THE DCIT, CIRCLE-1(1)(2), VADODARA V. GROWMORE ENTERPRISES PVT. LTD, VADODARA

ITSSA 548/AHD/2019

AI Insights

The case involves the Deputy Commissioner of Income Tax, Vadodara, as the appellant, and Growmore Enterprises Pvt. Ltd., as the respondent. The dispute arose from a search operation under Section 132 of the Income Tax Act, 1961, conducted on the premises of a director of the assessee company, leading to the seizure of incriminating documents. The Assessing Officer made several additions to the income of the assessee based on these documents, which were contested and partly deleted by the CIT(A). The Revenue appealed against these deletions, leading to the current proceedings before the Income Tax Appellate Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 360886 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 22-05-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Assessment Year: 2009-2010
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRAMDEEP SINHA
• Assessee Lawyers: MEHUL K. PATEL
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Business expenditure; Unexplained expenditure; Document seized; Peak credit; Documents seized; Loose papers
• Section: 143(3); 132; 69C; 40A(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH, AHMEDABAD BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER IT(SS)A No.548/Ahd/2019 Assessment Year: 2009-10 The Deputy Commissioner of Income Tax, Circle – 1(1)(2), Vadodara, Room No.103, 1st Floor, Aayakar Bhavan, Race Course Circle, Vadodara – 390 007. Vs. Growmore Enterprises Pvt. Ltd., 224, Golden Trade Centre, Nr. S.T. Deport, Vadodara – 390 002, Gujarat. [PAN – AAACG 8897 L] (Appellant) (Respondent) Assessee by Shri Mehul K. Patel, Advocate Revenue by Shri Shramdeep Sinha, CIT(DR) Date of Hearing 08.05.2025 Date of Pronouncement 22.05.2025 O R D E R PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER: This appeal is filed by the Revenue against the order of CIT (Appeals-3), Vadodara dated 30.09.2019 for the Assessment Year (A.Y.) 2009-10. 2. The brief facts of the case are that a search operation under Section 132 of the Income Tax Act, 1961 (hereinafter ‘the Act’) was conducted in the case of Transworld Furtichem Group (Dhanani Group) on 11.02.2011. In the course of search, the premises of Shri Salim Sherani, a Director of the assessee company was also covered. From the residence of Shri Salim Sherani certain laptop printouts, pertaining to the assessee IT(SS)A No.548/Ahd/2019 Assessment Year: 2009-10 DCIT vs. Growmore Enterprises Pvt. Ltd. Page 2 of 11 company, were seized. On the basis of the incriminating material pertaining to the assessee seized from the premises of the Director Shri Salim Sherani, proceedings under Section 153C of the Act was initiated in the case of the assessee company. The Assessing Officer had made various additions on the basis of the seized materials and completed the assessment under Section 153C read with Section 143(3) of the Act on 31.03.2014 at the total income of Rs.4,38,79,790/-. 3. Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was partly allowed. 4. Now the Revenue is in second appal before us. The following grounds have been taken in this appeal: - i. On the facts and in the circumstances of the case and in law, whether Ld. CIT(Appeals) erred in deleting the additions of Rs.1,70,000/- made on account of expenditure u/s. 69C of the Income tax Act, 1961 without considering the fact that the disputed entries do not appears in the revised cash flow statement. ii. On the facts and in the circumstances of the case and in law, whether Id. CIT Appeals) erred in deleting the additions of Rs.2,05,25,000/- made on account unexplained money u/s.69A of the Income tax Act, 1961 without considering the fact that the assessee company & its director could not explain relevancy of entries found from the laptop and without furnishing any explanation on this amount. iii. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the entire addition of Rs.19,75,000/- made on account of expenditure u/s.69C of the Income tax Act, 1961 without considering the fact that the assessee explained the sources of expenses of only Rs.4,71,225/- by way of cash flow statement and could not offer any explanation of Rs. 15,25,000/-. iv. On the facts and in the circumstances of the case and in law, whether Id. CIT(Appeals) erred in deleting the additions of Rs.1,92,22,300/- u/s.40A(3) of the Income tax Act, 1961 without considering the fact that IT(SS)A No.548/Ahd/2019 Assessment Year: 2009-10 DCIT vs. Growmore Enterprises Pvt. Ltd. Page 3 of 11 the provisions of section 40A(3) of the Act are in the penal provisions on account of cash transaction.\" v. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relevant facts 5. Before we adjudicate the grounds raised by the Revenue, it will be relevant to recapitulate the facts of the case and the basis on which additions were made by the Assessing Officer in the course of assessment. The printouts taken from the laptop of Shri Salim Sherani, Director of the assessee company, were inventorised as Annexure A-1 (Pages 1 to 49). At page nos.32 to 36, 39 and 42 to 44 of Annexure A-1 certain receipts and expenses for the period from 01.08.2008 to 26.03.2009 and for subsequent period as well, were appearing. The assessee had explained that it was engaged in business of trading of Manganese Ore and that the seized documents pertained to receipts and payments towards expenses which were not recorded in the books of accounts. Further, that the loose papers did not contain complete narration of the documents. The assessee had, therefore, prepared a daily cash flow chart of the entries appearing in the seized documents which had negative cash balance of Rs.17.775 Lakhs. It was further submitted that the total receipts as per these documents were to the extent of Rs.178.21 Lakhs on which the assessee had earned profit of approximately 8% of the receipts, which worked out to Rs.14.25 Lakhs. The Assessing Officer had examined the cash flow chart as well as the explanation of the assessee and estimated the profit at the rate of 10% of the undisclosed receipts of Rs.178.21 Lakhs. Accordingly, addition of Rs.17,82,100/- was made in respect of profit derived from undisclosed IT(SS)A No.548/Ahd/2019 Assessment Year: 2009-10 DCIT vs. Growmore Enterprises Pvt. Ltd. Page 4 of 11 Manganese Ore trading activity. The Assessing Officer had also made additions of Rs.1,70,000/- on account of unexplained expenditure, Rs.2,05,25,000/- on account of unexplained money and Rs.19,75,000/- for unexplained expenditure on the basis of the entries appearing in the seized documents. Further, disallowance of Rs.1,92,22,300/- was also made under Section 40A(3) of the Act in respect of various cash expenditures as per seized documents. 6. Before the Ld. CIT(A), the assessee had submitted that the addition made by the Assessing Officer in respect of unexplained money, unexplained expenditure and disallowance under Section 40A(3) of the Act was without allowing any opportunity of being heard. The assessee had also submitted that cash flow statement as submitted before the Assessing Officer in the course of assessment proceedings, was prepared without considering all the entries appearing in the seized documents. It was explained that the seized papers contained certain dumb entries which were not incorporated in the cash flow working filed before the Assessing Officer. The assessee had prepared a fresh cash flow statement and filed it before the Ld. CIT(A). As per the revised cash flow, the peak credit was Rs.52,06,000/-. The additional evidence filed by the assessee before the CIT(A) in the form of revised cash flow statement was forwarded to the Assessing Officer for his remand report. The Assessing Officer in his remand report dated 30/09.2019 had pointed out certain discrepancies in the revised cash flow of the assessee. The Ld. CIT(A) had considered the discrepancies pointed out by the Assessing Officer in the remand report and reworked the peak addition at Rs.54,23,610/-. At the same time, the Ld. CIT(A) had deleted all other additions made by the Assessing Officer on the ground that all those IT(SS)A No.548/Ahd/2019 Assessment Year: 2009-10 DCIT vs. Growmore Enterprises Pvt. Ltd. Page 5 of 11 entries were already considered in the revised peak working. The Revenue has not challenged the revised peak working of Rs.54,23,610/- as upheld by the Ld. CIT(A) but has contested the deletion of other additions by him. Ground No.-1: Unexplained expenditure 7. The first ground taken by the Revenue pertains to addition of Rs.1,70,000/- on account of unexplained expenditure. Shri Shramdeep Sinha, Ld. CIT (DR) submitted that the Assessing Officer had found three entries appearing at page nos.-33 of Annexure A-1 which were not explained by the assessee. Further, these entries were also not considered in the cash flow statement filed before the AO. Therefore, the AO had made the addition of unexplained expenditure of Rs.1,70,000/- under Section 69C of the Act. The Ld. CIT (DR) contested the decision of the Ld. CIT(A) in deleting this addition. 8. Per contra, Shri Mehul K. Patel, Ld. AR of the assessee submitted that these three entries were already considered by the assessee in the revised cash flow statement filed in the course of appellate proceeding. He submitted that in view of this fact, no separate addition in this respect was called for and he strongly supported the order of the Ld. CIT(A). 9. We have carefully considered the rival submissions. Page no.33 of Annexure A-1 wherein the entries were appearing have been perused. From the entries as appearing in this document, it cannot be concluded that these expenses were incurred for the purpose of business. The entries are found to be as under: - 7/2/2009 dahod (jhalod wale ko) 90000 7/2/2009 AR (from Vicky) at dahod 50000 IT(SS)A No.548/Ahd/2019 Assessment Year: 2009-10 DCIT vs. Growmore Enterprises Pvt. Ltd. Page 6 of 11 18/02/2009 Cash to chaklesh 30000 170000 10. No business expense is found appearing in the narration of the three entries as reproduced above. Nothing can be said with certainty as to whether they were expense or receipt or actual payment or advance. Considering the nature of entries as appearing in the seized document, the Assessing Officer was not correct in concluding that these entries were cash expenses and incurred for the purpose of business. Therefore, the addition as made by the Assessing Officer was based on mere presumption that these were business expenses and such addition could not have been upheld. Further, these entries were already considered in the revised cash flow statement filed by the assessee before the Ld. CIT(A). Therefore, no separate addition in respect of these entries was called for, as these were already considered in the revised peak credit working. We, therefore, uphold the decision of the Ld. CIT(A) deleting the addition of Rs.1,70,000/- in respect of unexplained expenditure. The ground taken by the Revenue is dismissed. Ground No.-2: Unexplained money 11. The next ground pertains to addition of Rs.2,05,25,000/- on the basis of entries appearing in page no.-32 of Annexure A-1. Shri Shramdeep Sinha, Ld. CIT (DR) submitted that the Assessing Officer had made the addition for the reason that the assessee did not submit any explanation in this regard. From the seized documents, it is found that no narration was appearing against the entries for total sum of Rs.2,05,25,220/-. Before the Ld. CIT(A), the assessee had explained that this amount represented the value of sales affected by the assessee to three parties namely (i) Moni Minerals, (ii) Amit Mines Pvt. Ltd. & (iii) Kashmi Alloy. The Ld. CIT(DR) submitted that the ld. CIT(A) had deleted IT(SS)A No.548/Ahd/2019 Assessment Year: 2009-10 DCIT vs. Growmore Enterprises Pvt. Ltd. Page 7 of 11 the addition on the ground that the addition was based on dumb document and the explanation of the assessee as given before him was not verified. He further submitted that the Assessing Officer had made addition for the reason that these amounts were not considered in the cash flow statement filed before him. 12. On the other hand, Shri Mehul K. Patel, Ld. AR of the assessee submitted that the Ld. CIT(A) had given a finding that the noting/scribbling at page no.32 of Annexure A-1 do not indicate the nature of transaction i.e. when made, with whom made, by whom made and that nothing can be said about the notings with any degree of certainty. Therefore, the Ld. CIT(A) had rightly held that no addition was required to be made by the Assessing Officer on the basis of such dumb document. 13. We have carefully considered the rival submissions. It is true that in the seized document, no narration is appearing in respect of entry of Rs.2,05,25,000/- which was considered as unexplained money by the AO. However, before the Ld. CIT(A) the assessee had explained that this amount represented sales made to three parties namely Moni Minerals, Amit Mines Pvt. Ltd. & Kashmi Alloy and in support thereof copy of bills were also brought on record. When the nature of entries of this page of the seized document was explained by the assessee before the Ld. CIT(A), the entries no longer remain a dumb document. The Ld. CIT(A) should have verified whether the sales of Rs.2,05,25,000/- as admitted by the assessee to the three parties, was disclosed in the books of account of the assessee. If not, a proper direction should have been given to estimate the income on these sales. The Ld. CIT(A) has also not given a finding that sum of Rs.2,05,25,000/- was considered by the assessee in the revised peak working filed before him. We, therefore, deem it proper IT(SS)A No.548/Ahd/2019 Assessment Year: 2009-10 DCIT vs. Growmore Enterprises Pvt. Ltd. Page 8 of 11 to set aside this matter to the file of the jurisdictional Assessing Officer to verify whether this amount of Rs.2,05,25,000/- was considered in the revised peak working. If not, he should verify whether this amount was already disclosed by the assessee as sales in regular books of account. If the total transaction of Rs.2,05,25,000/- was neither considered in the revised peak working nor found disclosed in the books of account, then the Assessing Officer should work out the profit out of these sales, as admitted by the assessee, by applying net profit rate of 10% and after allowing an opportunity of being heard to the assessee. The ground taken by the Revenue is allowed for statistical purpose. Ground No.-3: Unexplained expenditure 14. The next ground pertains to addition of Rs.19.75 lakh on account of unexplained expenditure under Section 69C of the Act. The Ld. CIT (DR) explained that certain entries totalling to Rs.19,75,000/- were appearing at page no.32 of Annexure A-1, which were not explained by the assessee. Therefore, the Assessing Officer had considered the same as unexplained expenditure under Section 69C of the Act and made the addition. 15. Per contra, Shri Mehul K. Patel, Ld. AR of the assessee submitted that these entries were already considered by the assessee in the revised cash flow statement filed in the course of appellate proceeding. He submitted the Ld. CIT(A) had deleted the addition for the reason that all these entries were considered in the revised cash flow statement filed by the assessee. 16. We have carefully considered the rival submissions. The entries as appearing at page no.33 of Annexure A-1 has been reproduced in the IT(SS)A No.548/Ahd/2019 Assessment Year: 2009-10 DCIT vs. Growmore Enterprises Pvt. Ltd. Page 9 of 11 assessment order. It is found that all these are dumb entries with no proper narration and it cannot be concluded therefrom that they pertain to any expense incurred for the purpose of business. Therefore, our finding as given in the context of Ground No.-1 is applicable mutatis mutandis to this ground as well. Further, the Ld. CIT(A) has also given a categorical finding that these entries were considered in the revised cash flow statement filed by the assessee before him. Therefore, the action of the Ld. CIT(A) in deleting this addition is upheld. The ground taken by the Revenue is dismissed. Ground No.-4: Disallowance u/s 40A(3) 17. The next ground pertains to disallowance of Rs.1,92,22,300/- under Section 40A(3) of the Act. The Ld. CIT(DR) submitted that various cash expenses amounting to Rs.20,000/- or more were appearing in the seized documents at page nos.32 to 36 of Annexure A-1. He further submitted that the assessee had acknowledged these cash payments in the cash flow statement filed by him. According to the ld. CIT-DR these payments were hit by the mischief of provision of Section 40A(3) of the Act and, therefore, the Assessing Officer had rightly made the disallowance of Rs.1,92,22,300/-. 18. Per Contra, Shri Mehul Patel, Ld. AR submitted that when the income of the assessee was determined on the basis of peak credit considering the revised cash flow statement filed before the Ld. CIT(A), no further addition under Section 40A(3) of the Act could have been made. He, therefore, strongly supported the order of the Ld. CIT(A). 19. We have carefully considered the rival submissions. The Assessing Officer has not identified the cash expense of Rs.1,94,29,000/- which IT(SS)A No.548/Ahd/2019 Assessment Year: 2009-10 DCIT vs. Growmore Enterprises Pvt. Ltd. Page 10 of 11 were subject to disallowance under Section 40A(3) of the Act. From the narration as appearing in the seized documents, it could not have been concluded as to whether the payments were towards expenditure or towards advance. In many of the expenditures, advance payment is categorically mentioned. In fact, the Assessing Officer has also acknowledged in the assessment order that the loose papers did not contain complete narration of the payments. If so, there was no basis for the Assessing Officer to conclude that the sum of Rs.1,92,22,300/- was the expenditure incurred by the assessee which was subject to disallowance under Section 40A(3) of the Act. In fact, the Assessing Officer had also given finding in para no.7.3 of the Assessment Order that “expenses incurred does not appear to be business expenses”. Further, a finding was also recorded that the expenses incurred were more than the receipts, which had resulted in negative cash balance of Rs.17.775 lakhs in the cash flow statement filed before the Assessing Officer. When the nature of entries in the seized documents were not categorical as to whether they were expenditures incurred for the business, no disallowance under Section 40A(3) of the Act could have been made on the basis of such evidence. Further, when all the entries in the seized documents were already considered in the revised cash flow statement filed before the Ld. CIT(A), no separate addition under Section 40A(3) of the Act was called for. When the Revenue had already accepted the decision of the Ld. CIT(A), enhancing the addition in respect of peak credit to Rs.54,23,610/- wherein all the expenditures were already considered, it could not have raised the ground in respect of disallowance under Section 40A(3) of the Act. We, therefore, do not find any merit in the ground raised by the Revenue and the decision of the Ld. CIT(A) on this issue is upheld. The ground taken by the Revenue is dismissed. IT(SS)A No.548/Ahd/2019 Assessment Year: 2009-10 DCIT vs. Growmore Enterprises Pvt. Ltd. Page 11 of 11 20. In the result, appeal of the Revenue is partly allowed for statistical purpose. Order pronounced in the open Court on this 22nd May, 2025. Sd/- Sd/- (SANJAY GARG) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member Ahmedabad, the 22nd May, 2025 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPYE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad "