RANG MAHAL,MEERUT V. ITO, WARD 2(2), MEERUT

ITA 5326/DEL/2024

AI Insights

The case involves Rang Mahal, a partnership firm, which appealed against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, for the Assessment Year 2017-18. The primary contention was regarding the addition of Rs.21,88,200 as unexplained money under section 69A of the Income-tax Act, 1961, due to substantial cash deposits during the demonetization period. The Assessing Officer had initially added this amount to the assessee's income, treating it as unexplained. The Tribunal's decision overturned this addition, acknowledging the legitimate sources of the deposits and the proper use of the new PAN and bank account by the reconstituted firm.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315576 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2017-2018
• Other Referred Cases: Dhanterash Sales Pvt. Ltd. Vs. ITO, Pankaj Sharma Vs. DCIT, Himanshu Infratech Vs. ITO, Daujee Abhushan Bhandar (P) Ltd. Vs. Union of India, DCIT vs. Sterlite Technologies Ltd., PCIT Vs. Maruti Suzuki India Ltd., SMILE Microfinance Ltd. W.P. (MD) No. 2078 of 2020
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.S. ANAND
• Assessee Lawyers: ROHIT AGARWAL
• Section: 142(1); 133(6)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘SMC’: NEW DELHI BEFORE SHRIS.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.5326/DEL/2024 (Assessment Year: 2017-18) Rang Mahal, vs. ITO, Ward 2 (2), 1, Sharda Road, Delhi Road, New Delhi. Meerut – 250 002 (Uttar Pradesh). (PAN : AASFR3224K) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rohit Agarwal, CA REVENUE BY : Shri B.S. Anand, Sr. DR Date of Hearing : 05.03.2025 Date of Order : 14.05.2025 O R D E R 1. The assessee has filed this appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 30.07.2023 for the Assessment Year 2017-18. 2. Brief facts of the case are, the Assessing Officer observed that based on the information available with him extracted from AIMS Module of ITBA, it was observed that M/s. Rang Mahal (assessee) is one of the persons who deposited substantial cash in bank accounts during demonetization period. He noticed that assessee has deposited in his bank account having account no.10493852562 to the extent of 2 ITA No.5326/DEL/2024 Rs.12,65,700/- during demonetization period. Accordingly, notice u/s 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) was issued to the assessee through ITBA Portal. After several notices issued to the assessee, assessee has furnished details as per notice issued u/s 142(1) vide order dated 10.03.2018. It was submitted that the assessee firm was earlier functioned under partnership of three partners as per the partnership deed executed on 01.04.2015 and subsequently fourth partner inducted in the firm and new partnership deed was executed on 01.04.2016. It was submitted that a new PAN was applied for the reconstituted firm. The new PAN acquired by the firm is AATFR8392R and the old PAN was AASFR3224K. The Assessing Officer observed that the assessee has not stated as to why a new PAN was applied in the firm inspite of the fact that there is no change in the name and status of the firm. Further he observed that assessee has filed letter for cancellation of the old PAN only on 07.03.2018. No explanation was given by the assessee in this regard during the assessment proceedings. He further observed that the assessee firm has opened new account in the State Bank of India and deposited substantial cash in the abovesaid accounts. The Assessing Officer has reproduced the details of cash deposited in the abovesaid account during demonetization period in his order. The Assessing Officer observed that assessee has filed return of 3 ITA No.5326/DEL/2024 income for AY 2017-18 with the new PAN declaring total income of Rs.70,630/- and he acknowledged that the accounts were audited as per the provisions of section 44AB of the Act. He observed that in the abovesaid return of income, it has submitted details of account numbers of old firm as well as new firm but cash deposited during the demonetization period was shown to be nil. On perusal of the financial statements for the AY 2017-18, he observed that assessee has reported sales of Rs.7,16,30,483/- and disclosed net loss of Rs.18,426/-. In order to verify the information submitted by the assessee, a notice u/s 133(6) of the Act was issued to State Bank of India, Brahampuri Branch, Meerut calling for the details. As per the information collected from the bank, he observed that assessee has deposited during the demonetization period in the old bank account to the extent of Rs.12,65,700/- and in the new bank account of Rs.9,22,500/-. He also observed that assessee has deposited Rs.92,66,900/- during pre- demonetization period and Rs.21,88,200/- during demonetization period and Rs.13,36,000/- during post- demonetization period and the other credit entries relating to RTGS/NEFT and cheques to the extent of Rs.4,87,63,6309/-. After analysing the above informations, he observed that during demonetization period, assessee has deposited cash in old currency of denomination of Rs.21,88,200/- and he treated the same as unexplained money u/s 69A of 4 ITA No.5326/DEL/2024 the Act and proceeded to add the same in the returned income of the assessee. 3. Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions. Ld. CIT (A) has reproduced the same in his order. After considering the same, he sustained the addition. 4. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :- “1. That the order of the Ld. A.O. is illegal as the same has been passed without DIN being mentioned on the said order, as the DIN of the said order was generated on 15.01.2020, whence the same is liable to be declared as non- est in view of the CSOT circular no. 19 . of 2019 dated 14.08.2019. 3. That the Ld. CIT(A) has erred in law and facts of the case by upholding the validity of the assessment order when the same was barred by limitation as though the same is purported to have been finalized on 31.12.2019 was dispatched to the appellant on 17.01.2020 and served upon the successor firm on 18.01.2020, rendering the order under appeal as illegal. 3. That the Ld. CIT(A) has erred in law and facts of the case by upholding the validity of the assessment order when the same is illegal as the same has been passed against non-existent person, as the firm M/s Rang Mahal having the PAN under reference stood discontinued w.e.f. 01.04.2016 and new firm under the same name came into existence w.e.f. said date under PAN number AATFR8392R and intimation of cancellation of old PAN was also duly' filed on 07.03.2018 before the ld. A.O. 4. That the Ld. CIT(A) has erred in law and facts of the case by confirming the impugned addition of Rs.21,88,200/-, as the same is inconsistent with the facts of the case and the same has been made without considering the submissions of the appellant in the right perspective.” 5. At the time of hearing, ld. AR of the assessee did not press ground no.1. With regard to other grounds, he submitted as under :- 5 ITA No.5326/DEL/2024 “Ground No.2 has been raised challenging the validity of the assessment order under consideration as the same was barred by limitation as provided in section 153 of the Act. Documents relied upon/submissions 1. Written submissions dated 22.01.2021, as filed before the Ld. CIT(A), during the course of the 1st appeal proceedings, copy placed at page nos. 266 to 273 of the paper book. 2. The case under reference pertains to A Y 2017-18 and in terms of the provisions of section 153(1) of the Act, the order under consideration ought to have been passed upto 31.12.2019 i.e., within 21 months from the end of the relevant financial year. 3. The order under appeal though purported to have been passed on 31.12.2019, was sent to .the postal department for dispatch to the appellant on 17.01.2020 and was served upon the appellant on 18.01.2020. copy of the envelop in which the impugned order was dispatched is placed at page no. 171 of the paper book, and the speed post tracking status of the same is placed at page no. 172 of the paper book. 4. The contention of the appellant that the order was not passed upto 31.12.2019, also finds support from the fact that order under consideration does not bear any DIN and the intimation letter for generating DIN is dated 15.01.2020. Copy of the intimation letter for generating DIN is placed at page no. 173 of the paper book. Had the order been passed on 31.12.2019, the DIN of the same would have been generated on the same date itself. 5. The appellant relies upon the following judicial pronouncements: - • Dhanterash Sales Pvt. Ltd. Vs. ITO (2024) ITA no. 1184/Kol/2023 (Kol ITAT). • Pankaj Sharma Vs. DCIT (2019) ITA no. 3556 & 3557 / Dell 2015 (Del ITAT). Copy placed at page Nos. 174 to 197 of the paper book. • Himanshu Infratech Vs. ITO (2023) 153 Taxmann.com 522 (Del HC) • Daujee Abhushan Bhandar (P) Ltd. Vs. Union of India (2022) 136 Taxmann.com 246 (All HC) Ground No.3 has been raised challenging the validity of the assessment order under consideration as the same was passed upon a non-existent entity and is in violation of provisions of section 187 of the Act. Documents relied upon/submissions 1. The appellant firm was constituted vide partnership deed dt. 01.04.2015 by 3 persons at PAN - MSFR3224K. Copies of the said partnership deed and PAN card are placed at page nos. 238 to 242 of the paper book. 6 ITA No.5326/DEL/2024 2. Thereafter, the said firm was taken over by another partnership firm constituted by 4 persons, 3 existing partners and one new partner vide partnership deed dated 01.04.2016 and new PAN i.e., MTFR8392R, was obtained. Copies of the said partnership deed and PAN card are placed at page nos. 243 to 248 of the paper book. 3. The above noted change was duly notified to the assessing officer vide letter dated 28.02.2018 (filed on 07.03.2018). Copy of said letter placed at page no. 198 of the paper book. The change was also notified to the banker vide letter dated 03.05.2016. Copy of the said letter is placed at page no. 248 of the paper book. 4. In terms of the provisions of sec. 187 of the Act, in the case of change in constitution of partnership firm, any assessment made after the date of change, has to be made on the newly constituted firm. The order under appeal ought to have been passed on the new firm having PAN - MTFR8392R, hence order on PAN of non-existent entity is illegal. 5. The appellant relies upon the following judicial pronouncements: - • DCIT vs. Sterlite Technologies Ltd. (2024) 158 taxmann.com 142 (SC) • PCIT Vs. Maruti Suzuki India Ltd. (2019) 107 taxmann.com 375 (SC) 6. In view of the above submissions the order under appeal deserves to be quashed on this issue alone. Ground No.4 has been raised challenging the merits of the additions of Rs.21,88,200/- made u/s 69A of the Act, so made by the Ld. AO and confirmed by the Ld. CIT(A), NFAC. 1. Written submissions dated 22.01.2021, as filed before the Ld. CIT(A), during the course of the 1st appeal proceedings, copy placed at page nos. 266 to 273 of the paper book. 2. The cash deposits are duly recorded in the cash book of the successor firm. Copy of the said cash book is placed at page nos. 1 to 154 of the paper book. 3. The bank accounts under consideration were duly recorded in the audited balance sheet of the successor firm. Copy of the audited balance sheet of the successor firm is placed at page nos. 155 to 170 of the paper book. The said bank account numbers were also mentioned in the ITR filed of the successor firm. This fact has also been accepted by the Ld. AO and Ld. CIT(A). 4. Cash deposits and other credit transactions in the bank accounts under consideration, during the pre and post demonetization have duly been accepted by the Ld. AO and Ld. CIT(A). Further, the book results of the appellant have also been accepted. 7 ITA No.5326/DEL/2024 5. The Ld. CIT(A) has confirmed the addition holding that the appellant has not explained as to why the new PAN was not updated in the Bank records. 6. The Banker was duly intimated vide letter dated 03.05.2016, about the change in constitution of the firm and its new PAN. Copy of the said letter is placed at Page no. 248 of the paper book. The banker updated the PAN of the appellant in one bank account i.e., CC alc No. 35659001585, but did not change the same in the current Bank A/c No - 10493852562. For this reason, only, the ld. AD. received the initial information about cash deposits of RS.12,65, 70001- in bank account no. 10493852562 at old PAN. 7. The Ld. AO and Ld. CIT(A) doubted the cash deposits far the sole reason that in the ITR filed by the successor firm, though the bank accounts under consideration were mentioned but the amount of cash deposits during demonetization was filled as nil. Which happened due to the clerical mistake on part of the clerk filling the ITR of the appellant. 8. The cash deposits of Rs.9,22,500/- in CC Nc was reported by the bank on New PAN in the reconstituted firm and therefore under no circumstances could be assessed in the hands of the assessee i.e., the old firm. 9. Out of the total cash deposits of Rs.21,88,200/-, the amount of Rs.70,700/-, was deposited in valid currency. Copies of deposits slips are placed at page Nos. 258 to 265 of the paper book. 10. In view of the above, the addition under consideration deserves to be deleted on merits. Additional Ground: The appellant has raised the said ground challenging the action of the Ld. AO and Ld. CIT(A) of applying 60% tax rate as provided u/s 115BBE as the same was brought into the statues w.e.f. 15.12.2016, and hence is not applicable on transactions prior to that date. 1. In this regard, we place reliance on the judgment of the Hon'ble Madras HC in the case of SMILE Microfinane Ltd. W.P. (MD) No. 2078 of 2020. Copy of the said judgment is enclosed along with these submissions. 6. On the other hand, ld. DR of the Revenue brought to my notice page 5 of the assessment order and brought to my notice findings of the Assessing Officer. He submitted that assessee has taken new PAN without there being any necessity and deposited huge cash in both the accounts 8 ITA No.5326/DEL/2024 maintained by the assessee with State Bank of India and deposited cash during demonetization period. He brought to my notice that assessee has deposited old denomination of currency in both the accounts during demonetization period and in the return of income filed by the assessee, it has mentioned as nil cash deposited during demonetization period, therefore, it is a contradictory disclosure made by the assessee. Further he brought to my notice page 17 of the appellate order wherein ld. CIT (A) has discussed the relevant issues. Therefore, he relied on the findings of lower authorities. 7. In rejoinder, ld. AR of the assessee brought to my notice page 95 of the paper book to submit that assessee has not only deposited old denomination of currency during demonetization period and also deposited regular cash out of sales during that period. He submitted that assessee has disclosed the cash deposited during demonetization period as well as the cash sales during the whole year of operation of new firm w.e.f. 01.04.2016. He submitted that assessee has deposited all cash generated during the year in two accounts maintained by the assessee which was opened by the old firm as well as new firm and all these cash deposits were already disclosed in its books of account and accordingly, return of income was filed. He prayed that the addition made by the Assessing Officer is uncalled for. 9 ITA No.5326/DEL/2024 8. Considered the rival submissions and material placed on record. I observed that assessee is a firm established with three partners and functioned until 31.03.2016 i.e. previous assessment year. In the current assessment year, a new partner was inducted and firm continued the same business during the current assessment year. It is fact on record that assessee has taken a new PAN and opened a new account with State Bank of India. It is not required as such. However, the reasons best known to the assessee, the assessee has taken a new PAN and continued with the old business also by opening another bank account. It is also brought to my notice that assessee has cancelled the old PAN only on 07.03.2018. After careful consideration of the facts available on record, I observed that assessee has declared two bank accounts opened by the firm with three partners and also new bank account in the return of income filed by the assessee with the new PAN. Be that fact remains the same, I noticed and observed that assessee has continued with the same business and deposited the cash in both the accounts and declared all the transactions involved two bank accounts in its return of income. The above facts were brought to the notice of the lower authorities and they were focused only on the aspect that assessee has taken new PAN without there being any necessity and they doubted the actions of the assessee and rejected the explanation given by the assessee on the basis that assessee has deposited 10 ITA No.5326/DEL/2024 cash during demonetization period. The views of the tax authorities, we may have accepted if the assessee has opened new account as well as new PAN after the declaration of demonetization or few months earlier. That is not the case here. We observed that the reconstituted firm was continued with the business w.e.f. 01.04.2016 and all the transactions were properly recorded in its books of account and assessee has also established that there is a source for cash deposits during the demonetization period. It is also brought on record to my notice pages 95 to 115 of the paper book i.e. during the period 08.11.2016 to 31.12.2016, the assessee has enough cash balance in its books of account to deposit old denomination of currency as well as new denomination of currency. Therefore, the assessee has enough source of cash deposit during the demonetization period. The lower authorities have merely doubted and not brought on record any cogent material to establish that the assessee has any other source of cash to make the deposit during demonetization period and they rejected the plea of the assessee merely on the basis that assessee has acquired new PAN and opened a new bank account without there being any necessity. Therefore, we are inclined to allow the grounds raised by the assessee. 9. With regard to additional ground raised by the assessee on the issue of section 115BBE, this being jurisdictional issue, I am inclined to admit the 11 ITA No.5326/DEL/2024 additional ground of appeal and proceeded to adjudicate the same. I observed that the issue under consideration is whether the amended provisions are applicable prospectively or not. I observed that Hon’ble Madras High Court in the case of SMILE Microfinance Ltd. in W.P. (MD) No.2078 of 2020 has held that the amended provisions are applicable w.e.f. 15.12.2016. Therefore, the same is applicable prospectively. Accordingly, we are inclined to allow the above additional ground filed by the assessee. 10. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 14th day of May, 2025. Sd/- (S. RIFAUR RAHMAN) ACCOUNTANT MEMBER Dated: 14.05.2025 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "