Income Tax Officer vs Gulsan Finance Private Ltd.

PER S. RIFAUR RAHMAN, AM :

This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), New Delhi [“Ld. CIT(A)”, for short] dated 25.07.2025 for the Assessment Year 2017-18.

Brief facts of the case are, the case was selected for scrutiny assessment for the assessment year under consideration i.e. 2017-18 through CASS for the following reasons :-

Notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short 'the Act') along with questionnaire were issued and served on the assessee. In response, assessee submitted that the assessee company was incorporated on 03.05.2011 under the Companies Act, 1956 with the main objective of carrying on business of BFC's and during the relevant year, the assessee is engaged in NBFC activities. He further submitted that during the relevant year, the assessee was maintaining its bank account with ICICI Bank Ltd. having current account number 194505000067. He further submitted that during the course of demonetization period i.e. between 08.11.2016 to 31.12.2016, assessee has deposited total cash of Rs.1,18,59.100/-, in the following manner :-

10.11.2016 194505000067 15,00,000/-11.11.2016 194505000067 15,00,000/-

Further assessee submitted that cash was deposited out of business receipts in the form of re-payment of loan and furnished the copy of cash book pertaining to FY 2016-17 and the details of month-wise cash deposits made by the assessee during FY 2016-17 are given at pages 12 and 13 of the assessment order. From the aforesaid details, the AO observed that cash deposited by the assessee during the month of November and December. 2016 was abnormal in respect of earlier months of the financial year and also same period in the earlier financial year. He further observed that assessee has further furnished the details of month-wise cash receipts as re-payment of loans and cash deposits from 01.04.2015 to 31.03.2016 and 01.04.2016 to 31.03.2017 and the details of which are reproduced by the AO at page 13 to 15 of the assessment order.

AO further asked the assessee to furnish the details of the parties/entities/person from whom re-payment of loans, were received in cash during FY 2016-17 and proceeds of which were deposited into its bank account during demonetization period. In response to this notice, assessee furnished the list of persons with their latest address.

Further, AO issued notice u/s 133(6) of the Act, to selected number of person on the addresses given by the assessee and most of the said notices were returned back, however in very few cases reply has been received by the AO wherein cash repayment was accepted by them. Therefore, AO observed that claim made by the assessee that cash deposited by them during demonetization period was re-payment of loan installments received from different customers to whom loans were given in earlier years or months found to be false and afterthought of the assessee.

Further AO issued summons u/s 131 of the Act to one of the Directors, Shri Sunil Kumar Arora of the assessee company for recording of his statement. The statement of Shri Sunil Kumar Arora is mentioned at pages 16 & 17 of the assessment order. From the statement of Sunil Kumar Arora, AO observed that assessee don't have any valid reply and valid documentary evidences in support of" source of the cash deposited by them during the period 08.11.2016 to 31.12.2016. Accordingly, AO issued show cause notice dated 20.12.2019 requesting the assessee to show-cause as to why cash deposited by it during demonetization period should not be added to the income of the assessee during A Y 2017-18. In response, assessee submitted its reply which is reproduced at pages 17 & 18 of the assessment order.

Accordingly, AO observed that assessee has failed to furnish any valid reply or valid documentary evidences in support of cash deposited during the demonetization period. AO further observed that as per ITR of AY 2016-17 assessee has shown closing cash in hand as on 31.03.2016 of Rs.17,81,680/-so opening cash in hand as on 0l.04.2016 will be amounting to Rs.17.81,680/-, therefore credit of this amount has been given to the assessee. After considering the opening cash in hand as on 01.04.2016, AO observed that total deposit made during demonetization period i.e. between 08.11.2016 to 31.12.2016 minus opening cash in hand as on 01.04.2016 remained unexplained and unaccounted cash deposit by the assessee i.e.total amount of Rs.1,00,77,4201- (Rs.l,18,59,100 - Rs.17,81,680) remained unexplained and unaccounted and added to the income of the assessee during the year under consideration.

Further AO also made additions on account of commission expenses of Rs.47,806/- (20% of Rs.2,39,030) and tour and travel expenses of Rs.45,658/- (20% of Rs.2,28,292/-) for not furnishing any valid documentary evidences in support of the said expenses.

Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions. Ld. CIT (A) after going through the detailed submissions deleted the addition of Rs.1,00,77,420/- on account of unexplained and unaccounted cash deposit by observing as under:-

Further Ld. CIT (A) deleted the other two disallowances i.e. Rs.47,806/- and Rs.45,658/- on account of commission expenses and tour & travel expenses respectively and detailed findings are given at pages 7 to 12 of the impugned order.

Aggrieved with the above order, Revenue IS In appeal before us raising following grounds of appeal :-

At the time of hearing, ld. DR of the Revenue brought to our notice the findings in the assessment order and relied on the above findings and objected to the deletion of additions by the Id. CIT(A). He also relied on the decision of Hon'ble Supreme Court in the case of Sanjay Kapur vs. CIT (2022) 138 taxmann.com (SC).

On the other hand, ld. AR of the assessee heavily relying on the findings of the ld. CIT (A) and submitted written submissions which are reproduced below:-

Considered the rival submissions and material placed on record. We observed that assessee was having sufficient cash in hand on 07.11.2016 (including SBNs) and the same was deposited in the bank accounts and the assessee also filed all the relevant details before the AO. Further we observed from the assessment order that the AO has not rebutted any of the details filed by the assessee nor has pointed out any mistakes in the audited books of accounts. Further the Assessing Officer made the impugned addition merely because some of the debtors (persons whom loan was advanced by the assessee) who had paid in cash to the assessee did not respond to the notices. Further we observed that the assessee has asked the AO to give details of such debtors so that it can follow up with them but no such list of debtors was provided to the assessee. Further we observed that in appeal, assessee submitted before the ld. CIT (A) that the cash deposits during demonetization period was bound to be on a higher side when compared to corresponding periods in previous years or subsequent year, since, the assessee was forced to deposit the cash lying in the books as on 07.11.2016 (SBNs) as it would have become worthless post demonetization.

Further we observed that the assessee is a duly incorporated company engaged in Non-Banking Financial Company (NBFC) activities since 2011 and the core business involves providing small-ticket loans, such as personal loans and two-wheeler finances, to individuals who often lack access to formal banking. We observed that by the very nature of this business, loan installments are predominantly recovered in cash and these are not "third-party receipts" in the sense of unexplained credits, but rather the return of the Assessee's own capital along with interest. Further we observed that during the assessment proceedings, a comprehensive Daily Cash Book and Audited Financial Statements were produced and the Assessing Officer did not reject the books of accounts. We further observed that the Audited Cash Book reflects a closing balance of Rs.1,20,45,998/- as of 07.11.2016 and the total cash deposited during the demonetization period was Rs.l,18,59,100/-, which is entirely covered by the cash available in the books. We observed that when the opening cash and the intervening recoveries are accepted, and the books are not rejected, hence the Ld. CIT(A) has correctly concluded that the source of the bank deposit is clearly the recorded cash-in-hand.

Further we observed from the findings of Id. CTT (A) that the Appellant has submitted all details as called for by the AO which, inter alia, include cash book, names and addresses of persons from whom cash installments were received against loans availed, monthly statements in respect of cash receipts and cash deposits in previous years and subsequent year, the AO has not pointed out any mistakes in the cash book wherein cash in hand exceeds the cash deposits in the bank accounts during demonetization period. Further we also observed that the AO has not rebutted any of the details submitted by the assessee. Further with regard to issuance of letters to some of the persons u/s 133(6) which were returned back unserved, we observed that ld. CIT (A) rightly opined that mere non-service of letters issued u/s 133(6) to some persons would not establish that such persons either do not exist or they have not undertaken any transactions with the assessee and non-service of letters could be on account of many factors, including change of address. Further we also concur with the opinion of the ld. CIT (A) on the issue of increase in cash deposits during demonetization period that it is quite natural since the assessee was forced to deposit the entire cash in hand (SBNs) in the bank accounts during 08.1l.2016 to 3l.12.2016 which was not required in FY 2015-16 or 2017-18. And he rightly pointed out that the important point to consider here is that the assessee was having sufficient cash in hand to explain cash deposits and the AO has not found any mistake either in books of accounts or in details submitted by the Appellant.

In view of our above discussion, we are inclined not to disturb the findings of the ld. CIT (A) on the issue of deletion of addition of Rs.1,00,77,420/-and the grounds are accordingly dismissed.

With regard to deletion of addition of Rs.47,806 on account of commission expenses, after going through the detailed findings of the ld. CIT (A) at pages 7 to 10, we are inclined to uphold the detailed findings of the ld. CIT (A) on this issue. Accordingly, this ground is dismissed.

With regard to deletion of addition of Rs.45,658/- on account of tour & travel expenses, we observed that the Assessing Officer made a 20% ad-hoc disallowance of Tour & Travel expenses. We observed that for an NBFC, travel is an essential business exigency for loan recovery and field verification. We further observed that ld. CIT(A) correctly applied the decision of the Hon'ble ITAT Delhi Bench in ACIT vs. M/s Modi Rubber Limited (ITA No.1952/Del/2014). It is a settled position that ad-hoc disallowances on a "percentile" basis, without identifying specific non-business or personal elements in the vouchers, are impermissible in law, especially when the books or accounts have been accepted. Accordingly, we are not inclined to disturb the findings on this issued and the ground is dismissed.

Ld. DR of the Revenue relied on the decision in the case of Sanjay Kapoor (supra) wherein the issue dealt by the Hon'ble Court was, whether the Assessing Officer had reasons to believe to reopen the assessment when the assessee failed to submit supporting evidences relating to cash deposited during demonetization period. The issue in the present case is not relating to reason to believe. This ratio cannot be applied to the facts in the present case.

In the result, the appeal filed by the Revenue is dismissed.