YUSUF KHAN,. V. ITO, .

ITA 3507/DEL/2024

AI Insights

The case involves Yusuf Khan, a scrap dealer, who appealed against the orders of the NFAC and the AO concerning additions made to his income for the assessment year 2017-18. The primary issues revolved around unexplained cash deposits and cash payments exceeding Rs. 10,000. The AO initially made additions based on discrepancies between reported sales and bank deposits, which were later enhanced by the NFAC. The Tribunal found procedural lapses in the enhancement process and partially allowed the appeal, reducing the additions made. The Tribunal also addressed the applicability of section 115BBE, concluding it was not applicable to the transactions in question as they occurred before the relevant amendment date.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312940 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2017-2018
• Other Referred Cases: S.M.I.L.E Microfinance Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARPREET KAUR HANSRA
• Assessee Lawyers: RAVI PRATAP MALL
• Keywords: Opportunity of being heard; Additional evidence; TDS; FORM 26AS
• Section: 144; 40A(3)

Judgement Text

"Page 1 of 13 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: ‘F’: NEW DELHI) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER ITA No:-3507/Del/2024 (Assessment Year- 2017-18) Yusuf Khan C/o Singh & Associates, Law Officer No.204, Sharma Complex, A-2, Guru nanakpura, Lakshmi Nagar, New Delhi – 110092. Vs. ITO Ward-60(6) Delhi PAN No:DOOPK5872M APPELLANT RESPONDENT Appellant by: Shri Ravi Pratap Mall, Advocate Shri Shyamsundar, Advocate Shri Jagbir Singh, Advocate Respondent by:Ms.Harpreet Kaur Hansra, Sr.DR Date of Hearing :19.03.2025 Date of Pronouncement :30.04.2025 ORDER PERAMITABH SHUKLA, AM This appeal has been filed by the assessee challenging the order u/s 251 dated 15.05.2024 of NFAC, Delhi passed by Din & Order No.ITBA/NFAC/S/250/2024- Page 2 of 13 25/1064892295(1) for the assessment year 2017-18. Through the aforesaid order, NFAC has confirmed order u/s 144 dated 24.12.2019 passed by the Ld.AO. 2.0 Through the aforesaid appeal the assesse has raised altogether 8 grounds of appeal challenging the additions made by the Ld.AO as well as enhancements made by the Ld. First Appellate Authority / NFAC. 3.0 Brief factual matrix of the case is that return declaring income of Rs.8,06,250/- was filed by the assesse engaged in the business of Scrap dealer of Aluminium, Steel, Iron etc. Subsequently, Revenue got the information regarding cash deposits in his bank accounts. Consequently, the case was selected for limited scrutiny under CASS (Computer Aided Scrutiny Selection) category to verify the huge cash deposits. As per second para of the order of the Ld.AO dated 24.12.2019, the assesse was found to have deposited Rs.52,35,500/-. It was also noted that assesse had shown sales of Rs.1,99,39,848/- as against receipt of Rs.2,55,29,653/- in form 26AS. The Ld. AO show caused the assesse to explain the source of Rs.52,35,500/- and difference of Rs.55,89,805/-( Rs.2,55,29,653/- minus Rs.1,99,39,848/- ). There was no compliance from the assesse leading the Ld. AO to draw the conclusion of impugned differential amounts being Page 3 of 13 unexplained. The Ld. AO made addition of impugned amounts. The Ld. AO had also invoked provisions of section 69A r.w.s. 115BBE of the act while making the impugned additions. The assessment order reveals that the Ld.AO had also recorded that the assesse had made payment of Rs.36,93,132/- to one M/s. Sage Metal Ltd for Goods & Services. In the absence of any reply coming from the assesse, a presumption of the above hit by provisions of section 40A(3) was drawn by the Ld.AO and addition made of an even amount. The Ld. NFAC not only confirmed the action of the Ld.AO but also enhanced income. On the issue of addition on account of cash deposits, he noted that deposit in bank accounts were of Rs.57,25,500/- and not Rs.52,35,500/- and hence vide para 3.6 of his order he enhanced the addition to Rs.57,25,500/-. On the issue of differential amount of sales receipts, he concluded that the Ld. AO has misconstrued TCS with TDS and proceeded to delete the addition of Rs.4,47,184/-. On the issue of addition made by the Ld.AO u/s 40A(3), he confirmed the impugned addition on the premise that there was no reason to interfere with the Ld.AO’s order. 4.0 The first issue raised through ground of appeal No.1 by the assesse is regarding the action of the Ld. First Page 4 of 13 Appellate Authority in confirming the addition of Rs.52,35,500/- on account of unexplained cash deposits, as also its enhancement by NFAC to an amount of Rs.57,25,500/-. Ground of appeal No.4 is a connected ground where the assesse has challenged the enhancement in the absence of any notice u/s 251(1)(2) of the Act. Similarly ground of appeal no.5 and 6 are also concerning the addition of unexplained cash deposits. It is the case of the assesse that the cash deposits represent cash sales made in the regular course of business which has also been supported by VAT records. The Ld.Counsel for the assesse submitted that the assessee is a scrap dealer and has been indulging in cash sales as a regular business activity. A voluminous paper book has been filed in support of its arguments which has been considered. 5.0 The Ld. DR argued in favour of the lower authorities. 6.0 We have heard rival submissions in the light of material available on records. We have noted from the order of Ld.NFAC that it has summarily rejected the VAT and CST returns of the assessee on the premise of the same being mere declarations. It has been concluded that no VAT was paid on cash scrap sales and also that Page 5 of 13 veracity of accounts not beyond doubt. We do not find any significant force in the arguments propounded by the Ld. First Appellate Authority. The hypothesis advanced has been found to be based upon mere principles of human probability and not backed by cogent demonstrative evidence. The assessee is a scrap dealer wherein cash dealings are of routine occurrence. Therefore, it cannot be concluded that there was no element of cash sales. As regards the issue of enhancement of addition on account of cash deposits, from Rs.52,35,500/- to Rs.57,25,500/-, we have noted that section 251(1)(a) empowers a CIT(A) to enhance the addition made by the Ld.AO, however , section 251(2) of the act mandates that while doing so he has to give a reasonable opportunity of being heard to the assessee. We have noted from order of the NFAC that no such opportunity was given. Accordingly, we have no hesitation in concurring with the arguments of the assessee. The enhancement made by the Ld.CIT(A) from Rs.52,35,500/- to Rs.57,25,500/- is therefore deleted and the ground of appeal No. 4 raised by the assessee is allowed. As regards the issue of addition of Rs.52,35,500/- on account of unexplained cash deposits, as indicated above, the amounts seem to have a close nexus with sales of the assessee. Page 6 of 13 6.1 The Ld. AR also contested invocation of section 115BBE in its case. We are of the considered opinion that provisions of section 115BBE would not be applicable in this case. In this regard we draw strength from decision of Hon’ble madras High Court from its judgement dated 19/11/2024 qua W.P (MD) NO. 2078 Of 2020 & W.M.P (MD) NO. 1742 Of 2020 I n the case of S.M.I.L.E Microfinance Ltd . , holding that:- “………16. The next contention raised by the Learned Senior Counsel is that the under section 115BBE the rate of tax imposed is increased from 30% to 60% and the same is applicable with effect from 01.04.2017 onwards as per the amendment. Therefore, the same is applicable to any transaction from 01.04.2017 onwards and nor prior to any transactions prior to 01.04.2017. Since in the present case all alleged transactions are for the period from 08.11.2016 to 30.12.2016, hence the erstwhile rate of tax 30% only is applicable. But the contention of the revenue is that the amendment was with effect from 01.04.2017 and hence the same is applicable for the financial year 2016-2017 and the assessment year 2017-2018. Further the amendment to section 115BBE is directly 15 of 26 https://www.mhc.tn.gov.in/judis related to demonetization which would be evident from objects and reasons for such amendment. In order to consider the same, the objects and reasons of Taxation Laws (Second Amendment) Bill 2016 is extracted hereunder: Press Information Bureau Government of India Ministry of Finance 28-November-2016 15:56 IST Taxation Laws (Second Amendment) Bill, 2016 introduced in Lok Sabha; A scheme namely, ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016’ (PMGKY) proposed in the Bill. Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage. As a step forward to curb black money, bank notes of existing series of denomination of the value of Rs.500 and Rs. 1000 [Specified Bank Notes(SBN)] have been recently withdrawn the Reserve Bank of India. Page 7 of 13 Concerns have been raised that some of the existing provisions of the Income- tax Act, 1961 (the Act) can possibly be used for concealing black money. The Taxation Laws (Second Amendment) Bill, 2016 (‘the Bill’) has been introduced in the Parliament to amend the provisions of the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision. Further, in the wake of declaring specified bank notes “as not legal tender”, there have been suggestions from experts that instead of allowing people to find illegal ways of converting their black money into black again, the Government should give them an opportunity to pay taxes with heavy penalty and allow them to come clean so 16 of 26 https://www.mhc.tn.gov.in/judis that not only the Government gets additional revenue for undertaking activities for the welfare of the poor but also the remaining part of the declared income legitimately comes into the formal economy. In this backdrop, an alternative Scheme namely, ‘Taxation and Investment Regime for Pradhan MantriGaribKalyanYojana, 2016’ (PMGKY) has been proposed in the Bill. The declarant under this regime shall be required to pay tax @ 30% of the undisclosed income, and penalty @10% of the undisclosed income. Further, a surcharge to be called ‘Pradhan MantriGaribKalyan Cess’ @33% of tax is also proposed to be levied. In addition to tax, surcharge and penalty (totaling to approximately 50%), the declarant shall have to deposit 25% of undisclosed income in a Deposit Scheme to be notified by the RBI under the ‘Pradhan MantriGaribKalyan Deposit Scheme, 2016’. This amount is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality……………………………………………………………………………………………… ……………………………………………………………………………………………………. 17. In the aforesaid objects and reasons nowhere it is stated that due to “demonetization” the unaccounted money ought to be charged 60% rate of tax. It only states that step had been taken to curb black money by withdrawing Specified Bank Notes of denomination of Rs.500 and Rs.1000. And also states the people may find illegal ways of converting their black money into black again, hence as per experts advice heavy penalty ought to be levied. From the language of the object “that instead of allowing people to find illegal ways of converting their black money into black again”, it is evident that the government is intended to impose the same for future transactions. Especially the use of word “again” in the object would clearly indicate it is for future transactions i.e. from 01.04.2017. Therefore this Court is of the considered opinion that the revenue is empowered to impose 60% rate of tax for the transactions from 01.04.2017 onwards and not prior to the said cut-off date. And for prior transaction the revenue is empowered to impose only 30% rate of tax….”. Page 8 of 13 6.2 Thus, Hon’ble high court has held that section115BBE would be applicable for transactions undertaken w.e.f. 1/4/2017 and not of earlier period. In the present case undisputedly transaction were undertaken in FY 2016-17 and hence section115BBE could not have been invoked in this case. Be that as it may be we are of the view that interest of justice would be met if the addition is restricted to Rs.5 lakhs being the estimated profit element in the impugned sales, deposited in the bank accounts by way of cash. The Ld.AO is directed to restrict the addition to Rs.5 lakhs and delete the balance. The assessee succeeds in respect of ground of appeal nos.1 and 5 also and the same are allowed. 7.0 The next issue raised by the assessee is regarding the action of the Ld.AO in making the addition of Rs.36,93,132/- u/s 40A(3) and its corresponding enhancement by Ld.NFAC to Rs. 37, 35,721/- through the ground of appeal nos.2 & 3 respectively. The Ld. Page 9 of 13 Counsel for the assessee drew our attention to para 5.1 & 5.2 of the Ld. NFAC order. It is the case of the assessee that it is regularly dealing in cash and that therefore no addition was liable to be made. The Ld. Counsel for the assessee drew our attention to another aspect of the case claiming it to be an incurable mistake which has vitiated the assessment order. It has been argued that this case was selected for limited scrutiny for the purpose of verifying cash deposits. The Ld. Counsel has argued that it was not legally permissible for the Ld.AO to have made addition on any other head without converting the case into a complete scrutiny case, an action which required written approval of concerned supervisory CIT. It has been argued that in the absence of the same no addition whatsoever was required to be made. On the issue of enhancement it was reiterated that the Ld. NFAC has not given any opportunity of being heard before making the impugned enhancement available u/s 251(2) of the act. The assesse has also placed on record a paper book to substantiate its claim. 8.0 The Ld. DR argued in favour of the lower authorities. 9.0 We have heard rival submissions in the light of material available on records. We have noted from the order of Ld.NFAC that as far as action of the NFAC qua Page 10 of 13 enhancement of income is concerned no opportunity of being heard was accorded and hence the action of the Ld.NFACcannot be sustained and deserves to be quashed. Accordingly, the action of Ld. NFAC in making the impugned enhancement is quashed. We have also found sufficient force in the argument of the assessee that without converting the case into complete scrutiny, the Ld. AO was not authorized to make any addition in a limited scrutiny case on an issue which was not part of the CASS selection. We have seen the notice u/s 143(2) issued by the Ld.AO, placed by the assessee on page 1 of his paper book, that it was limited scrutiny case for examination of cash deposits only. Accordingly, we are of the considered view that there is no merit in the addition made by the Ld.AO u/s 40A(3) as well as its further enhancement by the Ld. NFAC. Consequently, we direct the Ld. AO to delete the impugned addition of Rs.36,93,132/- as well as the enhancement of the same to Rs.37,35,721/-. The grounds of appeal Nos 2 & 3 raised by the assessee are allowed. 10.0 The ground of appeal no.7 is regarding the action of the Ld. NFAC in not calling for a remand report from the Ld.AO under Rule 46A of the act. We have noted from the grounds of appeal raised by the assessee before the Page 11 of 13 Ld. NFAC extracted on page 1 to 3 of his order, that no such invocation under Rule 46A was made by the assessee. Without prejudice we have also noted that non- calling of remand report by the Ld. NFAC, can be a cause of concern for the Revenue and not for the assessee. Rule 46A merely authorizes an assessee to file an additional evidences for consideration of the Ld. First Appellate Authority. The ground of appeal no.7 raised by the assessee is therefore dismissed. 11.0 The ground of appeal no.8 is regarding the action of the Ld. NFAC in not giving proper opportunity of being heard to the assessee . We have noted that there is no such error seen in the order of the Ld. NFAC. He has duly recorded in page 4 to 7 of his order regarding the details filed by the assessee in course of appeal and its consideration. There is nothing on record to indicate that reasonable opportunity of being heard was not given to the assessee. The ground of appeal no.8 raised by the assessee is therefore dismissed. Page 12 of 13 12.0 In the result the appeal of the assesse is partly allowed. Order pronounced in the Open Court on 30.04.2025 Sd/- Sd/- (SATBEER SINGH GODARA) (AMITABH SHUKLA) JUDICIAL MEMBER ACCOUNTANT MEMBER *Neha, Sr. PS* Dated:30/04/2025. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI "