AI Insights
The case involves Pradeep Sharma, the appellant, who contested the decisions made by the Income Tax Officer (ITO) and upheld by the CIT(A) regarding disallowances and additions made to his income for the assessment year 2017-18. The primary issues included the disallowance of bad debts claimed under section 36(1)(vii), disallowance of commission and consultancy expenses, and the addition of cash deposits made during the demonetization period as undisclosed income under section 69A. The Tribunal examined the submissions, evidence, and the legal provisions applicable, ultimately agreeing with the CIT(A) and ITO's decisions.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 775640 (ITAT-JAIPUR)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
8 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
09-09-2025
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2017-2018
Appeal Filed On
20-12-2024
Judgement Text
" vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” 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, vk;dj vihy la-@ITA No. 1522/JP/2024 fu/kZkj.k o\"kZ@Assessment Year : 2017-18 Pradeep Sharma K-12, Office No. 504, Malviya Marg, C-Scheme, Jaipur cuke Vs. ITO, Ward 1(5), Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AEMPS7267R vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Tarun Mittal, C.A jktLo dh vksj ls@ Revenue by : Mrs. Anita Rinesh, JCIT, Sr. DR lquokbZ dh rkjh[k@ Date of Hearing : 09/07/2025 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement: 09/09/2025 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM On being aggrieved by the order of the National Faceless Appeal Centre, Delhi [ for short CIT(A) ] dated 13/11/2024 the assessee as named above preferred the present appeal. The dispute relates to the assessment year 2017-18. The said order of the ld. CIT(A) arises because the assessee has challenged the assessment order dated 19.12.2019 passed under section 143(3) of the Income Tax Act, 1961 [ for short “Act”] by the Income Tax Officer, Ward 1(5), Jaipur [ for short AO]. Printed from counselvise.com 2 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 2. In this appeal, the assessee has raised the following grounds: - “1. On the facts and in the circumstances of the case ld. CIT(A) has grossly erred in arbitrarily confirming the disallowance of Rs.34,44,408/- made by ld.AO of bad debts claimed by assessee u/s 36(1)(vii) of the Income Tax Act, 1961. 1.1 That ld. CIT(A) has further erred in not appreciating the fact that sales made to all the parties involved was duly recorded in books of accounts and have been accepted in earlier years wherein due taxes have already been paid on the income so offered and outstanding amount not recoverable, is written off in the books of accounts. Appellant prays that both the conditions laid down in section 36(1)( vii ) are satisfied and bad debts have been rightly claimed by assessee, (being clearly covered by provisions of the Act as well as allowable as per settled legal position) deserves to be allowed. 1.2 That on the facts and in the circumstances the case ld. CIT (A) has grossly erred in observing that certain sum from the some of the parties have been received by assessee until preceding years as also in the relevant year, and thus the same cannot be allowed as being irrecoverable by grossly ignoring the fact that these recoveries were made after such persuasion and thereafter as there was no hope of recovery, these were treated as bad debts. 2. On the facts and in the circumstances of the case ld. CIT(A) has erred in confirming the disallowance of Rs. 52,648/- made by ld.AO out of the Commission expenses claimed by assessee, by arbitrarily alleging that the same were incurred in cash without bringing any contrary material on records. Appellant prays that the commission expenses incurred being incurred for the purpose of business, deserves to be allowed. 3. On the facts and in the circumstances of the case ld. CIT(A) erred in making addition of Rs. 18,285/- out of Consultancy expenses, arbitrarily merely for the reason that the invoice for the same could not be traced. Appellant prays that the expenses incurred being genuine, payment being made through banking channels, thus the disallowance made, deserve to be deleted. 4. On the facts and in the circumstances of the case ld. CIT (A) has grossly erred in confirming the adhoc disallowances of 10% as made by ld.AO out of following expenses: Particulars Amount Mobile expenses 78,918 Telephone expenses 63,108 Printed from counselvise.com 3 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO Business promotion 79,666 Conveyance 5,52,561 Misc and general exp. 1,11,075 Travelling expenses 91,457 Vehicle maintenance exp 3,32,268 Total 13,09,053 Appellant prays that disallowance was made and confirmed on presumption of involvement of personal element due to the nature of expenditure, however not even a single instance of personal expenses has been pointed out either by ld.AO or ld.CIT(A) and thus the disallowance being made and confirmed merely on suspicion, deserves to be deleted. 5. On the facts and in the circumstances of the case the ld. CIT(A) has grossly erred in conforming disallowance of Rs. 3,97,500/- on account of Rent paid, by not admitting additional evidences furnished by assessee. Appellant prays that documents furnished as additional evidence could not be filed during assessment proceedings due to circumstances beyond the control of assessee and since go to the root of the matter, may please be admitted in the interest of substantive justice. 6. On the facts and in the circumstances of the matter ld. CIT(A) has grossly erred in confirming addition of Rs. 40,00,000/- made by ld.AO by invoking sec 69Ar.w.s. 115BBE and treating the cash deposited during the de-monetization period (09.11.2016 to 30.12.2016) as being undisclosed income of the assessee, whereas the same was deposited out of accumulated total cash balance available as a result of cash sales made in various months prior to de- monetization period, which was required to be deposited in bank on account on the directives of the government related to demonetization scheme. Appellant prays such addition is based purely on surmises, without considering the valid explanation filed by the assessee and therefore deserves to be deleted. 6.1 That the ld. CIT(A) has grossly erred in treating the cash deposited during de-monetization period as unexplained, without appreciating the fact that the source of such cash deposit was duly explained as being the cash sales made by the assessee during the preceding months and the total cash balance available till that period. Appellant prays that the addition so made only on presumptions, without in any manner doubting the sales declared by the assessee and without invoking the provisions of section 145(3), thus the action of ld. CIT(A) is most arbitrary and consequent addition of Rs. 40.00 lakhs made deserves to be deleted. Printed from counselvise.com 4 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 6.2 That the ld. CIT (A) has grossly erred in confirming the addition by merely observing that the cash deposited in the same period in the last year was very less as compared to the cash deposited during the de-monetization period. Appellant prays that as explained since the major cash available at all sites was brought back immediately along with all the cash generated due to cash sales made during the period till 08.12.2016 in SBN had to be deposited within the given period, as per the directives of the government and this bring the peculiar and very extraordinary situations is totally not comparable to the cash deposited during the same period in the preceding years and thus addition made by simply comparing entirely different situations, is unwarranted and deserve to be deleted. 6.3 That the ld. CIT(A) has further erred in not appreciating the fact that the cash sales made during the pre-demonetization period was declared in the VAT returns filed by the assessee and thus was not the afterthought, thus action of ld. CIT(A) in not accepting such cash sales genuinely made and duly declared before the VAT authorities much prior to the date of demonetization deserves to be held bad in law and on facts and consequent addition being made solely on conjunctives and surmises deserves to be deleted. 6.4 That ld. CIT (A) has further grossly erred in making addition by invoking provisions of sec 69A, which section can be invoked only when the assessee is found to be an owner of any money, bullion, jewellery or valuable article which is not recorded in the books (if any) maintained for any source of income by the assessee and the assessee is not able to satisfactorily explain the source of acquiring such money, bullion, jewellery or valuable articles. In the present case, the addition made is on account of cash deposited in the bank account, during the de-monetization period, which was duly recorded in the audited books of accounts regularly maintained by the assessee. Appellant prays that the consequent addition made u/s 69A deserve to be deleted. 7. On the facts and in the circumstances of the case ld. CIT (A) has grossly erred in law as well as facts in initiating penalty u/s 270A of the I.T. Act. Appellant prays that such initiation being bad in law deserves to be set aside. 8. On the facts and in the circumstances the ld. CIT (A) has erred in initiating penalty u/s 271AAC on the addition made by alleging the cash deposited during the de-monetization period as being from undisclosed sources u/s 69A. Appellant prays such cash deposited being from regular cash sales and available cash balance of the assessee, the penalty so initiated deserves to be set aside. 9. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.” Printed from counselvise.com 5 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 3. Succinctly, the fact as culled out from the records is that the assessee e-filed his return of income on 29.09.2017 declaring total income of Rs.12,41,400/- after claiming deduction under chapter VI-A amounting to Rs.1,85,000/-. Thereafter, the case of the assessee for that year was selected under Scrutiny through CASS. Statutory notices as required was issued to the assessee and the assessee filed the details and submissions. On verification of details so submitted ld. AO noted that assessee engaged in the business of wholesale and retail trading of fire safety equipment and devices in the name and style of M/s. Swatik Trading Company. Assessee furnished copy of cash book, copy of bank account statement, copy of purchase and sale ledger, ledger account of expenses confirmation of loan and produced books of accounts along with bills and vouchers which was test checked as stated by the ld. AO. 3.1 While doing so ld. AO noted that the assessee debited bad-debts amounting to Rs.34,44,008/-. The assessee was required to furnish the justification of bad debts debited in profit and loss account. In compliance, the assessee submitted copy of ledger account of the defaulter and thereby written off as bad debts. The list is given at page 2 and 3 of the assessment order. Ld. AO requested the assessee to show the action taken to recover Printed from counselvise.com 6 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO those bad debts written off along with documentary evidences. In compliance thereto the assessee filed the reply which reads as follows: \"The assessee has been regularly personally visiting above named debtors for recovery of outstanding amounts but there has been no response, hence the amounts have been considered as irrecoverable. However, if the said amounts are recovered in future time, same shall be credited as income and accordingly shall be considered in net profit. Filing legal cases or sending notices is not an easy task and it is not practical because sending legal notices or filing cases against debtors creates bad reputation of the assessee and may disrupt the market exposure of the assessee.\" The above submission of the assessee was considered by the ld. AO but not found acceptable. Because no letter/correspondence available with the assessee for recovery action taken, further on verification of ledger account of the above debtors, amounts were regularly received from the debtors. In the case of Adinath Buildcon P Ltd., amount of Rs. 50,000/- received on 27.12.2016 i.e. during the year, also in previous year Rs.1,00,000/- received on 4.1.2016. In the case of Choice Finlease Pvt Ltd. Rs.3,50,000/- received on 28.10.2016, in the case of Felicity Estates P Ltd. Rs.2,29,641/- and Rs.3,00,000/- received on 13.08.2015 and 8.9.2015 respectively, in the case of Salona Bichona Fabtex India P Ltd. Rs.50,000/- and Rs.52,941/- received on 27.4.2016 and 13.05.2016 respectively and outstanding amount was only Rs.31,945/-, in the case M/s. Namdev Builders and Developers Rs.2,50,000/- received during the year on Printed from counselvise.com 7 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 10.04.2016 and other cases amounts received in the year 2015. As discussed above, how assessee, assumed that outstanding above are bed- debts. Further assessee, without any corresponding debited in P & L account as bed debts only reduce his profit earned during the year. Further in the reply filed on 17.12.2019, it is stated that all Bad debts written off during the year are on the basis of duration for which they were outstanding and not recoverable from the debtors. All the bad debts written off were outstanding for more than one year. Ld. AO also considered this reply but not found acceptable because as mentioned above, in most of the cases, amount received during the year under consideration and further assessee himself stated that he personally visiting above named debtors for recovery of outstanding amounts that means they are not in category of bad debts. Therefore, ld. AO noted that the assessee has failed to furnish documentary evidence in support of his claim. He also noted that the assessee failed to prove that the conditions of section 36(1)(vii) had been fulfilled in respect of these expenses written off by it. Hence, the said claim of the assessee was not considered as allowable and thereby disallowance of Rs.34,44,408/- was made in the declared income of the assessee. Printed from counselvise.com 8 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 3.2 Ld. AO also noticed that the assessee has debited commission expenses Rs. 60,748/- in profit and loss account. Assessee was asked to furnish the complete details of commission expenses paid along with confirmation / documentary evidences. Assessee furnished vouchers of commission payments only. He observed from that the amount of commission was paid in cash, on the vouchers, signature of accountant or authorized person's not appears on the receipts, no address appears of the commission agent. No revenue stamp affixed on the receipts. In two vouchers, receipts without signature of the recipient. Date of receipt not mentioned in the vouchers. He also noted that the assessee has not deducted TDS on commission payment except in the case of Arjun Kumar Sharma amounting to Rs.8,100/-. The assessee could not furnish the details of services rendered by the agent. Since the assessee has failed to furnish confirmations inspite of repeated opportunities, the expenditure claimed by the assessee remains unverifiable in absence of confirmations. As a result, the genuineness of these commission payments remains doubtful particularly when the assessee failed to furnish confirmations in respect of these even despite being given ample opportunities. Thus, the genuineness of the above commission payments remains doubtful. Further, the assessee did not even furnish any details regarding nature of services Printed from counselvise.com 9 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO rendered by these parties in respect of which commission had been paid nor were any documents produced by assessee in this regard despite numerous opportunities as stated above. Thus, in the absence of the confirmations & necessary detail & documentary evidences regarding the nature of services rendered by these persons/parties, claim of commission in the case of the above parties was not considered as genuine and thereby ld. AO made an addition of Rs.52,648/- out of the commission expenses and added to the income of the assessee. 3.3 While assessment proceeding ld. AO noticed that the assessee has debited consultancy charges amounting to Rs.1,52,247/ in profit and loss account. The assessee was asked to furnish complete details of the same. The assessee filed reply on 17.12.2019 wherein it was submitted that the invoice related to amount of Rs 18,285/- are not traceable. In absence of the same, the consultancy charges amounting to Rs 18,285/- was disallowed and added to the total income of the assessee. 3.4 In that proceeding before the ld. AO he verified bills and vouchers of various expenses debited in the profit and loss account. From examination of bills and vouchers produced by the assessee it was noted by him that Printed from counselvise.com 10 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO complete expense vouchers on account of following expenses were not maintained and produced for verification; Mobile expenses 78,918 Telephone expenses 63,108 Business promotion 79,666 Conveyance 5,52,561 Misc and general expenses 1,11,075 Travelling expenses 91,457 Vehicle maintenance expenses 3,32,268 Total 13,09,053 Ld. AO noted that for the expenses as listed herein above most of the payments were made in cash through internal vouchers. Some of the vouchers either do not bear any serial number or they are not signed by the recipient. Personal elements cannot be ruled out. Hence the expenses claimed on account of these expenses are not found fully verified. In view of that observation, he considered 10 % the above expenses at Rs. 1,30,905/- was disallowable and thereby added back to the income of the assessee. 3.5 During the course of assessment proceeding ld. AO noticed that the assessee paid Rs. 9,49,500/- as rent [ godown rent 2,52,000 and office rent 6,97,500]. Ld. AO asked for the copy of rent agreement which the assessee did not produce but filed the copy of ledger account. From that details so filed by the assessee ld. AO noted that assessee paid Rs. 3,00,000 to Bela Sharma after deducting TDS and since the assessee has not filed details of Printed from counselvise.com 11 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO the office rent of Rs. 3,97,500/- same was added as income of the assessee. 3.6 Ld. AO noticed that the assessee during the demonetization period deposited specified bank notes (SBN) for an amount of Rs. 44,00,000/- on 11.11.2016 in his bank account no. 623505377798 and Rs. 4,00,000/- in account no. 518003402535 maintained with IndusInd Bank. Thus, vide notice dated 02.12.2019 the assessee was asked to furnish complete details of cash deposited during the year and during the demonetization period along with the bifurcation of currency deposited. In response the assessee submitted reply which reads as follows: “During year total cash deposited was Rs. 40 lakh and during demonetizatin period total cash deposited was Rs. 40,00,000/- As submitted in first submission that assessee is not able to find the cash deposit slip, hence he is unable to provide the currency-wise details deposited into bank. Further, reason of huge cash amount deposited in bank is the cash sales made by the assessee and cash withdrawn from banks. Assessee has to maintain cash balance at various running sites and the cash is kept with the site supervisors/managers to incur the site expenses. At the time of demonetization total cash was called back from all the site and the same was deposited in bank account on morning of 11.11.2016. To justify and authenticate the above facts complete cash book is submitted before your good sell on 24.11.2019 vide acknowledgement number 24111912294100 in second submissions.” The above reply filed by the assessee was considered but not found acceptable. Ld. AO noted that the assessee had deposited cash amount of Rs 40,00,000/- in his bank account after demonetization which were SBN Printed from counselvise.com 12 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO (old currency). The assessee had not furnished details/documents of such deposit only one reply filed through e-filing portal in which stated that the above amount deposited out of cash sales and cash withdrawals. No supporting documentary evidences have been furnished by the assessee in support of his claim. On verification of bank account statements of the assessee, ld. AO noticed that the assessee had deposited cash amounting to Rs.90,000/- in his bank accounts during the F.Y. 2015-16 and cash deposited during 09.11.2015 to 31.12.2015 of Rs. 25,000/-. However, during the financial year the assessee has deposited cash amount to Rs. 40,00,000/- and all cash deposited during demonetization period. No cash deposited from 01.04.2016 to 08.11.2016. Thus, it is clear that the assessee has failed to explain the sources of cash deposited of Rs.40,00,000/- in his bank account after demonetization period. Therefore, the cash deposited by the assessee in his bank account was treated as income of the assessee during the year from undisclosed sources and added to the declared income of assessee u/s 69A of the I.T. Act, 1961. Printed from counselvise.com 13 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 4. Feeling dissatisfied with the finding so recorded in the assessment order the assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below: “I have gone through the grounds of appeal, assessment order and the submissions of the appellant. Remand report submitted by the AO has also been perused. The assessee is obliged to prove to the AO that the case satisfies the ingredients of section 36(1)(vii) as well as section 36(2) of the IT Act, 1961. The language of section 36(1) (vii) of the Act is unambiguous and does not admit of two interpretations. It applies to all banks, commercial or rural, scheduled or unscheduled. It gives a benefit to the assessee to claim a deduction on any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year. This benefit is subject only to section 36(2) of the Act. It is obligatory upon the assessee to prove to the AO that the case satisfies the ingredients of section 36(1)(vii) on the one hand and that it satisfies the requirement stated in section 36(2) of the Act on the other. The proviso to sec. 36(1)(vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case of the assessee is one which falls squarely under sec. 36(1)(viia) of the Act. The explanation to section 36(2)(vii) of the Act introduced by the Finance Act 2001 has to be examined in conjunction with the principle section. The explanation specifically excluded any provision for bad and doubtful debts made in the account of the assessee form the ambit and scope of any bad debt, or part thereof written off as irrecoverable in the accounts of the assessee. 4.4.1 It is evident that merely stating a bad debt as an irrecoverable write off without the appropriate treatment in the accounts, as well as non compliance with the conditions in section 36(1) (vii), 36(2) and explanation to section 36(1)(vii) would not entitle the appellant to claim a deduction. This position was reiterated again in Catholic Syrian Bank Vs. Commissioner of Income tax, Thrissur. 4.4.2 In view of the above discussions, the appellant's claim of bad debts on the grounds that 'tax rate revision which is disputed by the vendor\" is not acceptable. The reasons submitted by the appellant before the AO during the course of assessment proceedings are not convincing for write off of the debts as unrecoverable and hence bad. Bad debts end up as such because the debtor Printed from counselvise.com 14 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO cannot or refuse to pay because of bankruptcy, financial difficulty, or negligence. These entities may exhaust every possible avenue to collect on bad debts before deeming them uncollectible, including collection activity and legal action. In the present case, the appellant has not taken any steps to recover the debts. No efforts were made by the appellant to recover the debts. In the absence of any legal action taken by the appellant, the claim made by the appellant cannot be allowed. In view of the facts of the case mentioned above, I agree with the AO and the addition of Rs. 34,44,408/-is confirmed. This ground of appeal is dismissed. 5. Ground No. 2 is with regard to disallowance of commission expenses of Rs. 52,648/- 5.1 As per the assessment order, in the absence of confirmations and necessary details and documentary evidences regarding the nature of services rendered by these persons/parties, claim of commission in the case of the above parties cannot be considered as genuine and cannot be allowed as business expenditure.. 5.2 During the course of appellate proceedings, it is submitted that all the payments were made towards services provided by them in normal course of business and were incurred exclusively for the business purpose. It is submitted that none of the payments made to single party exceeded Rs. 15,000/- 5.3 I have gone through the assessment order and the submissions. During the course of present proceedings, the appellant had not filed any documentary evidence to whom the amounts were paid. The purpose of the payment and the reasons for such commission payment. The appellant had also failed to furnish the copy of the agreement with the persons to whom the commission has been paid. Before appoint a person or hire a person, an agreement or contract is necessary. The appellant has not given details of personal identity with PAN and nature of work done etc. In view of the above, I have no reason to interfere with the observations of the AO and the addition made by the AO of Rs. 52,648/- is confirmed. The ground No. 2 of the appeal is dismissed. 6. Ground No. 3 is with regard to disallowance of consultancy expenses and other expenses. 6.1 The AO in the assessment order, it is submitted that out of consultancy expenses of Rs. 1,52,247/-, disallowance of Rs. 18,285/- has been made. Printed from counselvise.com 15 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO Similarly, the Id. AO has disallowed expenses worth Rs. 1,30.905/- 1.e. 10% out of various expenses debited in P&L account by observing certain technical discrepancies in preparation of vouchers etc. 6.2 The appellant during the course of appellate proceedings submitted that none of the payments for expenses made in cash were beyond the limit prescribed u/s. 40A(3). Further, wherever payment to a single party has exceeded the threshold of deduction of tax at source, due compliance has been made by assessee. 6.3 I have gone through the submissions of the appellant. It appears from the submissions that the appellant is not serious in pursuing the appeal and the submissions are in casual manner. It is seen that the AO observed that the expenditure was incurred for local conveyance, domestic travel etc. for which ledgers were not furnished. Cash payments towards conveyance and travelling cannot be ruled out. After carefully going through the facts of the case, considering the nature and day to day transactions of the appellant's business including the cash expenditure, I am of the considered view that the disallowance made by the AO @ 10% is reasonable and hence addition of Rs. 18,285/- and Rs. 1,30,905/- are upheld. Ground No.3 is dismissed. 7.0 Ground No. 4 is with regard to the disallowance of rent expenses of Rs. 3,97,500/-. 7.1 As per the assessment order, the assessee has debited rent paid during the year amounting to Rs. 9,49,500/- (godown rent Rs. 2,52,000 and office rent Rs. 6,97,500/-). Verification of the ledger assessee office rent paid to Bele Sharma amounting to Rs.3,00,000/-and TDS deducted. No details of office rent paid balance amount of Rs. 3,97,500/- furnished by the assessee. 7.2 In this regard, it is submitted that rent has been paid by Head office, therefore instead of cash, assessee has credited head office, which is evident from leger of rent enclosed. It is further submitted that rent ledger could not be furnished during assessment proceedings, therefore constitutes additional evidence, and is being furnished along with prayer under rule 46A to admit the same. 7.3 I have gone through the submissions of the appellant. In the remand report, the AO submitted that clause (a) of rule 46A is not applicable because the AO never refused to admit evidences, for the simple reason that no evidences or Printed from counselvise.com 16 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO information was provided by the assessee during the assessment proceedings. Clause (b) and (c) are not applicable because as per the additional evidences submitted by the assessee in appellate proceedings no cause or its sufficiency could be ascertained that prevented him from submitting the evidenice during assessment proceedings. Clause (d) is not applicable because the AO did provide adequate opportunities to the assessee during the assessment proceedings to present evidence, which were not utilized by the assessee. Thus, the circumstances mentioned in the above mentioned four clauses of Rule 46A are not applicable to the present situation, and therefore, the additional evidence submitted by assessee during appellate proceedings is not admissible. Under the circumstances and in view of the remand report of the AO, the addition of Rs. 3,97,500/- on account of disallowance out of rent expenses is upheld and ground No. 4 is dismissed. 8.0 Ground No. 5 is with regard to the addition of Rs. 40,00,000/- cash deposited during the demonetization period by invoking sec. 69A r.w.s. 115 BBE. 8.1 As per the assessment order, during the demonetization period assessee had deposited SBN cash amounting to Rs. 44,00,000/-on 11.11.2016 in his bank account No. 623505377798 and Rs. 4,00,000/- in account No. 518003402535 maintained with Indusind Bank. The assesee had deposited cash amount of Rs. 40,00,000/- in his bank account after demonetization which were SBN. The assessee had not furnished details / documents of such deposit out of cash sales and cash withdrawals. No supporting documentary evidences have been furnished by the assessee in support of his claim. Therefore, the assessee has failed to explain the sources of cash deposited of Rs. 40,00,000/- in his bank account after demonetization period and hence added to the income declared u/s. 69A of the I T Act. 8.2 It is submitted that the source of cash being out of cash sales made from time to time, cash withdrawals made from bank. It was further explained that assessee maintains cash balance at various sites to meet out day to day requirements of site expenses, however, due to demonetization, such cash balances in demonetized currency, were also compulsorily deposited in bank due to demonetization. It is further submitted that one major fact was ignored by the AO that sales against cash deposited in the bank accounts maintained in regular course was duly recorded in the books of accounts and after inclusion of the same in total sales, cash balance, profit and stocks were derived which were accepted by Id. AO without any doubts. Printed from counselvise.com 17 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 8.3 I have gone through the grounds of appeal and submissions of the appellant. On verification of the bank account statements of the assesee it is noticed that the assessee had deposited cash amounting to Rs. 90,000/- in his bank account during the F.Y. 2015-16 and cash deposited during 09.11.2015 to 31.12.2015 of Rs. 25,000/-. However, during the financial year the assesee has deposited cash amount of Rs. 40,00,000/- and all cash deposited during demonetization period. No cash deposited from 1.4.2016 to 8.11.2016. However, from 08.11.2016, the appellant had started to deposit the amount. Appellant has not given any reason for delay in depositing into bank account by way of written submissions. In the absence of some basic submissions by way of written submissions, it is not possible to accept the cash deposits in bank as business receipts. Appellant not filed any such evidence to prove that the receipts are business receipts only. The observations of the AO is that the very act of the assessee in depositing the SBNs on various dates clearly prove beyond doubt that either the same were his unaccounted income that was lent earlier and realized at the latter date or had involved in converting SBNs into legal tender and thereby earn huge commission or by way of sales realization. Neither the appellant produced the invoice / bill or confirmation from the traders. 8.3.1 In the appellate proceedings, burden of proof lies on the appellant to prove that facts and findings of the AO are incorrect. Rather than pointing out the observations of the Assessing officer, the appellant would have filed the details in support of its claim that the cash deposited during the demonetization period is nothing but the collection received from the parties with regard to their loan amounts. Since the appellant did not come forward with any supporting evidences/information responding to the notices issued so far, the submissions of the appellant cannot be accepted. 8.3.2 As per section 69A of the Act, assessee has to explain to the satisfaction of the AO the cash deposited by it. If the assessee fails to explain or the explanation is not satisfactory, the section provides that the money is deemed to be income of the assessee for the year in which it was deposited. In this case the assessee failed to explain the claim that it relates to business. Therefore, the amount is liable to be added under deeming provision of 69A. Section 69A reads as under. Unexplained money, etc. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of Printed from counselvise.com 18 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. 8.3.3 In the present case the assessee is found to be the owner of the money in the financial year and no explanation is offered by it, the money is deemed to be the income of the assessee for such financial year as per section 69A of the Act. Reliance in this regard is laced on the following decisions. 25 taxmann.com 440 Manojkumar Jain (ITAT Delhi) 34 taxmann.com 5 M H Raney (ITAT Mumbai) 49 taxmann.com 101 Sarwankumar Sharma (Gu METAX DEP 56 taxmann.com 284 Bhagwandas D Vachani (Guj) In 25 taxmann.com 440 Manoj kumar Jain (ITAT Delhi) Hon'ble ITAT Delhi held as under. \"9. We have heard both parties and gone through the material available on record. We have also gone through the bank account of M/s. Dynamic Solutions with Jain Co- operative Bank Ltd. From the copy of bank account we find that the assessee has deposited cash in the bank account. The cash deposited has been transferred it to various accounts in the same branch. The assessee has not explained source of cash deposited. The assessee has not withdrawn cash from the bank on the basis of which it could be argued that the same cash was deposited in the bank account and, therefrom peak credit of deposits in the bank account should have been worked out. Therefore, the contention of the assessee that the Assessing Officer should have determined the peak credit is not supported by any evidence. However, we also find that on February 10, 2006 an amount of Rs. 1,75,000 has been transferred by cheque No. 568596 and another amount of Rs. 1,750 vide cheque No. 263276. We also find that on 29th March, 2006 amount of Rs. 18,00,000 has been transferred from account No. C-736. The Assessing Officer had also noted that an amount of Rs. 1,00,000 was also withdrawn from cash. The source of the balance amount has not been explained. Therefore, the addition made by the Assessing Officer except the above amount of Rs. 19,76,750 (Rs. 1,75,000 plus Rs. 1,750 plus Rs. 18,00,000) has to be upheld. Accordingly, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) confirming the addition to this extent.\" Hon'ble ITAT Mumbai in M H Raney 34 taxmann.com 5 (ITAT Mumbai) dealing with cash deposits held as under. Printed from counselvise.com 19 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO \"The assessee's explanation is vague and unsubstantiated; rather, being limited to the working of the quantum of the unexplained funds involved, contending recycling, so as to impact the addition to income exigible on account of the unexplained nature and source of the investment. The peak credit theory is based on recycling of funds, implying systematic activity, while neither the nature of the deposits nor their utilization, stands explained, so that the plea is not maintainable at the threshold. Scrutiny (of the bank account statement) reveals it to be inconsistent with not only the explanation of the amounts being possibly used for charitable purposes, but also with the fact of the same being, apart from withdrawn in cash, also by cheques for ostensibly personal purposes, on a regular basis and in no insignificant sums. Further, the pattern of withdrawal reveals the account to be employed for transfer of funds in the main, ie., deposit of cash at one place and its withdrawal at other, the funds being withdrawal almost in toto, and soon after their deposit. The assessee has been wholly unable to discharge the onus of a satisfactory explanation qua cash deposits, including the quantum of funds involved and, accordingly, its appeal fails.\" 8.3.4 In view of the above discussion and the case laws relied, it is held that the AO correctly held that the assessee failed to discharge the onus vested on it. Therefore, the addition of Rs. 40,00,000/- made by the AO is confirmed u/s 69A of the Act as the source of which remain unexplained and unsubstantiated. The Grounds of the appeal is dismissed. 9.0 Ground No. 6 is with regard to initiation of penalty proceedings u/s. 270 A and 271 AAC of the IT Act. Penalty proceedings u/s 270A were initiated as the AO opined that the appellant had unreported / misreported the income. Penalty proceedings u/s 271 AAC were initiated as the AO opined that the appellant had income from an undisclosed sources u/s. 69A of the IT Act. Since the penalty proceedings initiated were backed by valid reasons, this ground of appeal is dismissed. Further, Penalty proceedings were initiated and penalty if any will be levied by the AO by a separate order. Therefore, this ground is premature, not sustainable and hence, dismissed. 10. Lastly, the \"appellant crave leave to add, alter, amend the grounds of appeal\". However, no such option has been exercised by the appellant during appeal proceedings. Hence, this ground is dismissed as infructuous. 11 In the result, the appeal is DISMISSED. Printed from counselvise.com 20 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 5. Aggrieved with the above order of the ld. CIT(A), the assessee preferred the present appeal before this tribunal challenging the finding of the ld. CIT(A). To support the various grounds so raised by the assessee ld. AR of the assessee, has filed the written submissions which reads as follows:- Brief facts of the case are that assessee is an individual and is engaged in the wholesale and retail trading of fire safety equipment and devices in the name of M/s Swastik Trading Co., i.e. proprietorship concern of the assessee. Return of income for the year under consideration was filed by the assessee on 29.9.2017 declaring total income Rs. 12,41,100/- (APB 1-3). Subsequently, case of the assessee was selected for scrutiny under CASS. Various details/information were sought by ld.AO as well as books of accounts of the assesse were duly furnished and the assessment was completed u/s 143(3) of the Act vide assessment order dated 19.02.2019 and following additions were made to the income of the assessee and assessed income was computed at Rs. 92,85,146/-. Aggrieved of the aforementioned additions and disallowances made by the ld.AO, the assessee filed an appeal before ld. CIT (A), which was decided vide order dated 13.11.2024 passed u/s 250, whereby additions made by ld.AO have been confirmed. Present appeal has been preferred by assessee against order so passed by ld.CIT(A). With this background, Ground-wise submission is made as under: Grounds of Appeal No. 1 to 1.2: S.No. Particulars Amount (Rs.) 1. Disallowance on account of Bad Debts 34,44,008/- 2. Disallowance on account of commission 52,648/- 3. Disallowance on account of Consultancy Charges 18,285/- 4. Adhoc disallowance a 10 % of Miscellaneous expenses 1,30,905/- 5. Disallowance on account of Rent 3,97,500/- 6. Unexplained Cash deposits 40,00,000/- Total Additions 80,43,346/- Printed from counselvise.com 21 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO Under these grounds of appeal, the assessee has challenged the action of the ld.CIT(A) in confirming the disallowance of Rs. 34,44,408/- made by the ld.AO on account of bad debts claimed by the assessee u/s 36(1)(vii) of the Income Tax Act, 1961. Brief facts pertaining to these grounds of appeal are that some of the parties, to whom assessee had sold goods in preceding years were not paying money due from them despite of several reminders. Therefore, assessee found it appropriate to write off such debts as “Bad Debts” (worth Rs.34,44,008/-) instead of carrying the same as fictitious assets as there was no hope of recovery. Since, sales were made to such debtors in preceding years, their outstanding balances were written off as Bad debts and duly accounted for in their respective ledgers available in books of accounts where the same were written off, thus both the conditions as prescribed in section 36(1)(vii) were fulfilled by the assessee and such debts written off as “bad” were debited in profit & loss account (APB 266-295) as “Bad debts” and claimed as deduction. However, ld.AO disallowed the same by primarily observing that: (i) There was no correspondence available for recovery and some of the debtors had made payments in the year 2015 and 2016 and since assessee himself visited debtors, the same cannot be treated as bad debts; (ii) Assessee without any corresponding debit in P & L account as bad debts only reduced his profit earned during the year (whereas actually ld. AO has himself picked the amount of bad debts from P&L account as is evident from his observations at page 2 of the assessment order). With regards to the allegations of ld.AO, that some of the debtors did pay in 2016 itself and some in 2015 and that when assessee visited them, how could they be bad debts, it was submitted assessee before ld.CIT(A) that assessee visited them for recovery and they had made the payments towards the last supplies and with a clarification that it was full and final payment against the sum outstanding and no further payment shall be made for old outstanding. It was thus submitted that debts were actually in the nature of bad debts. It was also submitted that section 36(1)(vii) nowhere requires the assessee to furnish evidence and that to prove that the amount has become irrecoverable and such allegations of ld.AO are contrary to the specific provisions of Act providing the claim of bad debts in section 36(1)(vii) and thus deserves to be excluded. During the course of assessment proceedings, ld.AO sought complete details regarding bad debts vide notice issued u/s 142(1) dated 8.11.2019, in response to which complete ledger accounts of debts written off were furnished. Printed from counselvise.com 22 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO Subsequently, two more notices were issued u/s 142(1), one dated 2.12.2019 (APB 34-38 ) and other dated 11.12.2019 (APB 39-40 ), wherein assessee was asked to furnish documentary evidences and measures taken for recovery of debts written off. During the course of proceedings before ld.CIT(A), assessee furnished “List of Debtors” as on 31.3.2017 (APB 296-305 ) as additional evidence, from perusal of which it was evident that debtors so written off as bad were not appearing as debtors at year end. Ld. CIT(A) sought comments from AO in respect of such additional evidence, who furnished remand report dated 31.10.2024 (APB 334- 337 ), whereby it was requested that additional evidences may not be accepted and simultaneously allegations as per assessment order were repeated. After considering such remand report, ld.CIT(A) though accepted the additional evidences, (from perusal of which it was clear that debtors stated as bad were actually written off), yet rejected the claim of assessee by observing as under (relevant extracts from para 4.4.2 page 29): “In the present case, the appellant has not taken any steps to recover the debts. No efforts were made by the appellant to recover the debts. In the absence of any legal action taken by the appellant, the claim made by the appellant cannot be allowed. In view of the facts of the case mentioned above, I agree with the AO and the addition of Rs. 34,44,408/- is confirmed. This ground of appeal is dismissed.” It is thus evident that ld.CIT(A) has also confirmed the disallowance for the reason that no efforts were made by the appellant for recovery. It is also pertinent to note here that ld.CIT(A) has not appreciated the facts of the case and has erroneously observed that “The proviso to sec. 36(1)(vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case of the assessee is one which falls squarely under sec. 36(1)(viia) of the Act. The explanation to section 36(2)(vii) of the Act introduced by the Finance Act 2001 has to be examined in conjunction with the principle section. The explanation specifically excluded any provision for bad and doubtful debts made in the account of the assessee form the ambit and scope of any bad debt, or part thereof written off as irrecoverable in the accounts of the assessee.” It is thus clear that ld.CIT(A) probably has misunderstood actual bad debt written off as “Provision for bad and doubtful debts”. At this juncture, the provisions of section 36(1)((vii) are reproduced as under for ready reference: Printed from counselvise.com 23 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 36. (1)The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— (vii) subject to the provisions of sub-section (2), the amount of [any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]: Provided …… Explanation.—For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee; Further, section 36 (2) reads as under: “(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money- lending which is carried on by the assessee;] (ii) if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made; (iii) any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year), but the Assessing Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year; (iv) where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) and the Assessing Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply; (v) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.” Printed from counselvise.com 24 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO From perusal of the provisions reproduced above, it is evident that deduction u/s 36(1)(vii) is available on the fulfillment of following two conditions prescribed under sub section (2) to section 36: (i) amount is actually written off in the books of accounts and (ii) such amount was offered for taxation in current or in any earlier years. In the present case, neither ld.AO nor ld. CIT(A) has made out a case as to how assessee has failed to fulfill the above conditions. With regard to the fulfillment of such conditions, it is submitted that sales made to these parties were duly recorded in books of accounts (APB 266-295 ) and profit earned thereon was offered for taxation in respective preceding assessment years and income therefrom stood declared in the returns of income of the assessee filed in preceding assessment years. Now, since assessee has lost all hopes of recovery in respect of such debts due from debtors, who have denied to make any further payment, consequently these debts have been written off in books of accounts. Contention of assessee that balances were actually written off in books of accounts is also proved from the fact that such debtors were not forming part of total Debtors balances outstanding as per balance sheet as on 31.3.2017, which is evident from ledger accounts of such parties showing outstanding balances at NIL (APB 266-295 ). From perusal of such list of debtors, it is evident that name of none of the debt written off is appearing in such list (APB 296-305 ). It is thus proved beyond doubt that debts were written off in books and thereafter were debited to profit & loss account. It is therefore submitted that assessee has duly fulfilled both the conditions prescribed in the statue for allowability of Bad debts. Under the circumstances, the bad debts expenses so claimed by the assessee deserves to be allowed. Reliance in this regard is placed on the following judicial pronouncements: 323 ITR 397 (SC) T.R.F. Ltd. vs Commissioner of Income Tax Bad Debt- Law after April 1,1989- Assessee only to establish that debt was written off- Not necessary to establish that debt in fact had become irrecoverable to establish that debt in fact had become irrecoverable- Income Tax Act,1961, s.36(1)(vii). 250 Taxman 16 – Principal Commissioner of Income Tax, Jaipur Vs. Rajasthan State Beverages Corporation Ltd . (SC) [DOD: 04.07.2017] Bad Debts – Writing off of bad debts: Where certain amounts had been lying outstanding for couple of years and assessee had written off said amount in Printed from counselvise.com 25 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO books of account merely because a suit was not filed could not be a cogent reason to disallow claim which had become bad; SLP dismissed. [2024] 162 taxmann.com 11 (Bombay) Principal Commissioner of Income-tax-2 v. Tata Chemicals Ltd. Section 36(1)(vii) of the Income-tax Act, 1961 - Bad debts (Write off) - Assessment year 1997-98 - Whether where debt had been written off as irrecoverable in books of account, same would be allowable as deduction under section 36(1)(vii) - Held, yes [Para 2] [In favour of assessee] [2009] 184 Taxman 314 (Bombay) Director of Income-tax (International Taxation) v. Oman International Bank SAOG Section 36(1)(vii) of the Income-tax Act, 1961 - Bad debts - Whether after amendment to section 36(1)(vii) it is neither obligatory nor is there any burden on assessee to prove that debt written off by him is indeed a bad debt as long as it is bona fide and is based on commercial wisdom or expediency - Held, yes 53 DTR 120 CIT &Anr. Vs. Krone Communication Ltd. (Kar) Business Expenditure – Bad Debt – Debt Written off in the books – Assessee having written off certain debt, it is entitled to deduction thereof as a bad debt – There is no further requirement to prove that the debt was a trade debt or that it is in fact irrecoverable. In view of above judgement delivered by Hon’ble Apex Court, CBDT passed circular no.12/2016 dated 30.05.2016 which categorically holds that- CBDT Circular no. 12/2016, Dated: May 30, 2016 3. The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the bad debt by doing away with the requirement for the assessee to establish that the debt, has in fact, become irrecoverable. However, despite the amendment, disputes on the issue of allowability continue, mostly for the reason that the debt has not been established to be irrecoverable. The Hon’ble Supreme Court in the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003 vide judgment dated 9.2.2010 (available in NJRS 2010-LL-0209-8), has stated that the position of law is well settled. “After 1.4.1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1) (vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough if bad debt is written off as irrecoverable in the books of accounts of assessee. “ In view of the above, claim for any debt or part thereof in any previous year, shall be admissible under section 36(1)(vii) of the Act, if it is written off as irrecoverable in the Printed from counselvise.com 26 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO books of accounts of the assessee for that previous year and it fulfills the conditions stipulated in sub section (2) of sub-section 36(2) of the Act. Accordingly, no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon.” [2025] 170 taxmann.com 85 (Hyderabad - Trib.) Nuevosol Energy (P.) Ltd. v. Assistant Commissioner of Income-tax Circle-16(1) Section 36(1)(vii) read with section 36(2) of the Income-tax Act, 1961 - Bad debts -Assessment year 2018-19 - Assessee-company, engaged in manufacturing and installation of solar structures, filed its return for Assessment Year 2018-19, revising its declared loss -During scrutiny, Assessing Officer disallowed bad debts claimed, citing failure to prove irrecoverability - Whether only requirement for claiming deduction towards bad and doubt ful debts is actual write off of bad debt or part thereof in books of accounts of assessee but not beyond and further, assessee is not required to establish that debt in fact has become irrecoverable and it is enough if bad debt is written of as irrecoverable in books of accounts of assessee - Held, yes - Whether therefore, Assessing Officer erred in making additions /disallowance towards bad debts written off - Held, yes [Para 8][In favour of assessee] [2017] 82 taxmann.com 70 (Jaipur - Trib.) Bhagwati Prasad v. Assistant Commissioner of Income-tax, Circle-1, Kota* Section 36(1)(vii) of the Income-tax Act, 1961 - Bad debts (Illustrations) - Assessment year2007-08 - Where debts were connected with business income earned by assessee, deduction under section 36(1)(vii) was allowable in respect of bad debts written off [In favour of assessee] Reliance is also placed on: 117 DTR 375 Cyanamid Agro Ltd. VS. Asstt. CIT (Mumbai ‘E’) BUSINESS EXPENDITURE – BAD DEBT – Debt written off in the books – Once the amount of debt is written off in the books of account, the condition of s. 36(1) (vii) is fulfilled and deduction has to follow – There is no requirement to distinctly prove that the debt has, in fact, become irrecoverable. 352 ITR 401 CIT Vs. Makpar Exports Pvt. Ltd. (MP) Bad debt – Law after April 1, 1989 – Not necessary for assessee to give reasons – Writing off amount itself sufficient – Income Tax act, 1961, s. 36(1)(vii), (2)(i). Printed from counselvise.com 27 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 395 ITR 1 – CIT Vs. Kwality Steel Suppliers Complex (SC) [DOD: 21.03.2017]: 250 Taxman 23 – CIT Vs. Kwality Steel Suppliers Complex (SC) [DOD: 21.03.2017]: Writing off of bad debts – Where certain amounts were lying outstanding for last couple of years, assessee had written off said amount in books of account, merely because a suit was not filed could not be a cogent reason to disallow claim which had become bad. 184 ITD 820 – Anant Raj Ltd. Vs. ACIT (Delhi) [DOD: 11.05.2020] Bad Debts – General – Assessee need not require to establish / prove that debt has in fact become irrecoverable and it is sufficient that if the bad debt is written off irrecoverable in account of assessee and, there is no requirement under Act that bad debt has to accrue out of income under same head ‘income from business or profession’ to be deducted as income. At this juncture, kind attention of the hon’ble bench is invited to para 4.4 of CIT(A) order, where judicial pronouncement in the case of Catholic Syrian Bank vs. Commissioner of Income Tax, Thrissur has been relied upon by Ld.CIT(A), to support contention that merely stating a bad debt as an irrecoverable write off without the appropriate treatment in the accounts, as well as non-compliance with the conditions in section 36(1)(vii), 36(2) and explanation 36(1)(vii) would not entitle the appellant to claim a deduction. In this regard, it is submitted that hon’ble Apex Court had delivered the said decision in a different context and issue before the court was whether provisions of section 36(1)(vii) and 36(1)(viia) are distinct and independent and operate in their respective fields. It was thus held that section 36(1)(vii) operate in cases where bad debts written off in books are other than for which provisions is made under clause(viia), while proviso to section 36(1)(vii) will operate in cases under clause (viia) to limit deduction to extent of difference between debt or part thereof written off in previous year and credit balance in provision for bad and doubtful debts account made under clause (viia). It was thus held that proviso would not permit benefit of double deduction, operating with reference to rural loans, while under section 36(1)(vii), assessee would be entitled to general deduction an account having become bad debt and being written off as irrecoverable in accounts of assessee for previous year subject to satisfaction of requirements contemplated under section 36(2). Since, in the said case, amount of bad debt(s) actually written off in accounts of bank represents only debt(s) arising out of urban advances, it was held that allowance thereof in assessment is not affected, controlled or limited in any way by proviso to clause (vii). Printed from counselvise.com 28 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO It is evident from above that the case is in fact in favour of assessee and clearly hold that amount actually written off is allowable u/s 36(1)(vii) subject to fulfillment of provisions of section 36(2), thus reliance placed by ld.CIT(A) is misplaced. In view of the facts as narrated above, it is submitted that assessee has duly discharged its burden by filing all primary details during the assessment proceedings to prove that he has duly complied with the twin conditions as prescribed in the Act to claim the bad-debts. The appellant therefore, humbly prays that in light of the fact that assessee has fulfilled both the conditions laid down by the statute for claiming the bad debts expense, the deduction as claimed at Rs.34,44,008/- may kindly be allowed. Grounds of Appeal No.2 In this ground of appeal, assessee has challenged the disallowance of Rs.52,648/- (out of Commission expenses of Rs.60,748/- debited to profit & loss account) made by ld.AO, which stood confirmed by ld.CIT(A). In this regard, it is submitted that during the year under consideration, assessee has paid commission to 5 parties, details of which is provided herein under: S. No. Name of Party Amount Mode of payment 1. Arjun Kumar Sharma 8100/- Cheque 2. Tejpal 12,654/- Cash 3. Narendra Sharma 14,670/- Cash 4. Vikas Singh 11,470/- Cash 5. Surendra Kumar 13,854/- Cash TOTAL 60,748/- Ld.AO has disallowed a sum of Rs. 52,648/- out of total claim of Rs.60,748/- by observing certain generalized discrepancies in the vouchers. In this regard, it is submitted that all the above payments were made towards services provided by them in normal course of business and thus were incurred wholly and exclusively for the purposes of business. With regard to the observation of ld.AO regarding non deduction of tax at source, it is submitted that none of the payments made to single party exceeded Rs.15000/- and thus assessee was not liable to deduct tax Printed from counselvise.com 29 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO at source on such payments. With regard to the cash payments it is submitted that none of the payment was made in contravention to provisions of section 40A(3) of the Act nor it is the allegation of the ld.AO. In view of above, it is requested that disallowance out of commission expenses of Rs.52,648/- made by ld.AO deserves to be deleted. Ground of Appeal No.3 & 4: In ground of appeal no.3, assessee has challenged the action of ld. CIT (A) in confirming the disallowance of Rs.18,285/- made by ld.AO out of consultancy expenses, arbitrarily. In ground of appeal no. 4, assessee has challenged the action of ld. CIT(A) in confirming the various disallowances made by ld.AO on ad hoc basis, i.e. @ 10% of such expenses debited to profit & loss account. With regard to disallowance of consultancy charges, it is submitted that out of consultancy charges of Rs.1,52,247/-, which were debited to profit and loss account, assessee could not produce one invoice related to expenses of Rs.18,285/-, therefore disallowance of such amount was made by ld.AO. Similarly, ld.AO disallowed expenses worth Rs.1,30,905/-, i.e. 10% out of various expenses debited in Profit and Loss account by observing certain technical discrepancies in preparation of vouchers etc., though no specific instance was mentioned regarding excessive payment/personal use. In this regard, it is submitted that ld.AO disallowed the expenses also by alleging that the same were paid in cash and without deducting tax at source etc., which stood upheld by ld.CIT(A). Your honours would appreciate that no specific discrepancy has been pointed out w.r.t. any specific expenses, whereas assessee has furnished books of accounts before ld.AO and after examining the same, trading results declared by assessee were accepted. It is also pertinent to note here that books of assessee were duly audited by qualified chartered accountants without any adverse remarks, it is therefore requested that disallowances made by ld.AO on very generalized observations deserve to be deleted. Ground of Appeal No.5 In this ground of appeal, assessee has challenged the action of ld.CIT(A) in confirming the disallowance of Rs.3,97,500/- made by ld.AO on account of Rent expenses. Printed from counselvise.com 30 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO In this regard, it is submitted that ld.AO has disallowed the expenses by alleging that the same were paid in cash and without deducting tax at source etc. Also, with regards to disallowance of rent of Rs.3,97,500/-, it is alleged by ld.AO that no corresponding cash withdrawals are appearing in cash book for making such payment. In this regard, it was submitted before ld.CIT(A) that none of the payments for expenses made in cash were beyond the limit prescribed u/s 40A(3). Moreover, cash payment per se does not make a payment non-genuine. Further, wherever payment to a single party has exceeded the threshold of deduction of tax at source, due compliance has been made by assessee. With regards to allegation of ld.AO regarding Rent, that there are no corresponding cash withdrawals, it was submitted that on few occasions, rent has been paid by Head office, therefore instead of cash, assessee has credited Head office, which is evident from ledger of Rent enclosed at (APB 306-308) . It was further submitted that Rent ledger as well as copy of rent agreement (APB 309-313 ) with one of the party, could not be furnished during assessment proceedings and thus were furnished as additional evidence alongwith prayer u/r 46A to admit the same. However, ld.CIT(A) denied to admit the same for the reason that the same were not submitted before ld.AO without any reasonable/sufficient cause. In this regard, it is submitted that such documents could not be furnished during assessment proceedings due to circumstances beyond the control of assessee. It is a trite law that ld.CIT(A) is empowered to admit additional evidences if the same goes to root of the matter even in fact should admit the same to impart substantive justice. In the present case also, since additional evidences were crucial in nature, ld.CIT(A) ought to have accepted the same. With this background, details of properties taken on rent alongwith complete address, names of respective owners and purpose for which premises was being used are being furnished in table below: S. No. Name of Landlord Address of Property Used for Office/Room/ Godown Amount Paid 1. KAMLESH GAHLOT 178,1ST-C ROAD SARADAPURA JODHPUR GODOWN 108000 2. SHILESH GAHLOT 178,1ST-C ROAD SARADAPURA JODHPUR OFFICE 96000 3. SURENDRA GAHLOT 178,1ST-C ROAD SARADAPURA JODHPUR GODOWN 22000 4. MEENA DEVI 1017,1ST-C ROAD SARADAPURA JODHPUR OFFICE 26000 5. ASHOK KUMAR LADWANI 1017,1ST-C ROAD SARADAPURA JODHPUR GODOWN 48000 6. MAHENDRA 1013,2ND -B ROAD GODOWN 36000 Printed from counselvise.com 31 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO PRAJPAT SARDARPURA JODHPUR ,342001 7. VINOD MEENA 50-B GANDA NALA KE PASS DEV NARAYAN MANDIR BHAGAT KI KHOTI JODHPUR RAJASTHAN,342005 ROOM 1500 8. ANJALI LADWANI 1017,1ST-C ROAD SARADAPURA JODHPUR ROOM 60000 3,97,500/- It is clear from above that rent was paid for the purpose of business only. It is submitted that assessee maintains regular books of accounts, which are duly audited by qualified chartered accountant, without any adverse remarks. Further, assessee furnished purchase Invoices, sales invoices, cash book etc. also, wherein no discrepancies have been pointed by ld.AO and the trading results declared by assessee have been accepted. It is submitted that accepting the trading results itself proves that the proportion of the expense incurred are commensurate to the total turnover declared, and for this reason also there is no room for any excessive/personal expenses being included in the same. It is submitted that all the expenses claimed by assessee were incurred wholly and exclusively for the purpose of business and under the business expediency. It is further submitted that the Ld. AO has no material to conclude that the payments made were not for the purpose of business. As the disallowance could be made only on the basis of some valid material and in absence thereof, the expenditure so claimed is an eligible business expenditure in terms of the provisions of section 37(1) of the Income tax Act, 1961. The provisions as contained in sub-section (1) of section 37 of the Act are as follows: \"37. General.--(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession\". Explanation.--For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.\" Printed from counselvise.com 32 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO It is further submitted that in order to claim deduction of expenditure under section 37(1) of the Act, as has been held in the case of Indian Molasses Co. P. Ltd. v. CIT 37 ITR 66 (SC) the following conditions should be satisfied: (i) The expenditure in question should not be of the nature described under the specific provisions of sections 30 to 36; (ii) The expenditure should not be of the nature of capital expenditure; (iii) It should not be a personal expenditure; and (iv) The expenditure should have been laid out or expended wholly and exclusively for the purposes of the business or profession. It is thus clear that conditions at (i), (ii) and (iii) above are negative conditions whereas the condition at (iv) above is a positive condition. If the expenditure satisfies the negative conditions, it has to satisfy the positive condition in order to be eligible for deduction under section 37(1) of the Act. Thus, section 37(1) allows deduction of any \"expenditure\" subject to conditions noticed above. The case of the assessee fulfills all the conditions laid down therefore the expenditure as claimed is allowable in terms of the provisions of section 37(1) of the Income Tax Act, 1961. It is thus submitted that the expenditure being incurred in the day to day business activity and is wholly and exclusively for the purpose of the business for which the AO cannot walk into the shoe of the businessman to verify the necessity or the business expediency. In view of above, it is submitted that rent expenses claimed by assessee deserves to be allowed u/s 37(1) of the Income Tax Act. 288 ITR 1 S.A. Builders Ltd. Vs. CIT(Appeals) (SC): Once it is established that there was nexus between the expenditure and purchase of the business (which need not necessarily be the business of the appellant itself the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits. Empire Jute Co. Ltd. Vs. CIT 124 ITR 1(SC): What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process. The question must be viewed in the larger context of business necessity or expediency. Thus, based on above the assessee humbly submits that the expenses disallowed by ld.AO, which have been challenged at grounds of appeal no. 2 to Printed from counselvise.com 33 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 5, being incurred purely for business purposes, which have not been proved otherwise by the Ld. AO and further the same being quite reasonable and duly commensurate with the turnover, the entire expenses deserve to be allowed. Ground of Appeal No.6 to 6.4 In all these grounds of appeal, assessee has challenged the action of ld. CIT(A) in confirming the disallowance of Rs.40,00,000/- made by ld.AO by invoking the provisions of section 69A r.w.s.115BBE of the Income Tax Act by treating the cash deposited during demonetization period as undisclosed income of the assessee. Brief facts of the case are that during the course of assessment proceedings, ld.AO sought explanation regarding cash deposit of Rs.40 lakhs made by assessee in bank account during the demonetization period. Assessee, vide his reply filed in response to notice dated 2.12.2019 (WS 33-36) explained source of cash being out of cash sales made from time to time, cash withdrawals made from bank. It was further explained that assessee maintains cash balance at various sites to meet out day to day requirements of site expenses, however due to demonetization, such cash balances available in demonetized currency, were also compulsorily deposited in bank due to demonetization. In support, assessee also furnished Cash book for entire year i.e. from 1st April 2015 till 31st March 2016 (APB 41-257 ). Though ld. AO miserably failed to point out any single discrepancy in the cash book/explanation furnished by the assessee, yet proceeded to make addition of entire cash deposits of Rs.40 lakhs made during demonetization, solely for the reason that cash deposits in preceding years were not comparable with the year under consideration and held the source of cash deposits was unexplained. Accordingly, entire cash deposited by the assessee in his bank account was treated as income of the assessee during the year from undisclosed sources and added to the declared income of assessee u/s 69A of the I.T. Act, 1961. Also, provisions of section 115BBE(1)(a) were invoked simultaneously. On appeal, ld. CIT (A) confirmed the addition primarily for the reason that there was deviation in the cash deposited during same period in preceding year and also by observing that assessee could not explained reason for inordinate delay in depositing cash and further by relying upon certain case laws, which are in fact not applicable to the facts of the case. With this background, at the outset, it is submitted that first of all, as has been noted by ld.AO himself in Assessment order that entire cash was deposited by assessee in bank in 11.11.2016 (viz. merely within 3 days of demonetization), it is thus clear that there is no delay in depositing cash and observations of Ld. Printed from counselvise.com 34 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO CIT(A) regarding delay in depositing cash are contrary to facts and deserve to be ignored and excluded. It is further submitted that the addition is made by ld.AO u/s 69A of the Income Tax Act, 1961, which are not applicable to the facts of the case. The provisions as contained in section 69A are reproduced as under: 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. From the above, it is clear that addition u/s 69A could only be made when there is no entry in the books of account in respect of money, jewellery, etc. found in possession of the assessee. In the present case, since the cash was deposited out of the cash balance available in the books of accounts maintained in the regular course of business which are duly audited also, there is no question that the same is unrecorded. Once the assessee has made the accounting entry in the books in respect of cash deposited by him provisions of Section 69A are not applicable. As submitted above, during the course of assessment proceedings, assessee has given necessary evidences in the shape of cash book, invoices related to purchase, Sales, Fixed Assets and various other details and accordingly the assessee has discharged his obligation and thereafter onus is on the ld. AO to disprove the evidences filed and rebut the explanation given by assessee and then prove that amount was representing undisclosed income of the assessee before making addition u/s 69A, which the ld. AO miserably failed to do. Once it is established that the provisions of section 69A are not applicable, the question of invoking the provisions of section 115BBE of the Act does not arise. Also, once it is established that the cash deposited is duly recorded in the books of accounts, only question remained is about its source. In this regard and with specific reference to the source of the cash deposited in the bank accounts during the previous year and in particular during demonetization, it is submitted that the assessee cash deposits is fully explained on the basis of cash book maintained on day to day basis, showing cash sales and withdrawals from bank, Printed from counselvise.com 35 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO copy of which is available at the paper book pages 41-257. Assessee deposited cash in bank, out of the cash balance available as on the closing hours of 08.11.2016 with him, as well as at sites, when the demonetization was announced by the Hon’ble Prime Minister. As submitted above, the cash receipts in cash book are mainly out of the sale proceeds received by the assessee during the year, thus the same could not be doubted more particularly when the trading results declared by the assessee were accepted. It is settled law that addition on account of cash deposits cannot be made in addition to profit as per P&L A/c without rejecting the books of account. If Section 69A is to be invoked, profit as P&L A/c is to be re-determined and amount is to be excluded from sales. It is further submitted that one major fact was ignored by ld. AO that sales against cash deposited in the bank accounts maintained in regular course was duly recorded in the books of accounts and after inclusion of the same in total sales, cash balance, profits and stocks were derived which were accepted by Ld. AO without any doubts. Thus, further addition by alleging the same as unexplained tantamount to taxation of an income twice. One in the shape of sales and profits embedded therein and again by making addition by alleging the same as unexplained cash deposit. Further the CBDT vide instruction no.03/2017 dated 21.02.2017 (APB 258-265 ) issued guidelines for the Assessing Officer wherein it is stated that the AO is required to take into consideration the record of the assessee such as stock register, bank statement, sale tax returns, monthly sales summary, possibility of back-dating of cash sales or fictitious sales etc. before arriving at a conclusion about the genuineness of the cash deposited in the bank account during the demonetization. As stated above, assessee during the course of assessment proceedings, besides submitting the copy of cash book (APB 41- 257) and bank statements, had also submitted the Invoices of Purchases and Sales, VAT challans etc. for verification of purchases and sales which have been duly placed on record before the lower authorities and being bulky in nature, were not made part of assessee’s paper book before the Hon’ble ITAT. Thus, as per the instruction of the CBDT also, ld. AO should have considered these details before making such a huge addition, however the ld. AO has failed to do. At this juncture, kind attention of your honours is invited to the turnover as well as gross profit and net profit rate achieved by assessee in the year under consideration in comparison to the immediate preceding year: A.Y. Turnover Gross profit 2017-18 5,86,98,711/- 24.04% Printed from counselvise.com 36 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 2016-17 6,04,07,146/- 23.8% From perusal of above also, it is evident that the turnover as well as trading results declared by the assessee is at par with immediate preceding year and there is no unusual deviation in turnover or Gross profit declared by the assessee. Trading results so declared are on the basis of books of accounts audited by qualified chartered accountants, wherein no discrepancy has been pointed out by the auditors, nor any qualificatory / adverse remarks have been made. In fact, ld.AO has not been able to rebut the explanation of assessee, nor has been able to bring any evidence/material on record to show any other undisclosed source of income. Thus, once turnover declared by assessee as well as the trading results have been accepted beyond doubt, there is no reason to doubt the source of cash already available to assessee as per cash book, which is obviously accumulated out of sale proceeds. It is submitted that under the provisions of section 69A, the concept of taxing real income appears to have been diluted to a limited extent only by providing a deeming fiction, which allows the taxation of even those receipts / assets as deemed income which are not recorded in the books of account. However, as submitted above, the assessee has already discharged its burden that the cash deposit represents the receipts in the shape of cash sales and same is duly recorded in the books of accounts thus even otherwise the provisions of section 69A are not applicable. It is thus submitted that no addition could be made for the cash deposit into bank which is duly forming part of the regular course of business and recorded in the books of accounts maintained by the assessee. In this further reliance is placed on the following judicial pronouncements: CIT vs Devi Prasad Vishwnath Prasad (1969) 72ITR194 (SC) Hon’ble Apex court held that – “It is for the assessee to prove that even if the cash credit represents income, it is income from a source, which has already been taxed”. The assessee has already offered the sales for taxation hence the onus has been discharged by it and the same income cannot be taxed again.” Smt. Harshila Chordia v. ITO [2008] 298 ITR 349 (Raj) “Addition u/s 68 could not be made in respect of the amount which was found to be cash receipts from the customers against which delivery of goods was made to them”. Printed from counselvise.com 37 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO [2024] 169 taxmann.com 288 (Jaipur - Trib.) ACIT v. Balvir Singh Tomar Section 68, read with section 115BBE, of the Income-tax Act, 1961 - Cash credit (Bank deposits during demonetization period) - Assessment year 2017-18 - Assessee was a doctor and earning income from professional consultancy fees and sales of retail medicines - He had deposited a certain cash in his bank account during demonetization period - Assessing Officer having found that cash deposited during period of demonetization was disproportionately high with respect to cash deposited in similar period of last year opined that cash deposited by assessee was nothing but undisclosed income of assessee which was shown under garb of cash receipts from medical consultancy and added said amount in assessee’s income under section 68 read with section 115BBE - Whether since assessee had already offered sales of medicines and practice income for taxation which had been accepted in assessment order and same was part and parcel of income already offered, same income again could not be taxed under section 68, because same consisted of cash deposited in bank account - Held, yes [Para 11] [In favour of assessee] [2023] 149 taxmann.com 379 (Jaipur - Trib.) ACIT v. Chandra Surana Section 68 of the Income-tax Act, 1961- Cash credits(Sales transactions)- Assessment year2017-18 - Assessee was engaged in business of sale of gold jewellery and ornaments -Assessing Officer completed assessment of assessee by making certain addition by holding that certain amount of cash deposited by assessee in his bank account during demonetization period was nothing but undisclosed income of assessee which was under garb of cash sales - He therefore, held that cash deposited was liable to be added undersection 68 and taxable @60% under provision of section 115BBE - On appeal, Commissioner(Appeals) deleted addition - It was found from records that assessee had maintained regular books of account, bills, vouchers and day-to- day stock register having complete quantitative details of cash sale transactions of jewellery and cash sales and receipts were duly supported by relevant bills which were produced in course of assessment proceedings and sales were made out of stock-in-trade - Whether thus, all such scenario indicated that assessee had duly substantiated its claim from documentary evidences and also with facts -Held, yes - Whether further, provisions of section 68 would not be applicable on sale transactions recorded in books of account as sales were already part of income which was already credited in P&L account - Held, yes - Whether therefore, there was no occasion to consider same as income of assessee by invoking provisions of section 68 and addition was rightly deleted by Commissioner (Appeals) - Held, yes [Para 2.6] [In favour of assessee] Printed from counselvise.com 38 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO [2023] 151 taxmann.com 339 (Jaipur - Trib.) Mahesh Kumar Gupta v. ACIT* Section 68, read with sections 115BBE and 145, of the Income-tax Act, 1961 - Cash credit(Demonetization deposits) - Assessment year 2017-18 - Assessee was engaged in business of wholesale and retail business of gold and silver ornaments - Assessee's case was selected for scrutiny to examine issue of abnormal increase in cash deposits during demonetization period as compared to average rate of cash deposited during pre-demonetization period - Assessee claimed that deposits made in bank account was with respect to cash sales made during period of 1-1-2016 to 8-11-2016 - Assessing Officer verified bills submitted by assessee and observed that all bills were of value less than Rs. 2 lakhs wherein details of purchasers was not provided - He, thus, invoked section 68 on ground that genuineness of sale bills could not be verified and held that huge cash deposited in bank was from undisclosed sources - It was noted that all sales made by assessee were supported by commercial invoice duly complied with VAT provision on which VAT was paid - Also said invoices issued were reported in VAT return and sales had been accepted by VAT authority - Whether since Assessing Officer did not reject books of account of assessee by invoking section 145, Assessing Officer erred in not accepting declared cash sales as not verifiable which were recorded in books of account and were found to be correct and complete - Held, yes - Whether since accounts were regularly maintained and cash deposits were duly supported by entries passed in books of account, additions made under section 68 could not be sustained - Held, yes [Paras 9.5 and 9.8] [In favour of assessee] [2025] 171 taxmann.com 474 (Chennai - Trib.) Deputy Commissioner of Income- tax v. Viswa and Devji Diamonds (P.) Ltd.* Section 69A, read with section 115BBE, of the Income-tax Act, 1961 - Unexplained moneys(Demonetization) - Assessment year 2017-18 - Assessee was engaged in trading business of gold and diamond jewellery - During demonetization period, assessee deposited cash out of sale proceeds of gold and diamond jewellery collected from its customers in its bank account - Assessing Officer observed that cash sales were bogus as cash sales were created fictitiously by assessee company merely to build an explanation for cash deposits into bank account and made an addition of total cash deposits to tax under section 69A, read with section 115BBE - Assessee furnished cash book, sales register, purchase register, bank statements along with stock registers for relevant period and cash sales made by assessee had been credited in books of account and, thus, assessee's claim was backed up by relevant evidences - Further, no defect had been pointed out in books of account of assessee - Whether, when sale had been offered to tax, adding same again would amount to Printed from counselvise.com 39 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO double taxation and, therefore, since assessee had discharged burden of proving source of cash deposited in bank, impugned addition was to be deleted - Held, yes [Para 9] [In favour of assessee] [2025] 170 taxmann.com 639 (Delhi - Trib.) S. Balaji Mech-Tech (P.) Ltd. v. Income-tax Officer * Section 68, read with section 69A, of the Income-tax Act, 1961 - Cash credit (Bank deposits) -Assessment year 2017-18 - Whether Assessing Officer cannot invoke provisions of section68 or 69A when assessee has already declared source for cash deposits in its books of account - Held, yes - Assessee was engaged in trading of general purpose machinery parts/bearings - It filed its return of income declaring certain income - Case was selected for scrutiny under CASS for reason of abnormal increase in cash deposits during demonetization period - Assessee submitted that entire cash deposited during year was out of cash in hand appearing in cash book as on 08-11-2016 - Assessing Officer held that assessee was not able to justify cash deposited in banks during demonetization and made addition on account of unexplained cash deposits under section 68 - It was noted that Assessing Officer neither rejected book results or method of account adopted by assessee and all purchase and sales were properly recorded in books - Whether since assessee had already declared cash sales in its books of account and lower authorities had accepted same as regular business transactions and cash were already recorded and explanation was already part of book results, there was no avenue for lower authorities to make addition under section 68 - Held, yes [Paras 20 and 21] [In favour of assessee] [2025] 170 taxmann.com 641 (Chennai - Trib.) TamilNadu State Marketing Corporation Ltd. v. Assistant Commissioner of Income-tax Section 69, read with section 115BBE, of Income-tax Act, 1961 - Unexplained investments(Cash deposits) - Assessment year 2017-18 - Assessee was a State Government undertaking engaged in business of wholesale/retail vending in liquor - During demonetization period from 09.11.2016 to 30.12.2016, assessee had received cash deposits made in Specified Bank Notes (SBNs) - Assessing Officer made additions under section 69 in respect of cash deposits made in SBNs and taxed same under section 115BBE - It was noted that assessee had submitted complete details of deposits of SBNs account-wise, branch-wise - Source of deposits had not been disputed and same were created out of ordinary business sales which had been credited into books of account and profits had also been duly included in return of income filed in relevant assessment year - Further, going by analysis furnished by assessee in respect of total sales, cash Printed from counselvise.com 40 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO sales including cash received in demonetized currency and cash deposits, there was negligible amount in demonetized currency - Whether merely for reason that there was a violation of certain notifications/GO issued by Government in transacting with specified bank notes, genuine explanation offered by assessee towards source for cash deposit could not be rejected, unless Assessing Officer made out a case that assessee had deposited unaccounted cash into bank account in SBNs - Held, yes -Whether, therefore, impugned additions made under section 69 was to be deleted - Held, yes[Para 8.5] [In favour of assessee] [2024] 167 taxmann.com 679 (Amritsar - Trib.) R. M. Sales Corporation v. Income-tax Officer* Section 69A, of the Income-tax Act, 1961 - Unexplained moneys (Demonetization) -Assessment year 2017-18 - Assessee-firm in respect of cash deposited in bank account during demonetization period explained that said cash had been deposited out of cash available with it on account of cash sales and recovery from debtors - Assessing Officer observed that assessee had included unaccounted income in its gross sales and treated cash deposited in bank account as unexplained income of assessee and added same to assessee’s income by invoking section 69A - Whether since sales made by assessee and shown in regular books of account had been accepted as such by VAT authorities and it was not case of Assessing Officer that assessee had shown bogus purchases to show bogus sales to cover up cash deposited during demonetization period, addition made by invoking provisions of section 69A was illegal and deserved to be deleted - Held, yes [Paras 10 and11] [In favour of assessee] [2023] 157 taxmann.com 337 (Delhi - Trib.) J. R. Rice India (P.) Ltd. v. ACIT* Section 68 of the Income-tax Act, 1961- Cash credit(Demonetisation deposit)- Assessment year 2017-18- Assessee-company was engaged in trading and processing of food grains -Assessee had made cash deposits of specified bank notes of certain amount in bank during demonetization period - Assessing Officer proceeded to make addition in respect of such cash deposits as unexplained cash credit under section 68 read with section 115BBE - It was noted that assessee was maintaining regular books of account which were duly subjected to statutory audit under Companies Act, 2013 and tax audit under section 44AB - It was also found that cash deposits made by assessee were duly sourced by cash sales and recovery of trade debts from sundry debtors in cash, and hence, source of cash deposits were properly explained by assessee - To extent of cash sales made, corresponding stocks had been duly reduced in stock register - Whether there was no reason to dispute to fact that cash deposits in bank Printed from counselvise.com 41 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO account had been sourced out of either cash sales made by assessee during demonetization period or cash recoveries made from its customers prior to demonetization period, therefore, impugned addition made by Assessing Officer on account of same was unjustified and same was to be deleted - Held, yes [Paras 4 and 5] [In favour of assessee] CIT v. Kailash Jewellery House ITA No. 613/2010 (Delhi High Court) In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon’ble High Court dismissed the appeal filed by the Department. At this juncture, kind attention of your honours is invited to the cases relied upon by ld.CIT(A): -25 taxmann.com 440 Manojkumar Jain (ITAT Delhi): In this case, cash deposited was transferred to various accounts in same bank, also there was no cash withdrawals and assessee was seeking relief on peak credit theory, which was denied on the ground that there source of such deposits was unexplained. -34 taxmann.com 5 M H Raney (ITAT Mumbai): In this case also, neither cash deposits nor utilization thereof was explained by assessee and it was requested to allow peak credit. However the plea of assessee was rejected on the ground that there was no evidence to show close proximity between cash deposits vis a vis withdrawals and subsequent deposits being sourced from said withdrawals. Benefit of Peak Credit was not allowed. - 49 taxmann.com 101 Sarwankumar Sharma (Guj.): In this case, assessee was declaring income from salary and interest and there nothing was brought on record that any business transactions were being carried on by assessee, to which cash deposits pertained to. Accordingly, cash deposits were held as Unexplained Money. Printed from counselvise.com 42 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO From perusal of above, it is evident that none of the cases relied upon by ld.CIT(A) is applicable to the facts of the case and thus reliance placed upon them is misplaced. In the circumstances, it is humbly submitted that the addition of Rs.40,00,000/- made by the ld. AO without appreciating the details and evidences filed and also by ignoring the fact that the same represents the cash sales and withdrawals from bank is unwarranted more particularly when books of accounts of assessee have not been rejected and trading results declared have been accepted as such. It is thus prayed that the addition made deserves to be deleted. 6. To support the contention so raised in the written submission reliance was placed on the following evidence / records : S. No. PARTICULARS PAGE NOS. 1. Copy of Return of Income and Computation of Total income filed u/s 139 of the Income Tax Act 01-03 2. Copy of Financial Statements for the year ending 31.3.2016 04-23 3. Copy of Financial Statements for the year ending 31.3.2017 24-36 4. Copy of notice dated 02.12.2019 issued u/s 142(1) of the Income Tax Act 37-38 5. Copy of notice dated 11.12.2019 issued u/s 142(1) of the Income tax Act 39-40 6. Copy of cashbook as filed during assessment proceedings 41-257 7. Copy of CBDT instruction no. 03/2017 dated 21.02.2017 258-265 8. Copies of ledger accounts of all debtors, written off as bad debts, wherein sales booked in preceding years is appearing as submitted during assessment proceedings 266-295 9. List of Debtors as on 31.3.2017 (wherein balances of above debtors written are not appearing) 296-305 10. Copy of Ledger account of Rent 306-308 Printed from counselvise.com 43 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO S. No. PARTICULARS PAGE NOS. 11. Copy of Rent Agreement entered into by assessee with Smt Meena Devi 309-313 12. Copy of application u/r 46A of the Income tax Act filed before ld. CIT (A), NFAC during first appellate proceedings. 314 13. Copy of written submission filed before ld. CIT (A), NFAC on 12.09.2023 & 13.09.2023. 315-333 14. Copy of remand report issued on 31.10.2024 334-337 15. Copy of reply to remand report submitted before ld. CIT(A), NFAC dated 14.02.24 338-342 7. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee has already written off a sum of Rs. 34,44,008/- in the books of account page 36 of the paper book being the entry passed in the books as reflected in the schedule to the profit and loss account. The assessee has filed all the ledger of those balance written vide page 266 to 295 of the paper book filed. The ld. AR of the assessee submitted that in respect of Azad Associates Kishangarh a sum of Rs. 21,406 was receivable since March 2014 and therefore, the same was written off as not receivable. At the same he submitted that the amount so written off is the amount receivable on sale for which the income has already been considered in earlier year and therefore, the amount claimed is required to be allowed as deduction on account of non- realization of the sales proceeds. Similarly he explained it for the other Printed from counselvise.com 44 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO balances written off submitting that the same is unrecovered sales proceeds allowable as deduction. So far as ground no. 2 to 4 he submitted that the ld. AO has not rejected the books of account and without doing so the disallowance cannot be made. As regards ground no. 5 he submitted that the assessee has paid the rent as per the detailed already provided to the ld. AO in the remand proceeding and the ld. AO did not accept the evidence filed by the assessee. As regards the addition of Rs. 40,00,000 ld. AR of the assessee submitted that the assessee has deposited Rs. 40 lac at one stage. The assessee submitted the cash book which are supported by the cash receipt supported by the income already considered for Value added tax or Service tax and therefore, the same being reflected in the books of account and the same income cannot be added again u/s 69A of the Act without rejecting the books of account of the assessee. The ld. AO has not invoke the provision of section 145(3) of the Act. He invited our attention to page 160 wherein the assessee has deposited Rs. 40,00,000 on 11.11.2016 as single entry the cash book shows sufficient balance and that book was not rejected no separate addition can be made. Printed from counselvise.com 45 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 8. The ld DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). The ld. DR also filed the rejoinder to the submission so filed by the ld. AR of the assessee. The contention of the ld. DR reads as follows: 1. Copy of Return of Income and Computation of Total income filed u/s 139 of the Income Tax Act Comments- The submission comprises only the first page of the ITR and a two- page computation of income and therefore cannot proved that annexture to audit report were filed at the time of submitting it. BAD DEBT ADDITION Reference page number 4 to 36, 266-295 and 296 to 305, 2. Copy of Financial Statements for the year ending 31.3.2016 Comments- a. On page number 12 schedule of profit and loss account given. I t has detail at entry number 4 that total of bad debts were 69,11,027/- as on 31/3/2016, i.e, AY 2016-17. b. Page number 16 to 20 is detail of sundry debtors of AY 2016-17. c. Page number 22 and 23 is having notes on accounts by the CA. Hemant Kumar Gupta. On page no 22 at point number (c) running to page number 23 the CA has stated that- \"Balances of Sundry Debtors, Sundry creditors loans and advances and other debit/credit balances are analyzed but are subject to confirmation and adjustments necessary upon reconciliation thereof. The effect of the adjustment arising from reconciliation and settlement of old outstanding dues and possible loss that may arise on account of non-recovery or partial recovery of such dues is Printed from counselvise.com 46 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO presently not ascertainable. Pending adjustments on confirmation/reconciliation, if any, the balances are taken at recorded amounts and the amount recoverable is shown as good.\" d. Copy of Financial Statements for the year ending 31.3.2017 page no 31 at point number (c) the CA has stated that- \"Balances of Sundry Debtors, Sundry creditors loans and advances and other debit/credit balances are analyzed but are subject to confirmation and adjustments necessary upon reconciliation thereof. The effect of the adjustment arising from reconciliation and settlement of old outstanding dues and possible loss that may arise on account of non-recovery or partial recovery of such dues is presently not ascertainable. Pending adjustments on confirmation/reconciliation, if any, the balances are taken at recorded amounts and the amount recoverable is shown as good\" No detail of sundry debtors of AY 2017-18 enclosed. On page number 36 amount of bad debts is shown as Rs/- 34,44,008/-in the profit and loss account. From above its clear that- This observation of CA is material significance, as it clearly establishes that: 1. The balances of sundry debtors and loans & advances, including those claimed as \"bad debts\" by the assessee, were not confirmed by the concerned parties at the time of audit. 2. The CA has clearly stated that the impact of non-recovery or partial recovery is not ascertainable, meaning that the recoverability of such debts is itself uncertain. 3. The amounts have been merely carried at book value, without actual reconciliation or third-party verification. This disclosure directly contradicts the assessee's claim that the debts were genuine, settled, and finally written off after being established as irrecoverable. In fact, the auditor's note indicates that no final conclusion had been drawn about the nature or recoverability of these balances, and that even basic confirmations were pending. Printed from counselvise.com 47 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO In such circumstances, the Revenue respectfully submits that the assessee cannot now claim selective amounts as \"bad debts\" without placing on record: Confirmations, Evidence of recovery efforts, and Proof that these debts were offered to tax in earlier years as income. And the DEBTS are actually BAD. The absence of audit trail and the presence of uncertainty recorded by the CA himself go to the root of the matter and render the claim under Section 36(1)(vii) legally unsustainable. Page no 266 to 295 Printed from counselvise.com 48 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO Printed from counselvise.com 49 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO Printed from counselvise.com 50 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO From above it clear that- 1. NO PAN given during assessment proceedings. Not verifiable that bad debts were offered for income by the party. 2. No confirmation from party being bad debts 3. Out of above all are either company or not individual 4. Without confirmation from these party the cross entry in their book is not proved. 5. Section 142(1) shifts onus on the assessee to reply to the questionnaire, if some is beyond books of accounts or violation of principal of natural justice may be protested. But failed providing even simple detail like PAN or confirmation is basic detail of a transaction. 6. The term \"bad debt\", though not specifically defined in the Act, is a term of legal and commercial significance, and its scope and applicability are governed Printed from counselvise.com 51 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO by statutory conditions, judicial interpretations, and accounting principles. The Revenue wishes to place on record the following structured position: a. Statutory Position - No Explicit Definition, But Conditional Allowance The term \"bad debt\" is not defined under Section 2 or anywhere else in the Income Tax Act. However, Section 36(1)(vii) allows a deduction for: \"the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year\", In the Act BED DEBTS is mentioned and not DEBT. The distinguish is clear on is BAD and other is DEBT. The DEBTS are BED DEBTS once such is happened actually. When steps that convert a DEBTS in a BED DEBTS are followed and proper record are placed in the books of accounts than the same is BED DEBTS. Simply saying that write off is done is BAD DEBTS assessee has to explain. b. Fulfilment of Section 36(2), which mandates that: The amount must have been offered as income in a previous year; or The debt must have arisen in the ordinary course of banking or money-lending business. Thus, the deduction is not automatic upon write-off and must meet these twin conditions: 1. actual write-off; and 2. earlier recognition as income or qualifying business nexus. c. Judicial Interpretation - Meaning of \"Bad Debt\" and Its Pre-conditions Several judicial precedents have clarified what qualifies as \"bad debt\" for tax purposes: CIT v. Coates of India Ltd. [(1991) 190 ITR 90 (Cal)] \"A bad debt is one which the creditor, after making every reasonable effort to collect, honestly believes will not be paid.\" Printed from counselvise.com 52 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO Sarupchand Hukumchand [(1982) 133 ITR 295 (MP)] \"A debt becomes bad when it is either not recoverable in law or in fact and there is no reasonable expectation of recovery.\" Kohli Bros. Color Lab v. ITO [(2016) 74 taxmann.com 94 (All HC)] If the debt is not real or not genuine, it cannot become 'bad' merely by write-off and cannot be allowed under Section 36(1)(vii). Hence, the burden lies on the assessee to establish: The existence of a genuine debt, Efforts made for recovery, and That it has truly become irrecoverable. d. Accounting Standards & Commercial Interpretation According to Accounting Standard (AS) 4 and generally accepted accounting principles (GAAP): \"A bad debt is an amount due from a debtor which is no longer collectible, usually because of the debtor's insolvency, default, or inability to pay.\" Debtor's insolvency, default, or inability to pay is to prove for transferring a DEBT to BAD DEBT in the books. No such condition is fulfilled. e. Legislative Intention - Finance Act, 1985 The Finance Act, 1985 introduced the proviso to Section 36(1)(vii) and strengthened Section 36(2) to ensure that deductions for bad debts are granted only when: The debt is genuinely irrecoverable, and It is actually written off in the accounts of the assessee. Printed from counselvise.com 53 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO As per the Explanatory Memorandum, the intent was: \"To prevent the misuse of deduction for mere provisioning, and ensure that only real financial losses are allowed, not anticipatory or notional ones. f. Conclusion Legal and Practical Interpretation From a combined reading of the statutory provision, judicial precedents, accounting standards, and legislative history, the term \"bad debt\" means: \"A genuine, previously recognized debt that has become irrecoverable in law or in fact, and which has been actually written off in the accounts during the relevant previous year, provided the conditions under Section 36(2) are fully satisfied.\" 3. RENT PAYMENT-GROUND OF APPEAL NO-5 Reference Paper book Page number 306 to 313 a. 309 to 313 Assessee stated before the Hon'ble ITAT on written submission at page no 15 last para that additional grounds were raised before the Ld.CIT(A) but it rejected to admit that no reasonable cause was proved by the assessee. Now the documents submitted before the Hon'ble Bench were never produced before AO nor the Ld. CIT(A) admitted as additional evidence. On page number 310 in para 02 date of rent period is mentioned to be started from 1/3/2017, @ Rs.13000/- and property was in the name of Meena Devi. So the expenditure for the period was only 13000/- for this property. As per page no 308 of paper book total Rs. 26,000/- is shown as paid to Meena Devi staring from 20/2/2017. ANALYSIS OF RENT SHOWN RENT LEDGER ANALYSIS - INCONSISTENCY IN RENT PAYMENTS Table 1: Month-wise Rent Payment Ledger Printed from counselvise.com 54 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO Comment: The month-wise ledger reveals inconsistent and non-uniform rent payments. Several landlords were paid irregularly across months, with some months showing lump sums and others no rent at all. Kamlesh Gehlot, for example, was paid variably (29,000, ₹8,000, ₹16,000, ₹27,000). The assessee's plea that the books of account were audited and that sales were vouched does not, by itself, establish the genuineness of the rent expenditure claimed under Section 37(1). It is a settled principle that for any claim of business expenditure to be allowed, the assessee must substantiate it with documentary evidence including: (i) Proof of actual payment - showing verifiable flow of funds; (ii) Source of such payment-matching with books and withdrawals; (iii) Confirmation from the recipients acknowledgment; preferably with PAN and (iv) Valid rent agreements establishing terms, period, and quantum of rent; Printed from counselvise.com 55 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO In the present case, the rent ledger reflects inconsistencies in payment dates, modes (cash + head office journal), and amounts. No confirmations from landlords or supporting agreements were submitted before the AO. As such, the claim lacks essential evidentiary backing. Mere audit of books does not override the requirement of proving actual expenditure as laid down by the Hon'ble Supreme Court in CIT v. Calcutta Agency Ltd. (19 ITR 191) and S.A. Builders Ltd. v. CIT (288 ITR 1). CIT v. Calcutta Agency Ltd. Citation: (1951) 19 ITR 191 (SC) Bench: Supreme Court of India Ratio: The burden of proof lies on the assessee to establish that an expenditure was incurred wholly and exclusively for business purposes. It is not sufficient for the assessee to merely claim that the expense is recorded in the books; positive evidence must be furnished to prove actual expenditure. That mere audit of accounts or book entries is not enough-assessee must prove rent was actually paid with identifiable source and recipient. S.A. Builders Ltd. v. CIT (Appeals) Citation: (2007) 288 ITR 1 (SC) Bench: Supreme Court of India Ratio: Established the principle of \"commercial expediency\" if an expenditure is incurred for the purpose of business (even if not generating direct profit), it may be allowable. Printed from counselvise.com 56 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO But the assessee must demonstrate a nexus between the expenditure and business purpose. The assessee is incorrectly relying on this to claim blanket allowance under Section 37(1). You can distinguish this case by asserting that in the present facts, nexus is not established due to absence of proof of payment, rent agreement, or landlord confirmations. The AO has rightly made addition while disallowing same under section 40A(3). 4. Revenue's Comments on cash Book Submission The assessee has filed a paper book during appellate proceedings, which primarily consists of a self-prepared cash book without any supporting third-party documentation. It is respectfully submitted that: 1. Cash Book Alone Is Insufficient: A cash book is an internal record maintained by the assessee and cannot independently establish the genuineness of cash sales or withdrawals unless corroborated with verifiable external evidence such as: Stock register Sale invoices Purchase bills Site expense vouchers Confirmation from buyers or parties involved 2. No Correlation with Books of Account: The paper book lacks any evidence showing reconciliation of stock movement or corresponding reduction in inventory. No stock register or inventory ledger has been furnished to justify accumulation of cash prior to 08.11.2016. 3. No of Cash Evidence Real-Time Flow: Although it is claimed that cash was accumulated from site collections and returned on 11.11.2016, the paper book fails to demonstrate any supporting log, Printed from counselvise.com 57 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO voucher, challan, or remittance record substantiating such movement. The claimed rotation of cash is unsubstantiated. 4. Rule 46A Justification Not Met: The CIT(A) has rightly observed that no sufficient cause or explanation was provided for not submitting these documents at the time of assessment proceedings. Therefore, admission of additional evidence is not tenable under any limb of Rule 46A. 5. No Buyer Confirmation or Bank Trail: Despite the high-value cash deposit (240 lakhs), no confirmation from customers, nor any identifiable link to declared turnover, has been submitted. The entire plea rests on internal self-generated entries, which lacks probative value. Conclusion: The paper book submitted by the assessee does not discharge the onus under Section 69A of the Act. In absence of any stock reconciliation, verified sales trail, or third-party confirmations, the Revenue humbly submits that the cash deposit remains unexplained and the addition made by the AO and upheld by the CIT(A) is fully justified. A key Supreme Court decision in favour of the Revenue, directly on point regarding the insufficiency of internal records (like the paper book) without third-party corroboration: Central Bureau of Investigation v. V.C. Shukla (1998) 3 SCC 410 Key Holding: The Supreme Court held that entries in loose sheets or internal books of account, without corroborative evidence, are inadmissible under Section 34 of the Evidence Act Why this applies here: The assessee's paper book consists solely of a self-prepared cash book, which is exactly the type of \"loose internal document\" disapproved in V.C Shukla. No sales invoices, purchase bills, stock registers, or bank withdrawals have been produced to corroborate the entries. Printed from counselvise.com 58 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO Therefore, the paper book is not admissible evidence to discharge the burden under Section 69A. \"It is submitted that the paper book filed by the assessee consisting only of an internal cash book-is tantamount to a 'loose sheet' or 'dumb document' which the Hon'ble Supreme Court has held to be inadmissible in the absence of corroborative evidence Central Bureau of Investigation v. V.C. Shukla, (1998) 3 SCC 410]. Since no third-party invoices, stock registers, bank withdrawal records, or confirmations are furnished, the cash book entries cannot be relied upon to discharge the onus under Section 69A. The addition of ₹40 lakhs is therefore fully justified.\" Further the while allowing the appeal of assessee the Hon'ble ITAT given following findings in the case of Income Tax Appellate Tribunal - Jodhpur Shri Mathara Das Soni, Jodhpur vs Acit, Circle, Barmer on 22 February, 2024 \"11. Thus, considering all the facets of the case the bench noted that the revenue did not pinpoint any defects in the books of accounts, quantitative records available with the assessee, cash book and invoice presented in the assessment proceedings. Merely the assessee has sold the gold on the date of demonetization it does not make the sale as non-genuine and we find support of this contention from the decision of the jurisdictional high court in the case of Smt. Harshil Chordia Vs. ITO reported at 298 ITR 349 (Rajasthan-HC) (supra) holding that once the cash receipt is supported by invoice supported by the delivery of goods the source of that cash cannot be in doubt. Considering the above Judgment of the jurisdictional high court in the case of Smt. Harshil I.T.A. No. 33/Jodh/2024 Assessment Year: 2017-18 43 Chordia (supra) we do not find any merits on the finding of the Id. AO and that of the ld. CIT(A) in disbelieving the sales recorded by the assessee as the sales is in regular course of business which is duly supported by the invoice and delivery of the goods recorded in the books of the assessee. The cash is generated out of the stock already on record and thus the sales made by the assessee is genuine sales recorded in the books of account. All the details required to prove the sales made by the assessee were provided in the assessment proceedings. Based on the discussion so recorded herein above we consider the ground no. 4 of the assessee and hold that the cash receipt from the cash sales cannot be added as income u/s. 69A of the Act and based on these observation ground no. 4 raised by the assessee is allowed.\" It is respectfully submitted that the assessee has relied solely on a self-prepared cash book placed in the paper book without furnishing any contemporaneous, Printed from counselvise.com 59 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO third-party. or bank-linked evidence to support the source of ₹40,00,000 cash deposit during the demonetization period. There are no sale invoices, no quantitative stock register, no site cash withdrawal logs, nor any delivery challans on record. In contrast, the Hon'ble ITAT Jodhpur in the case of Shri Mathara Das Soni vs ACIT. Barmer (ITA No. 33/Jodh/2024, A.Y. 2017-18) allowed relief only after verifying invoice-backed sales, delivery records, and quantitative stock details. The assessee in the present case has failed to meet even one of those documentary benchmarks. Accordingly, the Revenue respectfully prays that the detailed comments on the assessee's paper book filed by this office be considered as part of the record and duly taken into account at the time of final hearing. The paper book, in its current form, lacks evidentiary strength and does not rebut the statutory presumption under Section 69A. It is further requested that this rejoinder be treated as part of Revenue's submission under principles of natural justice and fair adjudication. Respectfully Submitted on Behalf of the Revenue 9. We have heard the rival contentions, perused the material placed on record and the finding of the lower authority. Vide Ground no. 1, 1.1 and 1.2 the assessee challenges the disallowance of claim of Rs. 34,44,408/- made by the assessee as bad debts as per provision of section 36(1)(vii) of the Act. While sustaining the addition the ld. CIT(A) has not appreciated the fact that sales made to all the parties involved was duly recorded in books of accounts and have been accepted in earlier years wherein due taxes have already been paid on the income so offered and outstanding amount not recoverable, is written off in the books of accounts. Thereby the Printed from counselvise.com 60 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO conditions laid down in section 36(1)( vii ) are satisfied and bad debts have been rightly claimed by assessee, (being clearly covered by provisions of the Act as well as allowable as per settled legal position) deserves to be allowed. The contention of the ld. CIT(A) while sustaining the addition was incorrect that certain sum from the some of the parties have been received by assessee until preceding years as also in the relevant year, and thus the same cannot be allowed as being irrecoverable by grossly ignoring the fact that these recoveries were made after such persuasion and thereafter as there was no hope of recovery, of the balance written off and therefore, the claim of the assessee is allowable. As per the copy of account filed by the assessee the bench noted that so far as the claim of the assessee for an amount of Rs. 34,44,408/- we note that all the parties are those to whom the assessee made sale in earlier year and the amount written off as bad debts were out of the balance receivable on account of sale made by the assessee and that amount was written as unrecoverable from the various parties. The claim of the assessee is as per provision of section 36(1)(vii) of the Act. Since the claim of the assessee is as per provision of section 36(1)(vii) of the Act we would like to reiterate that provision of the Act; Other deductions. Printed from counselvise.com 61 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— (i) the amount of any premium paid in respect of insurance against risk of damage or destruction of stocks or stores used for the purposes of the business or profession; xxxx xxx xxx xxxx (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year: Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause: Provided further that where the amount of such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof becomes irrecoverable or of an earlier previous year on the basis of income computation and disclosure standards notified under sub-section (2) of section 145 without recording the same in the accounts, then, such debt or part thereof shall be allowed in the previous year in which such debt or part thereof becomes irrecoverable and it shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts for the purposes of this clause. Explanation 1.—For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. Explanation 2.—For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v) of sub-section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches; As is evident from the above provision of the Act that the assessee has written of the balance of the parties for which the sales has already been Printed from counselvise.com 62 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO offered in the earlier year and now the amount becomes irrevocable and thus both the condition as provided in the Act has been fulfilled by the assessee. The copy of the accounts were filed vide paper book page 266 to 295. The revenue contended that the assessee has not shown any correspondence for non-recovery and even the subsequent sales money was released but did not dispute the fact that the money so written off were of the amount recoverable on account of the sales already recorded in the books of account of the assessee. The contention of the ld. AO reads as under : (i) There was no correspondence available for recovery and some of the debtors had made payments in the year 2015 and 2016 and since assessee himself visited debtors, the same cannot be treated as bad debts; (ii) Assessee without any corresponding debit in P & L account as bad debts only reduced his profit earned during the year (whereas actually ld. AO has himself picked the amount of bad debts from P&L account as is evident from his observations at page 2 of the assessment order). With regards to the allegations of ld.AO, that some of the debtors did pay in 2016 itself and some in 2015 and that when assessee visited them, how could they be bad debts, it was submitted by the assessee before ld.CIT(A) that assessee visited them for recovery and they had made the payments towards the last supplies and with a clarification that it was full and final payment against the sum outstanding and no further payment shall be made for old outstanding. It was thus concluded that debts were actually in Printed from counselvise.com 63 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO the nature of bad debts. It was also submitted that section 36(1)(vii) nowhere requires the assessee to furnish evidence and that to prove that the amount has become irrecoverable and such allegations of ld.AO are contrary to the specific provisions of Act providing the claim of bad debts in section 36(1)(vii) of the Act. As is evident that against the query of the ld. AO vide notice issued u/s 142(1) dated 8.11.2019, the assessee submitted complete ledger accounts of debts written off were furnished. Subsequently, two more notices were issued u/s 142(1), one dated 2.12.2019 and other dated 11.12.2019, wherein assessee was asked to furnish documentary evidences and measures taken for recovery of debts written off but in fact that law does not require to submit any other record then what is submitted by the assessee is sufficient. When the matter carried before the ld. CIT(A) the assessee submitted list of Debtors” as on 31.3.2017 paper book page 296-305 as additional evidence. The comments of the ld. AO were also called for by the ld. CIT(A) who furnished remand report dated 31.10.2024 page 334-337 thereby ld. AO prayed not to considered the additional evidence and he stood by the reasons given in the assessment order. The ld. CIT(A) after considering the additional evidence not considered the claim of the assessee and thereby he sustained the addition by observing as under : Printed from counselvise.com 64 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO “In the present case, the appellant has not taken any steps to recover the debts. No efforts were made by the appellant to recover the debts. In the absence of any legal action taken by the appellant, the claim made by the appellant cannot be allowed. In view of the facts of the case mentioned above, I agree with the AO and the addition of Rs. 34,44,408/- is confirmed. This ground of appeal is dismissed.” As is evident that ld.CIT(A) has merely stated that no efforts were made by the appellant for recovery. It is also pertinent to note here that ld.CIT(A) has not appreciated the facts of the case and has erroneously observed that “The proviso to sec. 36(1)(vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case of the assessee is one which falls squarely under sec. 36(1)(viia) of the Act.The explanation to section 36(2)(vii) of the Act introduced by the Finance Act 2001 has to be examined in conjunction with the principle section. The explanation specifically excluded any provision for bad and doubtful debts made in the account of the assessee form the ambit and scope of any bad debt, or part thereof written off as irrecoverable in the accounts of the assessee.” Thus we note that the provision of bad debts written off are different with that of the provision of bad and doubtful debts. The perusal of the provision of section 36(1)(vii) prescribed two conditions prescribed (i) amount is actually written off in the books of accounts and (ii) such amount was offered for taxation in current or in any earlier years. The order of the lower authority does not speak that the above two condition Printed from counselvise.com 65 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO has not been satisfied in the case of the assessee and for that we have gone through the ledger accounts of the all the parties whose balance is written off. Based on these facts and circumstances of the case we are of the considered view that the claim made by the assessee cannot be denied for an amount of Rs. 34,44,008/- to the assessee. We get support of our view from the decision of Apex Court in the case of T.R.F. Ltd. vs Commissioner of Income Tax 323 ITR 397 (SC) wherein the Apex Court held that ; 4. This position in law is well-settled. After 1-4-1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Respectfully following the finding of the apex court and based on the facts and circumstance as discussed we direct the ld. AO to allow the claim of the bad debt for an amount of Rs.34,44,008/-. 10. Vide ground no. 2 the assessee challenges the disallowance of Rs. 52,648/- out of Commission expenses of Rs.60,748/- debited to profit & loss account sustained by the ld. CIT(A). In support of the claim the assessee submit that during the year under consideration, assessee has paid commission to 5 parties, details of which is provided herein under: S. No. Name of Party Amount Mode of payment Printed from counselvise.com 66 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 1. Arjun Kumar Sharma 8100/- Cheque 2. Tejpal 12,654/- Cash 3. Narendra Sharma 14,670/- Cash 4. Vikas Singh 11,470/- Cash 5. Surendra Kumar 13,854/- Cash TOTAL 60,748/- Before us in support of this ground the specific submission of the assessee reads as follows: Ld.AO has disallowed a sum of Rs. 52,648/- out of total claim of Rs.60,748/- by observing certain generalized discrepancies in the vouchers. In this regard, it is submitted that all the above payments were made towards services provided by them in normal course of business and thus were incurred wholly and exclusively for the purposes of business. With regard to the observation of ld.AO regarding non deduction of tax at source, it is submitted that none of the payments made to single party exceeded Rs.15000/- and thus assessee was not liable to deduct tax at source on such payments. With regard to the cash payments it is submitted that none of the payment was made in contravention to provisions of section 40A(3) of the Act nor it is the allegation of the ld.AO. In view of above, it is requested that disallowance out of commission expenses of Rs.52,648/- made by ld.AO deserves to be deleted. On this ground we note that the assessee has not placed on record the details of the payee, confirmation and the nature of the services rendered by those payees and therefore, we do not find any infirmity in the finding of the lower authority and thereby we confirm the addition for an amount of Rs. 52,648/- . Based on these observations ground no. 2 raised by the assessee is dismissed. Printed from counselvise.com 67 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 11. Now coming to the ground no. 3 thereby the assessee challenges addition of Rs. 18,285/- out of Consultancy expenses stating that the action was arbitrarily merely because the invoice for the same could not be traced. Appellant prays that the expenses incurred being genuine, payment being made through banking channels, thus the disallowance made deserve to be deleted. As is evident that the assessee has claimed consultancy charges for an amount of Rs. 1,52,247/- out of that assessee could not produce one invoice related to expenses of Rs.18,285/-, therefore disallowance of such amount was made by ld.AO. We note from the submission of the assessee that the assessee has already paid that amount and merely the assessee could not submit the related invoice the claim cannot be denied when the relevant entry were recorded in the books of account and the payment is made by an account payee cheque. Based on these set of facts we considered the ground no. 3 raised by the assessee and direct the ld. AO to allow the claim of the assessee for an amount of Rs. 18,285/-. 12. Vide ground no. 4 the assessee challenges the adhoc disallowance of 10 % made by the ld. AO out of the following expenses claimed by the assessee. Particulars Amount Printed from counselvise.com 68 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO Mobile expenses 78,918 Telephone expenses 63,108 Business promotion 79,666 Conveyance 5,52,561 Misc and general exp. 1,11,075 Travelling expenses 91,457 Vehicle maintenance exp 3,32,268 Total 13,09,053 As is evident that the claim of the assessee was supported by bills and vouchers while making the disallowance the ld. AO merely noted that for the expenses as listed herein above most of the payments were made in cash through internal vouchers. Some of the vouchers either do not bear any serial number or they are not signed by the recipient. Personal elements cannot be ruled out. Hence the expenses claimed on account of these expenses are not found fully verified. In view of that observation, he considered 10 % of above expenses at Rs. 1,30,905/- was disallowable and thereby added back to the income of the assessee. When the matter carried before the ld. CIT(A) he sustained the disallowance. Thus, the assessee challenges the order of the ld. CIT(A) in confirming the action of ld. AO in making disallowance of expenses claimed by the appellant u/s 37 of the Act, without pointing out any defect in the books of account regularly maintained by the appellant and duly audited, Printed from counselvise.com 69 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO and without rejecting such books of account as required under section 145 of the Act. Record reveals that the assessee has maintained proper books of accounts which are audited and the assessee produced bills and voucher in the assessment proceeding which were not found defective and thus without rejecting the books of account which are audited the disallowance of lump amount cannot be made. On this aspect of the matter it would be appropriate to deal with the provision of section 145 of the Act which reads as follows; Method of accounting. 145. (1) Income chargeable under the head \"Profits and gains of business or profession\" or \"Income from other sources\" shall, subject to the provisions of sub- section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144. As is evident that section 145(3) provides that if the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been Printed from counselvise.com 70 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144. Thus, while disbelieving the claim of the assessee and that too in part he has not given the required notice pointing out any specific defects in the books of account and thereby proceeded to make the lump sum disallowance which are not permitted. We get support of our view from the decision of our Rajasthan High Court in the case of Commissioner of Income Tax Vs. Gupta, K. N. Construction Co. [ 59 taxmann.com 293 (Rajasthan) ] wherein the Hon’ble High Court held that; 11. Though the argument of the learned officer of the Revenue can be said to be proper and justified that in a case where the assessee manipulates the accounts by keeping the profit margins commensurate with the past assessment years or slightly increases and that itself by a large cannot be a basis for acceptance of the results. But, in the face of the said facts, if it is for the Assessing Officer to bring on record some concrete material/evidence to make a proper addition. We have already noticed hereinabove that the Assessing Officer has merely disallowed 20 per cent. or 10 per cent., as the case may be, out of the various expenses, which, in our view, is not proper and he had to bring on record justifiable basis for making of an addition and bring on record some evidence for making of addition. 12. The hon'ble apex court as well as this court had held that invoking of the provisions of section 145(3) and/or estimation of income by itself is a finding of fact and it would be appropriate to refer to a few judgments in this regards. 13. The hon'ble apex court in the case of Chhabildas Tribhuvandas Shah v. CIT [1966] 59 ITR 733 has observed as under (page 737) : \"We may point out that we are not concerned with the correctness of the conclusion and we are only concerned with the question whether there is any material in support of the finding of the Appellate Tribunal. In cases involving the applicability of the proviso to section 13, the question to be determined by the Income-tax Officer is a question of fact, namely, whether the income, profits and gains can or cannot be properly deduced from the method of accounting regularly adopted by the assessee. There is nothing special about this question of fact, and generally the only question of law that can possibly arise is whether there is any material for the finding. In our opinion the High Court was right in refusing to call for a statement of the case.\" Printed from counselvise.com 71 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 14. This court in the case of CIT v. Singhal Natural Stone (P.) Ltd. [2012] 21 taxmann.com 493/208 Taxman 184 (Raj.) has held that the finding about the rejection of income from a particular amount (from Rs. 20,78,821 to Rs. 5,15,259) was based on appreciation of material on record and, accordingly, it was observed that no question of law, much less a substantial question of law, arises so as to entertain the said appeal. 15. This court, again in the case of CIT v. Amrapali Jewels (P.) Ltd. [2012] 19 taxmann.com 207/208 Taxman 185 (Raj.) (Mag.) observed as under : \"In our opinion, therefore, once the Tribunal accepted the factual explanation of the assessee and accordingly, deleted the additions in question made by the Assessing Officer in exercise of its appellate discretionary powers, then it would not involve any substantial issue of law as such. In other words, this court in its appellate jurisdiction under section 260A ibid, would not again de novo hold yet another factual inquiry with a view to find out as to whether the explanation offered by the assessee and which found acceptance to the Tribunal is good or bad, or whether it was rightly accepted, or not. It is only when the factual finding recorded had been entirely de hors the subject, or when it had been based on no reasoning, or when it had been based on absurd reasoning to the extent that no prudent man of average judicial capacity could have ever reached to such conclusion, or when it had been found against any provision of law, then a case for formulation of any substantial question of law on such finding can be said to arise. Such is not the case here on facts.\" 16. This court in the case of Pansari Gems International v. CIT [2013] 33 Taxmann.com 667 (Raj.) has held as under : \"The total turnover during the year under reference is Rs. 8.86 crores. The Income- tax Appellate Tribunal has held that gross profit rate does not depend on the basis of specification of item, but it depends upon the quality, shine, etc. The assessee has earned gross profit varied from 6.32 per cent. to 26.45 per cent., but from the chart filed by the assessee, it cannot be concluded that gross profit rate declared by the assessee was correct. The Assessing Officer has found that purchases were not fully verifiable. The books of account were rejected for various reasons. Previous year also gross profit rate was 18.87 per cent. and this year, it has been accepted at 17 per cent. by the Commissioner of Income-tax (Appeals) and the order passed by the Commissioner of Income-tax (Appeals) has been affirmed by the Income-tax Appellate Tribunal. In view of the reasons assigned by the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal in its orders, we find that no substantial question of law arises in the present appeal. The facts of the case and the evidence have been properly appreciated by the Commissioner of Income-tax (Appeals) as well as the Income- tax Appellate Tribunal.\" 17. That other judgments on the above aspect are in the case of CIT v. Dr. A. P. Bahal [2010] 322 ITR 71 (Raj.)), CIT v. Jaimal Ram Kasturi [2013] 33 taxmann.com 315/216 Taxman 226 (Raj.), CST v. Girja Shanker Awanish Kumar [1996] 11 SCC 648; CIT v. Jas Jack Elegence Exports [2010] 324 ITR 95/191 Taxman 386 (Delhi), Arya Confectionery Works v. CIT [1983] 143 ITR 814 Printed from counselvise.com 72 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO (M.P.) and Awadhesh Pratap Singh Abdul Rehman and Bros. v. CIT [1994] 210 ITR 406/76 Taxman 106 (All.). 18. This court in the case of CIT v. Inani Marbles (P.) Ltd. [2009] 316 ITR 125/[2008] 175 Taxman 56 (Raj.) and also the Delhi High Court in the case of Action Electricals v. Dy. CIT [2002] 258 ITR 188/[2003] 132 Taxman 640 have observed that the past history of the assessee would be one of the reliable guidelines to make or not to make any estimation/addition. We have already referred to hereinabove that the Assessing Officer has failed to bring on record any comparable case so as to justify any estimation/addition, the addition has been deleted by the Commissioner of Income-tax (Appeals) as well as upheld by the Income-tax Appellate Tribunal. 19. In view of what we have observed hereinabove, it is essentially a finding based on appreciation of evidence and is pure finding of fact. Thus, there is no question much less a substantial question of law, which can be said to arise out of the order of the Tribunal. Even this Jaipur bench has also considered the above judgement and thereby directed to delete the lump sum disallowance in the case of Ahluwalia Erectors & Fabricators P. Ltd. Vs. ACIT [ 173 taxmann.com 351 ]. Therefore, on being consistent and following the judicial precedent we consider the contention of the assessee that no such ad-hoc disallowance be made in the case of the assessee and therefore, we direct the ld. AO allow the claim for an amount of Rs. 1,30,905 and thereby the ground no. 4 raised by the assessee is allowed. 13. The ground no. 5 raised by the assessee relates to the disallowance of Rs. 3,97,500/- on account of Rent paid by the assessee. The claim of the assessee was not accepted because the additional evidences furnished by assessee was not considered. Before us it has been submitted that there was a reason before the assessee for not placing that evidence before the Printed from counselvise.com 73 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO ld. AO but was placed before the ld. CIT(A) and thereby the claim be considered in the light of the additional evidence placed on record before the ld. CIT(A). As is evident from the remand report placed record at paper book page 334 to 337 the ld. AO filed the report in the remand proceeding on the prayer of the assessee to consider the additional evidence. The ld. AO made the disallowance by alleging that the same were paid in cash and without deducting tax at source etc. Also, with regards to disallowance of rent of Rs.3,97,500/-, it is alleged by ld.AO that no corresponding cash withdrawals are appearing in cash book for making such payment. In this regard, it was submitted before ld.CIT(A) that none of the payments for expenses made in cash were beyond the limit prescribed u/s 40A(3). Moreover, cash payment per se does not make a payment non-genuine. Further, wherever payment to a single party has exceeded the threshold of deduction of tax at source, due compliance has been made by assessee. With regards to allegation of ld.AO regarding Rent, that there are no corresponding cash withdrawals, on this aspect of the matter it was submitted that on few occasions, rent has been paid by Head office, therefore instead of cash, assessee has credited Head office, which is evident from ledger of Rent enclosed at (page 306-308 of the paper book Printed from counselvise.com 74 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO filed) . It was further submitted that Rent ledger as well as copy of rent agreement (APB 309-313 ) with one of the party, could not be furnished during assessment proceedings and thus were furnished as additional evidence along with prayer u/r 46A to admit the same. However, ld.CIT(A) denied to admit the same for the reason that the same were not submitted before ld.AO without any reasonable/sufficient cause. In this regard, it is submitted that such documents could not be furnished during assessment proceedings due to circumstances beyond the control of assessee. It is a trite law that ld.CIT(A) is empowered to admit additional evidence if the same goes to root of the matter. Thus, we admit that additional evidence and since the ld. AO was already given those evidence and he has not submitted any comments on the issue of the additional evidence and its veracity we consider that additional evidence. 14. As submitted by the assessee the details of the properties taken on rent along with complete address, names of respective owners and purpose for which premises was being used are being furnished in table below: S. No. Name of Landlord Address of Property Used for Office/Room/ Godown Amount Paid 1. KAMLESH GAHLOT 178,1ST-C ROAD SARADAPURA JODHPUR GODOWN 108000 2. SHILESH GAHLOT 178,1ST-C ROAD SARADAPURA JODHPUR OFFICE 96000 3. SURENDRA GAHLOT 178,1ST-C ROAD SARADAPURA JODHPUR GODOWN 22000 Printed from counselvise.com 75 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 4. MEENA DEVI 1017,1ST-C ROAD SARADAPURA JODHPUR OFFICE 26000 5. ASHOK KUMAR LADWANI 1017,1ST-C ROAD SARADAPURA JODHPUR GODOWN 48000 6. MAHENDRA PRAJPAT 1013,2ND -B ROAD SARDARPURA JODHPUR ,342001 GODOWN 36000 7. VINOD MEENA 50-B GANDA NALA KE PASS DEV NARAYAN MANDIR BHAGAT KI KHOTI JODHPUR RAJASTHAN,342005 ROOM 1500 8. ANJALI LADWANI 1017,1ST-C ROAD SARADAPURA JODHPUR ROOM 60000 3,97,500/- As is evident from the above chart showing the details of the rent paid for the purpose of business only. It is submitted that assessee maintains regular books of accounts, which are duly audited by qualified chartered accountant, without any adverse remarks. Further, assessee furnished purchase Invoices, sales invoices, cash book etc. also, wherein no discrepancies have been pointed by ld.AO and the trading results declared by assessee have been accepted. It is submitted that accepting the trading results proves that the proportion of the expense incurred are commensurate to the total turnover declared, and for this reason also there is no room for any excessive/personal expenses being included in the same. It is submitted that all the expenses claimed by assessee were incurred wholly and exclusively for the purpose of business and under business expediency. We note that ld. AO in the remand proceedings or Printed from counselvise.com 76 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO that of while hearing of the present appeal through ld. DR did not dispute the fact that the assessee has paid the rent for the purposes of the business and all the required details were filed and not disputed and therefore, we held that the expenditure being for the purposes of business of the assessee the claim cannot be denied. We get support of our view from the decision of S. A. Builders Ltd. Vs CIT 288 ITR 1 (SC) wherein the Apex Court held that there was nexus between the expenditure and purchase of the business (which need not necessarily be the business of the appellant itself the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits. Based on these observations, ground no. 5 raised by the assessee is allowed. 15. Now coming to the last issue that has been raised by the assessee, vide ground no. 6, 6.1 to 6.4 challenging the finding of the lower authority while sustaining the addition of Rs. 40,00,000/- made by ld.AO by invoking section 69Ar.w.s. 115BBE and treating the cash deposited during the de- monetization period (09.11.2016 to 30.12.2016) as undisclosed income of the assessee, whereas the same was deposited out of accumulated total cash balance available as a result of cash sales made in various months Printed from counselvise.com 77 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO prior to de-monetization period, which was required to be deposited in bank on account on the directives of the government related to demonetization scheme. The assessee deposited cash immediately in at once. The addition so made only on presumptions, without in any manner doubting the sales declared by the assessee and without invoking the provisions of section 145(3) and taxing the same income twice. Merely on the facts that the assessee has not deposited such cash in the same period in the last year was very less as compared to the cash deposited during the de- monetization period cannot be a basis to make the addition. The revenue did not dispute the availability of cash without rejecting the books of account since the major cash available at all sites was brought back immediately along with all the cash generated due to cash sales made during the period till 08.12.2016 in SBN had to be deposited immediately within the given period, as per the directives of the government and this bring the peculiar and very extraordinary situations is totally not comparable to the cash deposited during the same period in the preceding years and thus addition made by simply comparing entirely different situations. Even the ld. CIT(A) has not appreciated the fact that the cash sales made during the pre-demonetization period was declared in the VAT returns filed by the assessee and thus was not the afterthought, thus action Printed from counselvise.com 78 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO of ld. CIT(A) in not accepting such cash sales genuinely made and duly declared before the VAT authorities much prior to the date of demonetization deserves to be held bad in law and on facts and consequent addition being made solely on conjunctives and surmises deserves to be deleted. The assessee also challenges the finding of the ld. CIT (A) in making addition by invoking provisions of sec 69A, which section can be invoked only when the assessee is found to be an owner of any money, bullion, jewellery or valuable article which is not recorded in the books (if any) maintained for any source of income by the assessee and the assessee is not able to satisfactorily explain the source of acquiring such money, bullion, jewellery or valuable articles. In the present case, the addition made is on account of cash deposited in the bank account, during the de-monetization period, which was duly recorded in the audited books of accounts regularly maintained by the assessee and therefore, that finding being contrary to the law the present appeal is filed by the assessee. 15.1 The brief facts relating to the aforesaid dispute are that the assessee is an individual and is engaged in the wholesale and retail trading of fire safety equipment and devices in the name of M/s Swastik Trading Co., i.e. proprietorship concern of the assessee. Return of income for the year Printed from counselvise.com 79 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO under consideration was filed by the assessee on 29.9.2017 declaring total income Rs. 12,41,100/-. Subsequently, case of the assessee was selected for scrutiny under CASS. Various details/information were sought by ld.AO as well as books of accounts of the assessee were duly furnished and the assessment was completed u/s 143(3) of the Act after examination of the books of accounts as noted by the ld. AO vide first para on page 2 of the assessment order passed on 19.02.2019. Thus, it is fact that the ld. AO examined that books of account and the same were not rejected. The assessee vide ground no. 6 to 6.4 challenges the addition of Rs. 40,00,000/- made by ld.AO and sustained by the ld. CIT(A) by invoking the provisions of section 69A r.w.s.115BBE of the Income Tax Act by treating the cash deposited during demonetization period as undisclosed income of the assessee. 15.2 Since the dispute relates to the invocation provision of section 69A of the Act it would be desirable to go through the provision of that section which reads as follows; Unexplained money, etc. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, Printed from counselvise.com 80 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. Here it is not a case of the revenue that the assessee has not recorded the said cash which he deposited into the bank account were well recorded in the books of accounts which are audited and the same were not found faculty and thereby without rejecting that books of account no addition can be made as per provision of section 69A of the Act. Record reveals that during the course of assessment proceedings, ld.AO sought explanation regarding cash deposit of Rs.40 lakhs made by assessee in bank account during the demonetization period. Assessee, vide his reply filed in response to notice dated 2.12.2019 [ page 33-36 of the paper book filed ] explain the source of cash being out of cash sales made from time to time, cash withdrawals made from bank. It was further explained that assessee maintains cash balance at various sites to meet out day to day requirements of site expenses, however due to demonetization, such cash balances available in demonetized currency, were also compulsorily to be deposited in bank account due to demonetization. In support, assessee also furnished Cash book for entire year i.e. from 1st April 2015 till 31st March 2016 [paper book page 41-257]. This books of account and that of the cash book were not found faculty and Printed from counselvise.com 81 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO the same were not rejected pin pointing any single discrepancy in the cash book/explanation furnished by the assessee, yet proceeded to make addition of entire cash deposits of Rs.40 lakhs made during demonetization, solely for the reason that cash deposits in preceding years were not comparable with the year under consideration and held the source of cash deposits was unexplained. As it was argued that the proceeds so deposited into the bank account are money of the sales received by the assessee from the various sites and that cash has been deposited immediately on 11.11.2016 in a single batch into the bank account. This fact has not been disputed and even the sales recorded in the books of accounts were not disbelieved by rejecting the books of accounts which are audited. Therefore, there is no dispute as to sales recorded in the books of account as the same were not disbelieved. Thus, when the ld. AO did not dispute the cash sales recorded in the books of accounts the sales proceeds so recorded in cash by handing over the goods or services cannot be considered as unexplained income of the assessee. This issue has already been decided by our Rajasthan High Court while dealing with the case of Smt. Harshila Chordia v. ITO [2008] 298 ITR 349 in which it was held that “Addition u/s 68 could not be made in respect of the amount which was found to be cash Printed from counselvise.com 82 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO receipts from the customers against which delivery of goods was made to them”. It is further submitted that one major fact was ignored by ld. AO that sales against cash deposited in the bank accounts maintained in regular course was duly recorded in the books of accounts and after inclusion of the same in total sales, cash balance, profits and stocks were derived which were accepted by Ld. AO without any doubts. Thus, further addition by alleging the same as unexplained tantamount to taxation of an income twice. One in the shape of sales and profits embedded therein and again by making addition by alleging the same as unexplained cash deposit. Further the CBDT vide instruction no.03/2017 dated 21.02.2017 (APB 258- 265 ) issued guidelines for the Assessing Officer wherein it is stated that the AO is required to take into consideration the record of the assessee such as stock register, bank statement, sale tax returns, monthly sales summary, possibility of back-dating of cash sales or fictitious sales etc. before arriving at a conclusion about the genuineness of the cash deposited in the bank account during the demonetization. No such observation or exercise have been done by the lower authority. Record reveals that the assessee during the course of assessment proceedings, Printed from counselvise.com 83 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO besides submitting the copy of cash book (page 41-257) and bank statements, had also submitted the Invoices of Purchases and Sales, VAT challans etc. for verification of purchases and sales which have been duly placed on record before the lower authorities. Thus, the entire deposit of cash by treating it from undisclosed sources as per provision of section 69A of the Act is not correct as per provision of law as discussed herein above and in the light of the judgment of our Rajasthan High Court as discussed herein above the proceeds of the sales cannot be considered as unexplained income of the assessee. It is also not disputed that and confirmed by the ld. AO that the assessee has deposited entire cash was deposited by assessee in bank account on 11.11.2016 (i.e. within 3 days of demonetization), it is thus clear that there is no delay in depositing cash and observations of Ld. CIT(A) regarding delay in depositing cash are contrary to facts on record. Thus, once the deposit of cash is duly explained with the source coming from the proceeds of the sales the cash deposited stands explained when the cash book so produced was not found faulty and once that is accepted we see no reason to sustain the addition. Based on the detailed finding so recorded herein above and respectfully following various case laws cited by the assessee in the written submission we direct the ld. AO to delete the addition of Rs. Printed from counselvise.com 84 ITA No. 1522/JP/2024 Pradeep Sharma vs. ITO 40,00,000/- and thereby ground no. 6 to 6.4 raised by the assessee are allowed. 16. Ground no. 7 & 8 relates the levy of penalty u/s 270A and 271AAC of the Act which are separate and independent proceeding and since the same is not levied and disputed the said grounds so taken by the assessee are academic at this stage and does not require our finding. Ground no. 9 being general does not require our finding. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 09/09/2025. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 09/09/2025 *Ganesh Kumar, Sr. PS vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Pradeep Sharma, Jaipur 2. izR;FkhZ@ The Respondent- ITO, Ward 1(5), Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 1522/JP/2024) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar Printed from counselvise.com "
Other Referred Cases
TRF Ltd. vs Commissioner of Income Tax, Catholic Syrian Bank Vs. Commissioner of Income tax, Thrissur, Manoj Kumar Jain vs ACIT, M H Raney vs ACIT, Sarwankumar Sharma vs ACIT, Bhagwandas D Vachani vs ACIT, Tata Chemicals Ltd. vs CIT, Krone Communication Ltd. vs CIT, Viswa and Devji Diamonds (P.) Ltd. vs ACIT, Balvir Singh Tomar vs ACIT, S. A. Builders Ltd. vs CIT, Mathara Das Soni vs ACIT, Gupta, K. N. Construction Co. vs CIT, Inani Marbles (P.) Ltd. vs CIT, J. R. Rice India (P.) Ltd. vs ACIT, TamilNadu State Marketing Corporation Ltd. vs ACIT
Laws Referred To
Income Tax Act, 1961
1:1 Consultation on Tax Litigation
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1:1 Consultation on SME Listing
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Consultation on Entity Formation
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Non-Compete Agreement
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Memorandum Amendment Resolution
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