SHRI KARSHNI ALLOYS PRIVATE LIMITED,DELHI V. INCOME TAX OFFICER WARD 23(3) DELHI , DELHI

ITA 3508/DEL/2023

AI Insights

The case involves Shri Karshni Alloys Private Limited appealing against the order of the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, which confirmed the addition of Rs.2.20 crores under section 69A of the Income Tax Act, 1961 for the Assessment Year 2017-18. The addition was based on the rejection of the assessee's books of account under section 145(3) and the non-genuineness of purchases and sales transactions with Hindalco Industries Ltd. and other entities. The assessee argued that the transactions were genuine, supported by tax-paid invoices, eWay bills, and other documents, and that the books of account were improperly rejected. The tribunal found that the assessee should be given another opportunity to present its case before the ld. CIT (A), leading to the remittance of the case back to the first appellate authority.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 708794 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: Satya Pal Shiv Kumar vs ACIT, Balaji Mech tech vs ITO, DCIT vs Viswa and Devji Diamonds, Durga Fire Work vs ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH
• Assessee Lawyers: ABHIMANYU JHAMBA
• Keywords: Business income; Opportunity of being heard
• Section: 142(1); 131

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘C’: NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.3508/DEL/2023 (Assessment Year: 2017-18) Shri Karshni Alloys Private Limited, vs. ITO, Ward 23 (3), Exchange Stores Building, New Delhi. Sham Nath Marg, Civil Line, New Delhi – 110 054. (PAN : AAHCS8567N) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Abhimanyu Jhamba, Advocate REVENUE BY : Shri Om Prakash, Sr. DR Date of Hearing : 08.05.2025 Date of Order : 18.07.2025 O R D E R PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as ‘ld. CIT (A)] dated 09.10.2023 for Assessment Year 2017-18 raising following grounds of appeal :- “1 That on the facts and circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals) [hereinafter referred to as 'Ld CIT (A)] has grossly erred in confirming the additions of Rs.2,20,00,000 u/s 69A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). 2 That on the facts and circumstances of the case and in law, the Ld. CIT (A) has failed to appreciate that the Ld. Assessing Officer (hereinafter referred to as 2 ITA No.3508/DEL/2023 'Ld. AO') has grossly erred in rejecting the Books of Accounts of the Appellant u/s 145(3) of the Act. 3 That on the facts and circumstances of the case and in law, the Ld. CIT (A) has failed to appreciate that the purchases made from M/s Hindalco Industries Ltd. and sales made out of such purchases to two entities could not have been termed as non-genuine considering that such purchases/sales were duly supported by tax paid invoices and accompanying documents such as eWay bills, transportation proof etc. 3.1 In doing so, the Ld. AO has failed to appreciate that the appellant had sufficient stock to make cash sales, the cash sales has been accepted by Sales Tax/VAT Department, the purchases out of which the cash sales were made were verifiable and the cash flow statement disclosed availability of cash with the Appellant. 4. That on the facts and circumstances of the case and in law, the Ld. CIT (A) has not passed a speaking order or given his own findings on the ground of erroneous rejection of books by the Ld. AO u/s 145(3) of the Act. 5 That on the facts and circumstances of the case and in law, the Ld. CIT (A) has grossly misconstrued and misconceived the provisions of section 69A of the Act while confirming the impugned additions of Rs.2,20,00,000 made by the Ld. AO. 6 That on the facts and circumstances of the case and in law, the Ld. CIT (A) has grossly erred in confirming the disallowance u/s 69A of the Act without appreciating that the sales of Rs.2,20,00,000 were duly recorded in the Books of Accounts and the Appellant had furnished complete information in respect of the same inter-alia including the statutory compliance(s) under Tax Collected at Source (TCS) provisions. 7 That on the facts and circumstances of the case and in law, the Ld. CIT (A) has failed to appreciate that the additions u/s 69A would tantamount to double taxation which in law is impermissible. 8 That on the facts and circumstances of the case and in law, the Ld. CIT (A) has failed to appreciate that the impugned additions has been made by the Ld. AO while relying on the Books of Accounts which is contrary to the settled legal dictum that once the Books of Accounts are rejected, the same cannot be made the basis to make additions of unexplained money. 9 That on the facts and circumstances of the case and in law, the Ld. CIT (A) has grossly erred in not appreciating that the Ld. AO has made the impugned additions only on the basis of presumptions, conjectures and surmises that the cash receipt during the year could not have been lying with the Appellant till 08.11.2016. The reasoning of the AO is directly in teeth of the settled law that the Ld. AO cannot sit in the armchair of a businessman. 3 ITA No.3508/DEL/2023 10 That on the facts and circumstances of the case and in law, the Ld. CIT (A) has wrongly invoked the provisions contained in section 115BBE of the Act.” 2. In the above grounds of appeal, assessee has challenged the solitary issue of addition made under section 69A of the Income-tax Act, 1961 (for short ‘the Act’) to the extent of Rs.2.20 crores. 3. Before us, ld. AR of the assessee submitted that the books of account of the assessee were wrongly rejected under section 145(3) of the Act. In this regard, he submitted as under :- “(a) The scrutiny assessment was opened on account of cash deposit of Rs.1,35,50,000 during demonetization period - Pg 5 of Paper Book. (b) Various details were asked in notice u/s 142( I) dated 13.08.2019 Pgs 1 - 4 of Paper Book. (c) The reply dated 21.10.2019 is @Pg 9 - 11 of the Paper Book. Annexures to the reply are from Pgs 12 -106. @Pg 35 are the details of the cash deposited in previous AY 2016-17 aggregating to Rs 69,20,000. @Pg 36 are the details of the cash deposited in the year under consideration. The total cash deposited was Rs.1,41,00,000/-. The cash received from the customer against the sales was Rs.2,20,00,000. This was a miniscule proportion of the total sales of Rs.59.28 crores made during the year and duly recorded in the audited books of accounts. In this reply, copy of VAT Returns are given @Pg 10, Para 6. It is specifically stated that the VAT Returns were not revised. The sales of 151 quarter are reconciled @Pg 74, Para 2A, IInd quarter @Pg 80 Para 2A, IIIrd quarter @Pg 86, Para 2A and IVth quarter @Pg 91 Para 2A - It may be noted that the VAT Returns were not revised, and no adverse inference has been drawn by the Assessing Officer in respect of these VAT Returns. (d) The purchase register is from Pgs 96 - 100 relevant @Pg 96 and the sales register is from Pgs 101-106 relevant @Pg 104 and 106. (e) Four additional queries were made by AO in notice u/s 142(1) dated 25.11.2019 @Pg 108 of Paper Book. These are (i) whether the cash sales were subjected to res (ii) details of sales (iii) the details of the purchases made in respect of such cash sales and (iv) the bills. In response thereto, it was submitted as follows : 4 ITA No.3508/DEL/2023 • Details of TCS deposited in Govt account. The reply is @Pg 111 Para 1 read with Annexure @Pg 113 to 115. • Details of Sales and Purchases made' along with copy of bills -- Reply @Pg 112 Annexure @Pg 112 Para 2, Pg 112 it has been specifically stated that the Assessee purchased used transformers from Hindalco and sold them to Words Worth Enterprises and Roy Traders. • @Pg 116, is the details of purchases from Hindalco and sale to Words Worth Enterprises. Sale invoices issued by Appellant to Words Worth are at Pgs 118-120. • @Pg 117 is the purchases from Hindalco and sale to Roy Traders. The sale invoices issued by Appellant to Roy Traders are from Pgs 121-129 (f) Another notice u/s 142(1) dated 13.12.2019 was issued Pgs 130 - 132. This notice would show that summons u/s 131 were issued to the buyers of the Appellant to whom cash sales were made on 05.12.2019 for compliance within 4 days on 10.12.2019. Since no reply was received by the AO, the AO shifted the onus to the Assessee. The reply is at Pg 135-136. The purchase invoices from Hindalco along with transportation bilties, GRs are from Pages 166-260 - this reconciles with the detail @Pg 116-117. The details of cash deposited are given Pg 261. Cash book during the demonetization period are Pgs 262-265. The ledger of HDFC bank is from Pg 268-291. (g) Very Important -Notice s 142(1) was issued on 21.12.2019 affording last opportunity while stating that summons sent to Hindalco (from whom purchases were effected by Appellant) on 13.12.2019 and giving them time to reply till 18.12.2019 are not complied. The reply is from Page 294-296 and this reply is very important. @Pg 295, it is categorically stated @Para 2 that both Roy and Words Worth were registered under VAT. Details of Hindalco were given along with details including mobile number and email address of the relevant person. Pg 296 it is mentioned that out of Rs.2,20,00,000, Rs 1.35 cr were deposited in the bank and remaining Rs 84.50 lac were used in cash expenses prior to 08.11.2016. DOCUME IS SUBMITTED BY APPELLANT: • AUDITED FINANCIAL ACCOUNTS - PAPER BOOK PAGES 13-34 • BANK STATEMENTS 37-72 AND PGS 152 TO 164 • VAT RETURNS OF ALL QUARTERS - PAGES 73-95 • PURCHASE REGISTER PAGES 96 TO 100 • SALES REGISTER 101-105 5 ITA No.3508/DEL/2023 • TCS DETAILS 113-117 • SALES INVOICES] 18 TO 129 • INVOICES GRS TRANSPORTATION DETAILS FROM HINDALCO PGS 260 CASH DEPOSITS DURING DEMO ETISATION PERIOD - PG 261 • CASH BOOK - PAGE 262 TO 265 3. Findings by AO on rejection of books - internal Pg 6, Para 4, last 2 lines. - The purchases of Rs.2,15,61,400 from Hindalco Industries Ltd and sales of Rs.2,19,92,935 to the two parties are held to be non genuine. Para 4.1 - The trading results are not reliable, the books of accounts are held to be not representing true and correct affairs. Hence books are rejected u/s 145(3) of the Act.” 4. Aggrieved assessee preferred an appeal before the ld. CIT (A) and ld. CIT(A) sustained the addition and on the aspect of rejection of books of account, he observed that non maintenance of the books of accounts is itself a defect as true and complete picture of business cannot be calculated in its absence. It is not a case where the assessee has not maintained the books of accounts. On the contrary, assessee has filed Audited books of accounts, carried out a tax audit. There is no infirmity in the books of accounts so submitted. 5. At the time of hearing, ld. AR submitted as under :- “a) The AO has accepted the books of accounts, did not tinker with the sales, purchases, expenses etc., except to the extent of purchases of Rs.2,15,61,400 from Hindalco Industries Ltd. and sales of Rs.2,19,92,935 made to Roy Traders and Words Worth enterprises. The AO has not doubted and has accepted that the purchases made from Hindalco were sold to Roy Traders and Words Worth. It may be also be noted that the total purchases as per the purchase register made from Hindalco @Pg 96 were Rs 3,77,46,344 out of this, purchases of Rs.2,15,61,400 have been disbelieved. The AO cannot doubt part purchases while accepting remaining purchases. b) The books are rejected only in respect of this particular transaction of purchases made from Hindalco and sales made to two entities. 6 ITA No.3508/DEL/2023 Sales: Summons u/s 131 were issued to the buyers of the Appellant to whom cash sales were made on 05.12.2019 for compliance within 4 days on 10.12.2019. Since no reply was received by the AO the AO shifted the onus to the Assessee -Page 130-132. Purchases: Notice u/s 142(1) was issued on 21.12.2019 affording last opportunity while stating that summons sent to Hindalco (from whom purchases were effected by Appellant) on 13.12.2019 and giving them time to reply till 18.12.2019 are not complied. The reply is from Pages 294-296 and this reply is very important. @Pg295, it is categorically used @Para 2 that both Roy and Words Worth were registered under VAT. Details of Hindalco were given @Pg 295 along with details including mobile number and email address of the relevant person but the AO did not consider it necessary to verify the purchases from such details furnished. c) Purchases are evidenced by tax paid invoices, transportation details and payment are made by banking channel. Sales are evidenced by invoices and TCS has been duly deposited in respect of such cash sale. The sales and purchases are duly accounted for in the books of accounts and profits arising therefrom are already included in the computation of income. d) In respect of TCS deposited on 03.12.2016, the AO has merely noted that there are violation of norms in this regard. As per the mandate of section 145(3), once the books are rejected, the assessment has to be made in the manner provided u/s 144. In the present case, the audited financials, tax audit report are on record. A transaction of even a rupee is not disputed from the audited accounts. As regards the purchases from Hindalco, purchases of Rs.2,15,61,400 are doubted. The total purchases made from Hindalco are Rs.3,77,46,344 - Pg 96 of the paper book. Purchases from Hindalco to the extent of goods sold to Roy Traders and Woodsworth Enterprises are disputed while the remaining purchases of Rs, 1.60 crores from Hindalco are accepted. The Ld. AO cannot approbate and reprobate and partially rejecting the purchases from one party i.e., Hindalco Call by no stretch of imagination be a reason to reject books of accounts. e) The purchases from Hindalco and cash sales made out of such purchases are duly accounted for in the books of accounts and the profits arising therefrom are already included in the computation of income. Case law Satya Pal Shiv Kumar vs ACIT - ITA No. 3736/De1l2023 @ para 11 Pg 5, Para 22 to 25 f) Ground No.5 seeks to challenge addition u/s 69A. This is a case where section 69A would not have any applicability. Section 69A is applicable where the 7 ITA No.3508/DEL/2023 money etc. is not recorded in the books of accounts. The essential condition to invoke section 69A is that the transaction is \"not recorded in books of accounts\" must be satisfied. When sources of funds are disclosed, section 69A cannot be invoked. Here the purchases from Hindalco, sales made to Roy Traders and Woodsworth Enterprises are duly recorded in the books of accounts. Cash received from the customers of Rs.2,20,00,000 on such sales is disclosed and deposited in the bank account. In fact, the additions have been made on the basis of Appellant's audited books of accounts. No additions can therefore be made u/s 69A of the Act. Case Laws: Balaji Mech tech vs ITO; ITA No. 556/De1l2024 - Para 20 & 21 DCIT vs Viswa and Devji Diamonds; ITA No. 327/CHNY/2024 - Para 8 & 9 Durga Fire Work vs ITO; ITA o. 383/DEL/2024 - Para 9 to 18 10. The trading results for the year under consideration and immediately preceding year are Pg 21 of Paper Book which are identical to the results of earlier years.” 6. On the other hand, ld. DR of the Revenue relied on the findings of the Assessing Officer and submitted that the assessee has not appeared before the ld. CIT (A). 7. Considered the rival submissions and material placed on record. We observe that the Assessing Officer has rejected the books of account maintained by the assessee and due to non-confirmation from the parties, he treated the purchases/sales to two parties were doubted and Assessing Officer proceeded to make the addition. We observe that the assessee has filed the appeal before the ld. CIT (A) but failed to comply to the various notices issued. Accordingly, ld. CIT (A) sustained the additions made by the Assessing Officer. In our considered view, for the sake of justice, the assessee should be given one more opportunity of being heard by the first appellate authority. 8 ITA No.3508/DEL/2023 Therefore, we are inclined to remit this issue back to the ld. CIT (A) and at the same time, the assessee is directed to attend the hearing and comply during the appellate proceedings. Accordingly, the appeal filed by the assessee is allowed for statistical purposes. 8. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on this 18TH day of July, 2025. SD/- SD/- (ANUBHAV SHARMA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 18.07.2025 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "