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Judgment
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
This captioned appeal has been filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals) - Delhi – 29 [‘CIT(A)’ in short] dated 10.09.2025 arising from the assessment order dated 10.12.2019 passed by the Assistant Commissioner of Income Tax, Central Circle – 28, Delhi under Section 143(3) of the Income Tax Act, 1961 (‘the Act’) concerning Assessment Year (A.Y.) 2017-18.
The grounds raised by the assessee are as under :
“1.The Ld. CIT(A) erred in law and on facts in upholding the addition of Rs.1,20,10,000/- u/s 68 as unexplained cash credits, ignoring that the deposits were from cash sales duly recorded in audited books of accounts and supported by documents like cash book, sale invoices, stock register, and VAT returns.
2.The Ld. CIT(A) erred in confirming rejection of books u/s 145(3) only qua cash deposits during demonetization, while accepting other trading results and profit margins, which is arbitrary and contrary to ITAT decision in Satya Pal Shiv Kumar v. ACIT [2025] 173 taxmann.com 317 (Delhi - Trib.).
3.The Ld. CIT(A) erred in not appreciating that no defects were found in submitted documents evidencing genuine cash sales, and in disregarding CBDT Instruction dated 21.02.2017 for verifying such transactions.
4.The Ld. CIT(A) erred in upholding addition of Rs. 29,60,400/- as notional rental income based on an unsigned, unexecuted draft lease agreement, ignoring the actual executed agreement, affidavit, and ITRs showing actual rent of Rs. 1,50,000/-.
5.The Ld. CIT(A) erred in determining annual value u/s 23 based on hypothetical rent exceeding municipal/SDMC lettable value, contrary to Supreme Court ruling in Dewan Daulat Rai Kapoor v. NDMC (1980) 122 ITR 700 (SC).
The appellant craves leave to add, amend, or modify the grounds before or at the time of hearing.”
Brief facts of the case are that the assessee is engaged in the business of trading of Gold Jewellery & Gold Ornaments. During the year under consideration, assessee had earned income from House property, Business income and other source of income. The assessee has electronically filed its return of income u/s 139 of the Income Tax Act, 1961 on 28.10.2019 declaring an income of Rs.99,51,870/-.
The case of the assessee was selected under CASS for e-scrutiny and statutory notice u/s 143(2) dated 14.08.2018 was issued and served upon the assessee. The AO found from the perusal of bank statement, that the assessee had deposited cash of Rs.1,20,10,000/-during the demonetization period i.e. 09.11.2016 to 31.12.2016. The AO, not being satisfied with the explanation of sources of the cash deposited during demonetization, added the same u/s 68 of the Act. The AO also added Rs 29,60,400/- as undisclosed notional rental income from house property.
Aggrieved, the assessee preferred an appeal before the CIT(A) who considering the facts and circumstances, upheld the action of the Assessing Officer. Now the further aggrieved assessee is in appeal before us.
At the outset, the Learned Counsel stated that an amount of Rs.1,20,10,000/- was deposited as cash during the demonetization, which is from cash sales. The assessee is in the business of trading in jewellery and all his books are duly audited and all the cash sales were duly recorded in the books. With respect to the notional rental income, the learned Counsel of the assessee submitted that the AO has taken the notional rental income on the basis of unsigned, unexecuted draft lease agreement whereas the actual executed agreement shows actual rent income at Rs.1,50,000/- only. The learned Counsel relied on the decision of Hon’ble Supreme Court in the case of Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee, reported in 122 ITR 700 (SC).
Per contra, the learned DR relied on the orders of the AO and CIT(A).
We have heard the rival submissions and perused the material available on record. In the instant case, we find that the assessee has attempted to prove the entire source of cash deposit during demonetization period as being from sales. We also find that on the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that cash deposit has been made out of sales, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the cash deposit, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of Rs. 8 lakhs only would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. The assessee’s ground 1 to 3 on this count is partly allowed.
In so far as assessee's levy of tax at a higher rate under section 115BBE of the Act is concerned, we find that the Madras High Court in the Writ petition in the case of S.M.I.L.E. Microfinance Ltd. Vs. ACIT, W.P. (MD) No.2078 of 2020 & 1742 of 2020, dated 19.11.2024 (Madras) has held that the impugned statutory provision would come into effect on the transaction done on or after 01.04.2017 only. Accordingly, we direct the AO to tax the addition under normal provisions of tax and not under the provisions of 115BBE.
With respect to the notional rental income, we find that the actual executed agreement is dated 01.04.2016 which shows rent of Rs 25,000/- per month and the co-owners of the property getting Rs 12,500/- per month each. The ld DR could not controvert the fact that the first page of the earlier agreement dated 01.04.2013 which showed rent of Rs 3,00,000/- per month is not signed by the tenant/lessee. We further find that it is an uncontroverted fact that the assessee declared in its ITR rental income of Rs.1,50,000/- per annum for A.Y. 2015-16 and 2016-17, on the basis of the rental agreement dated 01.04.2016 only, which has been accepted by the department under scrutiny under section 143(3) of the Act. We are therefore of the considered view, in the given factual matrix of the instant case, that the addition of notional rent is not warranted. We therefore, direct the AO to delete the amount of notional rent. The ground 4 of appeal is allowed.
In the result, appeal of the assessee in ITA No.7167/Del/2025 is partly allowed.