VIVEK DIXIT,KANPUR V. ACIT-CC-2, KANPUR

ITA 258/LKW/2024

AI Insights

The case involves an appeal by Vivek Dixit against the order of the Commissioner of Income Tax (Appeals)-4, Kanpur, which sustained an addition of Rs.2,60,135/- to the assessee's income for the assessment year 2019-20. This addition was initially made by the Assessing Officer following a search and seizure operation, where a significant discrepancy was noted between the stock value in the balance sheet and the physically verified stock. The Tribunal found that the Assessing Officer had not adequately addressed the assessee's explanations regarding the maintenance of stock records on different software and the manual entry of stock values. Consequently, the matter was remanded back to the Assessing Officer for a detailed examination and a reasoned decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712574 (ITAT-LUCKNOW)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2019-2020
• Other Referred Cases: PCIT vs Abhisar Buildwell Pvt Ltd., Civil Appeal no. 6580 of 2021, Sitaram Ramchanddas Patel Vs ITO Gujrat HC
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMIT KUMAR
• Keywords: Set aside; Additional evidence; Gift; Search and seizure; Bogus
• Section: 143(3); 142(1); 132; 68

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “SMC”, LUCKNOW BEFORE SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER ITA No.258/LKW/2024 (Assessment Year: 2019-20) Vivek Dixit C-46, Kalyanpur, Kanpur-Uttar Pradesh-208024. v. ACIT Central Circle-2 Central Circle, Laxmi Niwas, 10/453, Tilak Nagar, Kanpur-208002. PAN:AMSPD4880H (Appellant) (Respondent) Appellant by: None Respondent by: Shri Amit Kumar, CIT(DR) O R D E R 1. The present appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur dated 23.02.2024 for the assessment year 2019-20. The grounds of appeal of the assessee are as under: - “1. That the Ld. CIT(A) has erred in confirming the addition of Rs. 2,60,135/ - made by the Assessing Officer on account of difference in the value of stock appearing in the balance sheet as on 07.01.2019 and stock as per physical verification during the course of Search and Seizure. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the detailed explanations submitted during the course of first appeal proceedings and assessment proceeding u/s 143(3) of the Act. 3. That the appellant reserve the right to add to, alter or modify the above grounds before or during the hearing before the Hon'ble Tribunal so as to enable the Hon’ble Tribunal to decide on the grounds raised by the appellant as per Law. 4. Any other relief which Hon’ble Tribunal may deem fit in the case.” 2. In this case, assessment order dated 05.07.2021 was passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (“Act”, for short) whereby the assessee’s total income was determined at Rs.37,89,155/- (Rounded off to Rs.37,89,160/-) as against the returned income of Rs.15,29,020/-. In the aforesaid assessment order an amount of Rs.20,00,000/- was added u/s 69A of the Act. A further addition Printed from counselvise.com ITA No.258/LKW/2024 Page 2 of 10 of an amount of Rs.2,60,135/- was made by the Assessing Officer towards estimated gross profit on shortage of stock found during the physical verification on 17.01.2019. The team of Income Tax Department, on physical verification, valued the stock found on 17.01.2019 at Rs.14,84,000/- whereas, as per the balance-sheet as on 17.01.2019, the team of Income Tax Department found the stock at Rs.46,21,944/-. The Assessing Officer worked out the difference of the aforesaid amounts of Rs.46,21,944/- and Rs.14,84,000/- at Rs.31,37,944/-. The Assessing Officer further estimated the gross profit on the aforesaid amount of Rs.31,37,944/- at Rs.2,60,135/- and added this amount to the income of the assessee. The assessee filed appeal in the office of the Ld. CIT(A). Vide the impugned appellate order dated 23.02.2024 of the Ld. CIT(A), the aforesaid addition of Rs.20,00,000/- was deleted; but the addition of the aforesaid amount of Rs.2,60,135/- was sustained. The relevant portion of the impugned order of the Ld. CIT(A) is reproduced as under: - “A search operation u/s 132 of IT Act was conducted on 17.01.2019 on Dr. M.C. Sharma, S.P.M. Hospital & Trauma Centre Group of cases and the premises of the appellant were covered in the same. The case was centralized to the O/o DCIT Central Circle-II, Kanpur vide order u/s 127 of IT Act dt. 27.08.2019 passed by the PCIT, Aligarh. The appellant filed return of income on 23.10. 2019 declaring total income of Rs. 15,29,020/-. Notice u/s 143(2) of IT Act was issued on 16.09. 2020 and duly served upon the appellant. Later on, notices u/s 142(1) of the Act alongwith questionnaire were also issued and A.O. completed the assessment by making addition of Rs. 20,00,000/- u/s 69A of IT Act on account ‘of unexplained loans received from Sh. Raman Dixit, Sh. Abhishek Dixit, Sh. Harsh ‘Dixit and Smt. Renu Dixit (Rs. 5,00,000/- from each, thus totaling to. Rs.20,00,000/-) and addition: of Rs. 2 60, 136/being estimated GP @8. 29% on the: unaccounted shortage of stock, physically not found during search proceeding conducted on Ms. Sagar Medical Store, proprietorship concern of the appellant. Aggrieved, appellant is in appeal before the undersigned. 6. Discussion and decision:- 6.1 The Grounds of appeal relate to addition of Rs. 20,00,000/- made u/s 69A of IT. Act’ on’ account of unexplained loans received from Sh. Raman Dixit, Sh. Abhishek Dixit, Sh. Harsh Dixit and Smt. Renu Dixit (Rs. 5,00,000/- from each, thus totaling to Rs. 20,00,000/-) and addition of Rs. 2,60,135/- being estimated GP @ 8.29% on the unaccounted shortage of stock, physically not found during search proceeding conducted on’ M/s. Sagar Medical Store, proprietorship concern of the appellant. The relevant part of assessment order is produced as under: Printed from counselvise.com ITA No.258/LKW/2024 Page 3 of 10 A search and seizure operation u/s 132 of I T. Act, 1964(hereinafter referred to as “Act”) was carried out on 17-01-2019 in Dr. MC. Sharma, S.PM, Hospital & Trauma Centre Group of cases. Simultaneously, search was also carried out in the case of the assessee. The case was centralized to this office vide order u/s 127 of the Act dated 27-08-2019 passed by the Pr. Commissioner of Income Tax, Aligarh. The assessment for A.Y.2019-20 is to be completed compulsorily u/s 143(3) of the Act. Return of income for A.Y.2019-20 was filed on 23-10- 2019 at total income of Rs.15,29,020/-. Accordingly, notice u/s.143(2) of the Act dated 16-09-2020 was issued for making compliance on 25-09- 2020. Later on, a notice u/s 142(1) of the Act dated 04-11-2020 was issued alongwith questionnaire, for making compliance on 1911-2020. Later on a notice u/s 142(1) of the Act dated 02-03-2021 alongwith annexure was issued for making compliance 08-03-2021. In compliance to the above the notices, Shri Abhisak Pandey, CA and Shri Gagan Agarwal, Advocate duly authorized by the assessee attended from time to time and filed reply documents explanation. The case was discussed with them. The assessee is carrying on business in the name and style M/s Sagar Medical Store. The assessee declared’ income from house property, business & profession from M/s Sagar Medical Store besides income from other sources in the form of interest. On total turnover of Rs.2,27,99, 1281, gross profit of Rs.18,90,924/- has been disclosed, giving a GP rate of 8.29%. During the year under consideration, the assessee, raised unsecured loans of Rs.5,00,000/- each from Shri Raman Dixit, Shri Abhishek Dixit, Shri Harsh Dixit and Smt. Renu Dixit aggregating to*Rs. 20,00,000/- in his individual capacity which were credited in his bank account maintained with Canara Bank. Vide show cause notice dated 09-04-2021, the assessee was asked to furnish the copies of ITRs and complete bank statements of the lenders and it was made clear that failing to furnish - the same the so called unsecured loans will be treated as unexplained money and will be added to his income u/s 69A of the Act. The assessee vide reply dated 10-042021 has furnished the copies of complete bank statements of F.Y-2018-19 in respect of Shri Raman Dixit, Abhishek Dixit and Harsh Dixit. As regards complete bank statement of Smt. Renu Dixit, it has been stated that she is not well and is not in any position to provide her bank statements issued for making compliance on 25-09-2020. Later on, a notice u/s 142(1) of the Act dated 04-1-2020 was issued alongwith questionnaire, for making compliance on 1911-2020. Later on a notice u/s 142(1) of the Act dated 02-03-2021 alongwith annexure “was issued for making compliance 08-03-2021. In compliance to the above the notices, Shri Abhisak Pandey, CA and Shri Gagan Agarwal, Advocate duly authorized by the assessee attended from time to time and filed reply/documents explanation. The case was discussed with them. The assessee is carrying on business in the name and style M/s Sagar Medical Store. The assessee declared income from house property, business & profession from M/s Sagar Medical Store: besides income from other sources in the form of interest. On total turnover of Rs2,27,99,128/-, gross profit of Rs. 18,90,924/- has been disclosed giving a GP rate of 8.29%. During the year under consideration, the assessee raised unsecured loans of Rs,5,00,000/- each from Shri Raman ‘Dixit, Shri Abhishek Dixit, Shri Harsh Dixit and. Smt. Renu Dixit-aggregating to Rs. 20,00,000/- in ‘his individual capacity which were Credited in his bank account maintained. Printed from counselvise.com ITA No.258/LKW/2024 Page 4 of 10 with Canara Bank. Vide show cause notice Gated 09-04-2021, the assessee was ‘asked to furnish’ ‘the copies of ITRs and complete bank statements of the lenders and it was made Clear that failing to furnish the same the so called unsecured loans will be treated.as unexplained money and will be added to his income u/s 69A of the Act. The assessee vide reply dated 10-04-2021 has furnished the copies of complete bank statements of F.Y-2018-19 in respect of Shri Raman Dixit, “Abhishek Dixit and Harsh Dixit. As regards complete bank statement of Smt. Renu Dixit, it has been stated that she is not well and is not in any position to provide her bank statements. From the reply filed by the assessee, it is apparent that the assessee has failed to prove-the creditworthiness of the lenders as copies of ITRs of Shri Raman Dixit, Shri Abhishek Dixit & Shri Harsh Dixit have not been furnished. Further, in the case of Smt. Renu Dixit’ even PAN has not been provided, what to say furnishing copy of her ITR. As the assessee has failed to prove the creditworthiness’ of the lenders, he has also failed to satisfactorily explain the source of amounts credited in his bank account amounting to Rs. 20,00,900/-. Thus, it is apparent that the assessee has routed his own cash in the garb of unsecured Joan and therefore the amount of Rs. 20,00,000/- credited in his bank account is treated as unexplained money u/s 69A of the Act. In the case of Sitaram Ramchanddas Patel Vs ITO Gujrat HC, it has been held that: “Where assessee failed to prove capacity of concerned persons who alleged ‘to have given unsecured loan and/or gift, impugned addition made under sec. 68 was to be confirmed”. Though the above cited decision has been pronounced with regard to addition made u/s 68 of the Act, the same is equally applicable for addition u/s 69A of the Act has also failed to satisfactorily explain the source of amounts credited in his bank account amounting to Rs. 20,00,900/-. Thus, it is apparent that the assessee has routed his own cash in the garb of unsecured Joan and therefore the amount of Rs. 20,00,000/credited in his bank account is treated as unexplained money u/s 69A of the Act. In the case of Sitaram Ramchanddas Patel Vs ITO Gujrat HC, it has been held that: “Where assessee failed to prove capacity of concerned persons who alleged to have given unsecured loan and/or gift, impugned addition made under sec. 68 was to be confirmed”. Though the above cited decision has been pronounced with regard to addition made u/s 68 of the Act, the same is equally applicable for addition u/s 69A of the Act immediate source of deposit in the bank accounts of the fenders was not cash but the receipt of money from Shiv Shakti Constructions to whom the lenders have provided loan in the month of June 2018. Therefore, the conclusion drawn and additions made by the learned AO u/s 69A was merely’ based on his conjecture and surmises and not based on any material brought out - records and hence deserved to be deleted. 2. The appellant further submits that Id. AO fails to appreciate that no addition u/s 69A can be made based on the allegation of not proving the creditworthiness of the lenders as the requirement to prove the creditworthiness is only under the provisions of 68 of the Act and not u/s 69A of the Act. In the present case it is an undisputed fact that the Printed from counselvise.com ITA No.258/LKW/2024 Page 5 of 10 lenders, the appellant submits following documents before your honour and requests to admit this as additional evidence: a) Capy of DTR of all lenders are being enclosed here with as Annexure -7 b) Affidavit from all the lenders are being attached as Annexure -2 B. Additions of Rs. 2,60,135/- on account of extra gross profits 1. During the search operation in the business premises of the appellant, physical verification of stock was done by the survey team and they valued the available physical stock at Rs. 14,84,000/-. At the same time, they had taken print out of balance sheet as on 17-01-2019 from the Tally software. On further verification it was noticed by them that in the print out of the balance sheet as at 17.01.2019, the value of closing stock was taken from PKS software, the value of stock was appearing at Rs. 24,02,105/-. During the post-search investigation, the appellant was asked to explain the differences between the value of stock in the aforesaid balance sheet and stock summary as well as the value of stock physically found by the survey team. Since the appellant was not aware of accounting, he submitted that the same could only be explained by his CA and accountant. 2. During the assessment proceedings, the appellant was again: asked to explain the aforesaid differences. The appellant submitted that the stock register: was maintained on PKS software herein quantity of the purchases and sales were being accounted for on daily basis and the appellant was not maintaining any stock register on tally software, The figure of closing stock appearing in the tally software was not correct as. the same was being entered into manually for the purpose of drawing financial statements from the tally and unless the last value of stock entered into the said tally software was replaced by the new value of stock, the software considered the already entered stock value’ as the value of closing stock at the end of day. Therefore, the value of closing stock entered into.in tally software was of no relevance. It may ¢e noticed that the closing value of stock as per the audited balance sheet as on 31.3.2017 was Rs.46,21,944/- the same amount was there in the tally, ‘which needed to be updated manually. It was also submitted that the financial statements of the appellant were always finalized based on the value of closing stock appearing in the PKS software as this was the only stock register seeing maintained by the appellant on day to day basis. At the time of finalization, the value of ° ‘tock as per PKS software as at year- end was accounted for in the tally software to prepare the final accounts. The appellant also submitted that it appeared that at the time of physical verification, the survey party had not taken the complete stock but taken it on selective basis as he quantity of stock appeared in the stock register maintained in PKS software was always allied with the physical stock. However, the learned AO had not considered the complete reply f the appellant and added the gross profit earned on the difference in the value of stock of Rs “1,37, 944/being the difference between the stock appearing in the ‘balance sheet extracted from the tally software and the value of stock physically found during the search, amounting to Rs.2,60,135/- after concluding that the difference represented the sale of inventory outside the books. 3. The appellant submits that the learned AO erred in law and on facts in holding the value of Slock appearing in the balance sheet extracted from the tally software to be correct in spite of making verification that stock record on daily basis is not maintained on tally is maintained on PKS software. In the Tally Software only closing value is entered manually. It may be noticed that the closing value of stock as per the audited balance sheet as on 31.3.2017 was Rs. 46,21,944/ the same amount was there in Printed from counselvise.com ITA No.258/LKW/2024 Page 6 of 10 the tally, which needed to be updated manually. It is pertinent to note that for the sake of making addition of the higher amount. the learned AO did not even discuss this fact in his order and even not mentioned the value of stock found to be as per stock summary sheet extracted from PKS software. The appellant submits that since the stock register was being maintained on PKS only on daily basis, the value appearing therein shall only be considered as value of stock as per regular books of accounts and addition, if any, can only be made in respect of extra gross profit of Rs. 76,110/i.e. @ 8.29% on Rs. 9,18, 105/- being the difference between the value of stock as per stock summary of Rs. 24.02,105/and the value of stock physically valued at the time of search of Rs. 14,84,000/. The addition of Rs. 2,60,135/- is totally unjustified and against the facts of the case. Without prejudice to the aforesaid, the appellant submits that the learned AO erred in law and on facts in making aforesaid both the additions at the same time as he himself concluded that the appellant had generated cash of Rs. 31,37,944/( out of books sale in cash) plus gross profit thereon of Rs. 2,60,135/aggregating to Rs. 33,98,079/but on the other hand concluded that the appellant.had given unaccounted for cash of Rs. 20,00,000/to the lenders for taking the bogus unsecured foans.. The learned AO fails to appreciate that the aforesaid amount of Rs. 20,00,000/cannot be said to be unaccounted for cash as he himself concluded that the appellant has been holding cash of Rs. 33,98,079/from the sale of inventory which has been found short at the time of survey. Therefore; the additions of Rs. 20,00, 000/is totally unjustified and deserved to be. deleted. Please provide us an opportunity of conducting personal hearing before deciding the case of the appellant. 6.2…………….. 6.3……………. 6.4…………… 6.15 Looking to the facts and circumstances of the case, assessment order passed u/s 143(3) of IT Act is considered to have been as per law and the ground of appeal that the same should be set aside in the light of order of Hon'ble Apex Court in case of PCIT vs Abhisar Buildwell Pvt Ltd., Civil Appeal no. 6580 of 2021, order dt. 24.04.2023, is hereby dismissed. In the matter of addition of Rs. 20,00,000/made u/s 69A of IT Act, it is held that the appellant proved all the three limbs of a genuine cash credit, in which this amount of loan has been taken as Rs. 5,00,000/each from four family members through banking channel and copies of returns of all four creditors have been duly provided alongwith details of bank statements which prove identity, creditworthiness and genuineness of transaction. Hence this addition is deleted and relief is allowed to the appellant. In the matter of addition of Rs. 2,60,135/-, it is observed that the appellant failed to provide satisfactory reason for difference of stock as per balance sheet maintained in tally and as per physical stock taken by search team. Hence the conclusion of the AO that the stock worth Rs. 31,37,944/- (Rs.46,21,944 - Rs. 14,84,000) was sold out of books, is upheld. and extra gross profit @ 8:29% computed ‘on the stock worth of Rs.31,37,944/- ie. Rs.2,60,136/- is upheld to be added to the total income of the assessee.” 3. The present appeal has been filed by the assessee against the aforesaid impugned appellate order dated 23.02.2024 of the Printed from counselvise.com ITA No.258/LKW/2024 Page 7 of 10 Ld. CIT(A). At the time of hearings, the assessee was represented by none. Earlier, the hearing in this case were adjourned in Income Tax Appellate Tribunal on 20.11.2024, 02.01.2025, 04.02.2025 and 05.02.2025 on the request of the assessee’s side. Further, the hearing on 21.04.2025 was adjourned on the request of the Ld. Departmental Representative (DR) as the Ld. DR sought for time for obtaining the report of the Assessing Officer. Hearings fixed on 05.05.2025 and 17.06.2025 could not take place. As both sides have been provided reasonable opportunity, this appeal was heard in the absence of any representation from the appellant. Further, Ld. DR also submitted at the time of hearing that the report of the Assessing Officer for which adjournment was sought on 21.04.2025 was yet to be received. As reasonable time has already been provided to both sides the appeal was heard. During the assessment proceedings, the assessee had made submissions in respect of the aforesaid addition which were rejected by the Assessing Officer. The relevant portion of the assessment order is reproduced as under: - “During the course of search and seizure operation carried out on 17-01- 2019 at M/s Sagar Medical Store, Proprietorship firm of the assessee, stock as per balance sheet as on17-01-2019 was found at Rs.46,21,944/- whereas on physical verification, the stock was only of Rs.14,84,000/-. No satisfactory reason for difference was given either by the assessee during the search operation or in post such investigation by Ms. Jyoti accountant of the assessee. The assessee vide notice u/s 142(1) of the Act dated 04- 11-2020 was specifically asked to explain the reason as to why the difference in stock shown in the books of account and as per the physical verification be not added to total income of the assessee. The assessee vide reply dated 01-04-2021 has stated that the stock taken by search team of the department was on sample basis and complete stock was not taken. The assessee was not present at the time of search neither he was aware of the search being carried out at his medical store. Since, only selected items were taken for physical counting they will never tally with the books of account. The reply submitted by the assessee with regard to the difference of stock has been considered but not found acceptable. In his statement recorded during post search investigation the assessee could not explain the difference in stock found during the course of search and neither. gave any rebuttal to the statement of his accountant Ms. Jyoti. The relevant portion of his statement is scanned below:- Printed from counselvise.com ITA No.258/LKW/2024 Page 8 of 10 In view of the above discussion, it is apparent that the assessee has failed to explain the difference in stock. In absence of any credible explanation, it is clear that the stock worth Rs.31,37,944/- (Rs.46,21,944 - Rs.14,84,000) is sold out of books. Therefore, extra gross profit @ 8.29% on the stock sold out of books, which works out to Rs.2,60,135/- is added to the total income of the assessee. Penalty proceedings u/s 271AAB(1A)(b) of the Act are being initiated separately.” 4. It is found that the assessee had represented during the assessment proceedings and during the appellate proceedings in the office of the Ld.CIT(A) that the stock was taken by team of Income Tax Department on sample basis and physical verification of complete stock was not taken. It was further submitted by the assessee that the assessee was not present at the time of physical verification and the assessee was not even aware of the physical verification being carried at his business premises. During the appellate proceedings in the office of the Ld. CIT(A) it was submitted by the assessee that the value of stock was maintained on accounting software which was updated from time to time. However, the accounts were not fully updated on the software on the date of physical verification, due to which the value of stock as per the assessee’s account on the date of physical verification was not relevant in the absence of updating of the assessee’s books in the accounting software. It was also submitted by the assessee that the return of income was filed by assessee by taking into account all the transactions during the Printed from counselvise.com ITA No.258/LKW/2024 Page 9 of 10 previous year relevant to the A.Y. 2019-20 and the addition made by the Assessing Officer on the basis of truncated period upto 07.01.2019 (date of physical verification) was erroneous having regard to law and principles of accounting. The submissions made by the assessee during the appellate proceedings in the office of the Ld. CIT(A) is already included in the foregoing paragraph no. 2 of this order. It is found from the perusal of the record including the assessment order and the impugned appellate order of the Ld. CIT(A) that the submissions made by assessee have not been fully dealt with in the assessment order and the impugned appellate order of the Ld. CIT(A). Therefore, the issue in dispute regarding addition of the aforesaid amount of Rs.2,60,135/- is restored back to the file of the Assessing Officer, with the direction to pass de novo order on this specific issue, which should be a speaking order, in accordance with law, after giving reasonable opportunity to the assessee and after dealing with the submissions made by the assessee through the speaking order. All the grounds of appeal in the present appeal before us are treated as disposed off in accordance with the aforesaid direction. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 31/07/2025. Sd/- [ANADEE NATH MISSHRA] ACCOUNTANT MEMBER DATED: 31/07/2025 Printed from counselvise.com ITA No.258/LKW/2024 Page 10 of 10 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR 5. Guard file By order //True Copy// Assistant Registrar Printed from counselvise.com "