to deal with break-up of expenses under each head of expense separately along with the brief nature of the alleged expenses incurred as under: 50% of expense disallowed: i) Digital marketing expenses of 1,12,66,089/- incurred towards payment made to M/s Digital 5 Marketing Services Pvt ltd (Rs 99,26,482/-), M/s Aeibo (Rs 1,53,761/-) & M/s Hungama Digital Media Entertainment Pvt Ltd (Rs 40,33,431/-) for promoting the business of the appellant through online activities and by carrying out the media campaign management on Google/Facebook etc. The AO issued notice u/s 133(6) to M/s Digital 5 Marketing Services Pvt ltd on a test check basis which was not responded to. It is the claim of the assessee that it produced all the bills and the payments were made through banking channels. The ld AR argued that in such circumstances, the AO can not accept 50% of the payment made as genuine while doubt and disallow the remaining 50% amount as unverified. We find substance in the 11 argument of the assessee and are of the considered view that the AO can not take the non-compliance of the notice u/s 133(6) as sole basis for disallowance of 50% of such expense. We are of the considered opinion that in the interest of justice and considering the factual matrix of the case as a whole, the issue may be remitted back to the file of the AO to examine and investigate the payment made for Digital marketing after giving due opportunities to the assessee. ii) Travelling expenses of Rs 21,89,779/- and Rs 27,01,434/- : It is the say of the ld AR that the travelling expenses incurred during the year includes payment made to M/s Vision Travels and Tours Pvt ltd for booking of tickets for visiting various places in relation to the business of the appellant company and reimbursement of travelling expenses incurred by the employees of the appellant company in relation to the business of the co. The CIT-A confirmed the action of the AO of disallowing 50% of such expense on the ground that the business expediency of foreign travel and domestic travel was not established. The ld AR argued that the CIT-A failed to consider the fact that the company is engaged in the business of online trading of designer clothes accessories, shoes etc and managed by its Managing director Ms. Pernia Moin Qureshi. The ld AR submitted that the assessee company is also known with the brand name of \"Pernia's pop-up Shop.\" 12 and operates a website www.perniaspopshop.com 2 which is a well- known site for shopping of designer cloths of big designers like_Manish Malhotra, Masaba, Sabaysaachi and many others. It is submitted that the company is having large number of foreign customers and during the year the company has made total sales of Rs.10.01 crores which includes export sales of Rs.6.18 crores. It is vehemently argued that the Director of the assessee company is required to explore the foreign customer and has continuously to visit foreign places to promote its brands. The ld AR argued that the foreign trips made by Ms. Pernia Moin Qureshi are for business expediency only to promote its brands outside India and these are very meager keeping in view of the export sales done by the co during the year under consideration. We find that the CIT(A) has not given any specific reason for disallowances of 50% of traveling expense while accepting the requirement of the other 50% of expense. We find that the nature of business of the assessee requires these kind of expense to promote its brand. We also note from the details of person for whom travelling expense are spent are persons like the assessee herself, fashion designers and people from the field of advertisement and promotion like Mandira Bedi etc and its employees. Furthermore, we are of the opinion that the AO and the CIT(A) have failed to establish that there is no business expediency for 13 such expense. In view of the above, we direct the AO to delete the addition on account of Travelling. iii) Bad debts of 7,18,923.59 was disallowed by the AO on the ground that that the assessee failed to satisfy that the same has become a bad debt. It is argued by the ld AR that the CIT-A was not justified to include the Bad debts of Rs.7,18,923/-while confirming the 50% of the disallowance made by the AO towards these expenses. The ld AR submitted that write off claimed are in respect of goods short received from suppliers for which payments were made and thereafter written off. The ld AR stated that in respect of 4 parties the AO has not made any comments whereas in respect of one party sales have been written off as goods not received by the parties which were sold online against cash payment. Be that as it may, we are of the considered view that it is a settled law that once the debt is written off as bad debt in the accounts of the assessee, the same has to be allowed as deduction u/s 36(1)(vii) of the I.T Act, 1961, unless this write off is not genuine as held by the Hon'ble Supreme Court in TRF Limited Vs. CIT 230 CTR 14. In view of the above, we direct the AO to delete the disallowance on this count also. iv) Website Development (Rs.27,01,434/-) Discount (Rs 2,20,778.15) and Building service and Maintenance (Rs 4,80,000/-). The ld AR 14 vehemently argued that in the remand proceedings the AO had no occasion to make adverse comment for these three expenses and therefore the CIT-A was not justified in confirming 50% of the disallowance made by the AO of towards these three expenses. Considering the remand report and the implied acceptance of the AO towards genuineness of these expense, we direct the AO to delete the disallowance of these expense. v) Transaction charges of 25,10,019.46. It is the say of the ld AR that these amount are deducted by the PayPal- a payment gateway for receiving online sale payment on behalf of the appellant company during the year under consideration. The ld AR vehemently argued that the CIT-A did not consider the submission of the appellant in the rejoinder that TDS is not required to be deducted on credit/debit card payments through payment gateway as held by Delhi HC in PCIT Vs. Make My Trip India Pvt. Ltd. 104 taxmann.com 263 (Del). We are of the considered view in the light of the decision of the hon’ble Delhi High Court, the disallowance confirmed by the CIT(A) was uncalled for. We accordingly direct the AO to delete the disallowance. vi) Commission charges of 10,56,825/- It is the say of the ld AR that it is the amount deducted by CC Avenue- a payment gateway for receiving on- line sale payment on behalf of the appellant during the 15 year under consideration. The ld AR argued that CIT-A did not consider the submission of the appellant in the rejoinder that the TDS has been duly deducted on these payments as per section 194C of the IT Act, hence no disallowance could be made on this ground. We are of the considered view that where TDS has been deducted u/s 194C, such payment is allowable. The AO is directed to verify the averment of the assessee and allow the same if found correct. Ground No. 2 along with sub-grounds is partly allowed. 15. Ground No. 3 is with regard to the addition of Rs. 74,64,722/- made by disallowing 30% of following purchase. Particulars Amount Purchase CST exempt 1,33,14,721/- Purchase vat (12.5%) 1,15,67,683/- Total 2,48,82,404/- 16. The Assessing Officer has made the disallowance by considering these purchases as nothing but inflated purchases claimed by the assessee to reduce its profits. The AO during the remand proceedings consequent to acceptance of the additional evidence under Rule 46A, has observed that there is a difference between purchases claimed by the assessee with that of the purchases confirmed by the party and out of the notices issued u/s 133(6) to 6 parties, information from only 4 16 parties has been received. Finally, the Assessing Officer disallowed 30% of the purchases of Rs 2,48,82,404/- and made an addition of Rs. 74,64,722/-. 17. When the aggrieved assessee went in appeal before the ld. CIT(A), the ld. CIT(A) sustained the addition made by the Assessing Officer by holding that the Assessing Officer had done sample verification of these expenses by sending notices u/s 133(6) but 50% of the parties did not respond. The Assessing Officer had not disallowed the whole expenses but estimated on the basis of verification that 30% of purchases are inflated. The ld. CIT(A) further held that there is no doubt that payments have been made through banking channel but in the absence of verification, claim of the assessee cannot be allowed. 18. Before us, the ld. counsel for the assessee submitted that the ld. CIT(A) has not considered these contentions of the assessee company filed in its rejoinder to the remand report filed before the ld. CIT(A) and upheld the addition by solely relying upon the comments offered by the Assessing Officer in its remand report. It is a settled law that addition cannot be made simply on the basis of outcome of notices issued u/s 133(6) of the Act but the other facts 17 should also be considered before treating the purchases as bogus. In the present case other substantiating documents such as invoices, ledger accounts, payments made to suppliers through banking channel, stock records in support of the purchases made have been completely overlooked by both the lower authorities. 19. The ld. counsel for the assessee further submitted that it has been held by various authorities that where sales are not doubted and have been accepted by the Assessing Officer and payment for purchase was made through banking channels, merely because suppliers had not appeared before the AO, purchases could not be rejected as bogus. 20. Reliance was placed on following decisions:- 1. CIT vs. Odeon Builders Pvt. Ltd. 110 Taxmann.com 64 (SC), 2. CIT Vs. NikunjEximp Enterprises Pvt Ltd. 35 Taxmann.com 384 (Bom) 3. CIT-1 Vs. Simit P. Sheth, ITA No. 553 of 2012, Gujarat HC 4. CIT vs. Bholanath Poly Fab (P) Ltd., ITA No. 63 of 2012 Gujarat HC 5. Assistant Commissioner of Income Tax Circle-22 (1) New Delhi Versus M/s. Sanvik Engineers India Pvt. Ltd., ITA No. 3201/Del/2015 18 6. M/s Becon Construction Pvt. Ltd. Versus ACIT, Central Circle-8, New Delhi, ITA No. 5034/DEL/2016 7. Manoj Sharma Versus ITO, Ward-39(5), New Delhi ITA No. 4342/Del/2018 8. Principal Commissioner of Income Tax vs. Pinaki D Panani ITA No. 1543 of 2017 – Bombay HC 9. Popatlal Nathalal Shah vs Assistant Commissioner of Income Tax, 19(2), ITA No. 6029/Mum/2018 21. Per contra, the ld. DR relied upon the orders of the authorities below. 22. We have heard the rival submissions and have perused the relevant material on record. We find that the ld. CIT(A) has solely relied upon the outcome of the notices issued u/s 133(6) of the Act by the Assessing Officer. We find that out of the 6 parties, three parties i.e., M/s Amrapali Jewels Pvt Ltd; M/s Masaba Richards and M/s Sabyasachi Couture have confirmed their transaction with the assessee. There is only some difference in the ledger accounts. We therefore direct the AO to reconcile the difference in the ledger account and upon reconciliation, allow the purchases from these parties. 19 22.1 With respect to the other three parties who did not respond to the notice u/s 133(6) namely M/s Genesis Colour Lab: M/s MM Styles Pvt Ltd and US…2, the ld AR stated that the notices remained uncompiled because of incomplete or incorrect address of the parties. In the facts of these circumstances, we deem it fit to restore this issue to the file of the AO to verify the genuiness of purchase from these three parties. The assessee is directed to submit the correct address and cooperate in the verification process. In that view of the matter, addition of Rs.74,64,722/- made by the AO by treating 30% of the purchases made by the assessee company as inflated/bogus purchases is deleted to the extent of three parties as above and the disallowance in case of the other three parties are set aside for the fresh adjudication. Ground No. 3 with its sub grounds are partly allowed. 23. Ground No. 4 as well as the additional ground raised, relates to the of addition of Rs. 24,00,000/- made by the Assessing Officer and restricted to Rs. 12,00,000/- by the ld. CIT(A) on account of cash salary paid to Mr. V. Prabhakar Sastry. 20 24. The Assessing Officer has made the disallowance on the basis of the document seized in the course of search which recorded cash payment of salary to Mr. V Prabhakar Sastry and other employees, confirmed by the statement of Mr. Moin Akhtar Qureshi recorded on 09.04.2012 where he admitted the cash payments to different employees. The AO held that during the AY 2014-15, cash salary paid to Mr. V Prabhakar is Rs. 200,000/-pm and since the cash payment exceeds Rs. 20,000/-, he disallowed Rs.24,00,000/- u/s 40A(3) of the Act. 25. The assessee was aggrieved and went in appeal before the ld. CIT(A) who after considering the facts and submissions, restricted the addition to Rs.12,00,000/- on finding that the seized document coupled with the statement u/s 132(4) of the Act confirms that Mr. V Prabhakar has been paid cash salary of Rs.1 lakh per month from unaccounted sources of income. Hence the unaccounted expenditure was treated as deemed income of the assessee company u/s 69C of the Act. Accordingly, addition made by the Assessing Officer was restricted to Rs.12 lakhs. 26. Aggrieved further, the assessee is in appeal before us. 21 27. Before us, the ld. counsel for the assessee vehemently stated that the ld. CIT(A) was not justified in making the addition in A.Y 2014- 15 on the basis of a seized documents which belongs to December 2012 relevant to AY 2013-14. 28. The other contention of the ld AR of the assessee that the ld. CIT(A) wrongly upheld the addition as unexplained expenditure of the assessee company u/s 69C of the IT Act. It is the say of the ld. counsel for the assessee that the same would tantamount to enhancement of income of the assessee company. The ld AR argued that as per section 251(1)(a) of the Act, in an appeal against an order of assessment, the ld. CIT(A) has power to confirm, reduce, enhance or annul the assessment by giving proper notice to the assessee but there is no such power provided by the law that the CIT(A) could change the provision of law qua the item of which assessment was made, that too without giving a notice for enhancement as provided in section 251(2) of the Act. 29. It is the also the say the ld. counsel for the assessee that since in the instant case the CIT(A) has changed the addition made by the Assessing Officer u/s 40A(3) of the Act by making addition under different section i.e., u/s 69C of the Act, the same would tantamount 22 to enhancement and since no notice for making the proposed enhancement has been given to the assessee company the same cannot be done as per law. 30. Reliance in this regard was placed on the decision of ITAT in the case of Toffee Agricultural Farms (P) Ltd Vs. Income Tax Officer 141 taxmann.com 429 and in the case of Prashant Pitti vs. ACIT in ITA No. 3032/Del/2022 dated 07.02.2024. 31. Per contra, the ld. DR reiterated what has been stated before the lower authorities. The ld DR referred to the page 491 of the Paper Book mentioning a document seized during the search marked as Annexure A-1, page 1 showing a cash of Rs 1,00,000/- being paid to Shri V. Prabhakar Sastry among other employees of the assessee company. The ld DR submitted that the payment of cash salary to V. Prabhakar Sastry and other employees are not reflected in the accounts of the assessee. The ld DR stressed the payment of salary in cash to employees was confirmed by the main person of the AMQ group Shri Moin Akhtar Quereshi in his statement recorded u/s 132(4) on 09.04.2014. It is the say of the ld DR that though the AO made the said addition u/s 40A(3), the CIT(A) has justifiably corrected the provision of law applicable i.e., u/s 69C. 23 32. On the issue of the CIT(A) invoking section 69C of the I T Act and therefore the same tantamount to enhancement requiring the CIT(A) to issue a notice for enhancement, the ld DR vehemently argued that no notice of enhancement was required as there is no enhancement of income by the CIT(A). The ld Dr firmly stated that where the AO made an addition of Rs 24,00,000/-, the CIT(A) reduced the same to Rs 12,00,000/- and hence there is no enhancement. The ld DR further argued that the CIT(A) has not adopted a new source of income. The ld DR averred that the source of income was same that was considered by the AO: receipt of salary in cash which was subject matter before the AO. The only difference is that the AO held it to be unallowable expense u/s 40A(3) whereas the CIT(A) reclassified it as unexplained expenditure u/s 69C. It is the say of the ld DR that where the provisions of section 40A(3) disallows any expenditure in cash above Rs 20,000/-,the provisions of section 69C similarly considers the unexplained expenditure as deemed income of the assessee. 33. The ld DR relied upon the decision of CIT v Kanpur Coal Syndicate (1964) 53 ITR 225(SC) and Jute Corporation of India (1991) 187 ITR 688(SC) for the proposition that the power of CIT(A) is “co- terminus with that of the AO and that “the CIT(A) can do what the AO can do and can also direct him to do what he failed to do”. The ld DR 24 also relied on the decision of the Hon’able Delhi High Court in the case of CIT V Union Tyres (1999) 240 ITR 556(Del) and CIT V Sardari Lal & Co (2001) 251 ITR 864(Del)(FB) to aver that the CIT(A) has not invoked a new source of income which is different from what was determined by the AO. 34. We have heard the rival submissions and have perused the relevant material on record. The facts shows that the Revenue found incriminating document, without date, during the search on the assessee which revealed that Shri V. Prabhakar Sastry was paid salary of Rs 1,00,000/- in cash. There was another excel sheet found showing salary paid to the employees of the assessee company for the month of December 2012. The practice of payment of salary in cash to employees was confirmed by the main person of the AMQ group Shri Moin Akhtar Quereshi in his statement recorded u/s 132(4) on 09.04.2014. We note that this confirmation from Moin Akhtar Quereshi, of the practice of payment of salary in cash, was confirmed after two months from the date of search which strengthen the view that considerable credence should be extended to the statement of Moin Akhtar Quereshi. The CIT(A) has found for a fact that the cash component of salary paid to V. Prabhakar Sastry and other employees are not reflected in the regular books of accounts of the assessee. As 25 the documented showed cash salary paid for a month coupled with the fact that the assessment was completed u/s 143(3), the AO extrapolated the said salary payment for full year at Rs 24,00,000/- on the basis of above seized evidence and statement, an act justified by the hon’able Supreme Court in the case of CST v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 271. We find that since the practice of payment of salary was confirmed by the main person of the group and was not controverted either before the AO and any appellate authorities, the AO validly extrapolated it for the entire year. The assessee’s argument that the document pertained to AY 2013-14, hence no addition can be made in the impugned year, is also rejected as the fact emerging out of the seized document was used for extrapolation of cash salary paid to V Prabhakar Sastry in the impugned year also. 35. The CIT(A), reduced the cash salary paid in cash to Shri V. Prabhakar Sastry for full year at Rs 12,00,000/- and reclassified the provision of law for making addition as unexplained expenditure u/s 69C. We are of the considered view that the CIT(A) has correctly taken the cash portion of salary paid to V Prabhakar Sastry at Rs 12,00,000/- as unexplained income of the assessee u/s 69C of the Income Tax Act. 26 36. The issues that now require adjudication is whether the CIT(A) has discovered a new source of income and whether he has made an enhancement of income without giving notice as provided in section 251(2) of the Income Tax Act. 37. For the sake of convenience, the provision describing the powers of the CIT(A) are reproduced as under: 251. (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers- a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment….. xxxx… (2) The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. 38. From the reading of the above provisions of law, it is quite unambiguous that the CIT(A) has no power to enhance the assessment without issuing a notice for enhancement. The law on the powers of the CIT(A) has been interpreted by the hon’ble Delhi High Court in the case of Union Tyres and Sardari Lal & Co (supra). The Delhi High Court in the case of CIT vs Sardari Lal & Co. delivered on 7 September, 2001 referred to the decision of Jute Corporation of India(supra) where the Supreme Court held that “the Appellate 27 Assistant Commissioner has no power to enhance the assessment by discovering new sources of income not considered by the Income Tax Officer in the order appealed against. 39. Similarly, in Union Tyres (supra), the Delhi High Court referring to the decisions of CIT, Bombay Vs. Shapoor ji Pallonji Mistry (1962) 44 ITR 891, found that the Supreme Court has held that, in an appeal filed by the assessee, the Appellate Assistant Commissioner has no power to enhance the assessment by discovering a new source of income, not considered by the Income-tax Officer in the order appealed against. Similar views were expressed by the Apex Court in CIT (Central) Calcutta Vs. Rai Bahadur Hardutory Motilal Chamaria (1967) 66 ITR 443. The hona’ble Delhi Court further held as below: “12. Thus, the principle emerging from the aforenoted pronouncements of the Supreme Court is, that the first Appellate Authority is invested with very wide powers under Section 251(1)(a) of the Act and once an assessment order is brought before the authority, his competence is not restricted to examining only those aspects of the assessment about which the assessee makes a grievance and ranges over the whole assessment to correct the Assessing Officer not only with regard to a matter raised by the assessee in appeal but also with regard to any other matter which has been considered by the Assessing Officer and determined in the course of assessment. However, there is a solitary but significant limitation to the power of revision, viz. that it is not open to the Appellate Commissioner to introduce in the Assessment a 28 new source of income and the assessment has to be confined to those items of income which where the subject-matter of original assessment. 40. The law that emerges is that though the CIT(A) has plenary powers, he can not enhance the income by discovering a new source of income not considered by the assessing officer. In the instant case, we find that the CIT(A) has examined the same source of income i.e., cash payment of salary to V Prabhakar Sastry which was subject matter for consideration before the AO. We are therefore of the considered view that the CIT(A) was very well within his power u/s 251(1)(a) to decide the issue. The ‘payment of salary in cash’ was not a new source of income before the CIT(A) as the issue emanated after the consideration of the AO. In view of the above, the additional ground of the assessee regarding enhancement of income without issuing notice by the CIT(A), fails. 41. We further find that the CIT(A) has reduced the addition made on account of ‘payment of salary in cash’ from Rs 24,00,000/- to Rs 12,00,000/-. The reduction in addition from the same source of income, can not by any stretch of imagination, be categorized as enhancement in the assessment or enhancement of tax liability of the assessee. By reclassifying the addition as unexplained expenditure u/s 29 69C, the CIT(A) has not increased the tax liability of the assessee in the impugned AY 2014-15 as increased taxation rate of 60% u/s 115BBE is effective from 01.04.2017. This factual feature of the instant case distinguishes it from the facts of the cases of Prashant Pitti and Toffee Agriculture Fams P Ltd (supra) relied upon by the assessee. In view of the above, we hold that the decision of the CIT(A) was legally justified and permissible. The ground 4 of the appeal is dismissed. 42. Ground No. 5 is with regard to the addition of Rs. 22,50,000/- made u/s 69C of the Act on account of unexplained expenses.The Assessing Officer has made the disallowance observing that Ms. Pernia Moin Qureshi, in her statement recorded u/s 132(4) of the Act had stated that she had drawings of Rs. 20-25 lakhs per year from the company. Out of the said amount she used to get 60% cash which is not accounted for in books of accounts. During assessment proceedings no details of any withdrawal made by Ms. Pernia Qureshi from the company was found recorded in P&L A/c. Thus the average of 20-25 lakhs which is 22.50 Lakhs was added in the hands of the assessee as expenditure met out from undisclosed sources of income u/s 69C of the Act. 30 43. The assessee remained unsuccessful before the ld. CIT(A) who confirmed the addition holding that the statement u/s 132(4) of the Act has great evidentiary value and the assessee company is involved in inflation of expenses, purchases etc. therefore there is possibility that these cash amounts were taken out of these expenses/purchases. The ld. CIT(A) concluded that there is no amount withdrawn through cheque hence the whole amount has been paid in cash. Accordingly, the ld. CIT(A) sustained the addition of Rs. 22,50,000/- made by the Assessing Officer. 44. Aggrieved, the assessee is in appeal before us. 45. Before us, the ld. counsel for the assessee vehemently stated that it is an uncontroverted fact that no payments were being made to Ms. Pernia Moin Qureshi from the assessee company nor any incriminating document in this regard has been found during the course of search action on the assessee company. For confirming the said addition, the ld. CIT(A) has solely relied upon the statement of Ms. Pernia Moin Qureshi recorded u/s 132(4) of the Act. The ld. counsel for the assessee contended that during the course of her statement at the time of search proceedings, Ms. Pernia Qureshi had clearly mentioned the facts that she is not having any exact idea of her source of income 31 therefore any addition made by the Assessing Officer by partly relying on the statement of Ms. Pernia Qureshi is not tenable. 46. It is the say of the ld. counsel for the assessee that it is a settled law that statement recorded u/s 132(4) of the Act could not be solely relied upon for making addition in the hands of the assessee. The Assessing Officer if relying on the particular statement, should fully rely but he cannot mould the statement as per his whim and fancies in favour of the revenue as has been done by the lower authorities. 47. The ld. counsel for the assessee placed reliance on the decision of the Delhi High Court in the case of Ajay Gupta Vs. DCIT 81 Taxmann.com 462(Del) wherein the Court has held that the surrender income must be correlated with some incriminating material found during the search so as to justify the addition. As admittedly no incriminating material was found during the course of search showing payment/earning of unaccounted income by Ms. Pernia Qureshi from the assessee company, the addition made on the basis of statement of Ms. Pernia Qureshi cannot be sustained. 48. Reliance was also placed on the decision of Delhi High Court in the case of CIT Vs. Harjeev Agarwal 70 taxman.com 95 [2016], PCIT Vs. Pavitra Realcon Pvt Ltd 23.05.2024 and Best Infrastructure 397 ITR 182. 32 49. Per contra, the ld. DR relied upon the orders of the authorities below. The ld DR drew are attention to the statement of Pernia Qureshi recorded u/s 132(4) dated 15.02.2014 where Pernia Quereshi drawing approx. 20-25 lakh from Pernia PoP Up Shop.com and M/s Pernia Quershi Consultancy Pvt Ltd in a year in the ratio of cash 60% and cheque 40%. 50. We have heard the rival submissions and have perused the relevant material on record. We find the said addition has been made solely on the basis of Pernia Qureshi statement u/s 132(4). The AO has not corroborated the said admission with any evidence or materials found during the course of search. We agree that the the statement u/s 132(4) has great evidentiary value but the same need to be substantiated with some incriminating material. As held by the Hon’ble Delhi High Court in Harjeev Agarwal (supra) as follows: “The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded”. 33 51. Similarly, the Hon’ble High Court in the case of Ajay Gupta Vs. DCIT 81 Taxmann.com 462(Del) has clearly held that the surrender income must be correlated with some incriminating material found during the search so as to justify the addition. The Assessing Officer, if relying on the particular statement he should fully rely but he cannot mould the statement as per his whim and fancies in favor of the revenue as has been done by the Assessing Officer while making the present addition. 52. We find that the Assessing Officer has added the whole amount without establishing the payment received in cheque by Ms. Pernia Qureshi from the assessee company. We also note that the CIT(A) confirmed the addition on the basis of conjecture and surmise without corroborating or relating the addition with any incriminating evidence/material unearthed or found during search. As admittedly no incriminating material was found during the course of search showing payment/earning of unaccounted income by Ms. Pernia Qureshi from the assessee company, the addition made on the basis of statement of Ms. Pernia Qureshi cannot be sustained. Ground No. 5 is allowed. 34 53. In the result, the appeal of the assessee in ITA No. 992/DEL/2020 is partly allowed. The order is pronounced in the open court on 20.01.2025. Sd/- Sd/- [VIKAS AWASTHY] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 20th January, 2025 VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi 35 Sl No. PARTICULARS DATES 1. Date of dictation of Tribunal Order… .03.2025 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member .01.2025 3. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 4. Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6. Date on which the signed order comes back to the Sr. P.S./P.S 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial 11. The date on which the file goes to the Assistant Registrar for endorsement of the order 12. Date of Despatch of the Order "