Inderjeet Chopra vs ITO Ward 58(8) Delhi

PER SHRI M BALAGANESH, ACCOUNTANT MEMBER:

The appeal in ITA No.1862/Del/2026 for AY 2017-18, arises out of the order of the Id National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as 'Id. CIT(A)', in short] dated 23.12.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') dated 28.12.2019 by the Assessing Officer, ITO, Ward-58(8), Delhi (hereinafter referred to as 'Id. AO').

The only effective issue to be decided in this appeal is challenging the addition made on account of cash deposits made during the demonetization period. The interconnected issue involved therein is with regard to addition made on account of alleged undisclosed sales.

We have heard the rival submissions and perused the materials available on record. The Assessee is a proprietor of M/s. SPC Overseas engaged in the wholesale trading of spices namely Mirch and Dhania. The return of income for the assessment year 2017-18 was filed by the Assessee on 27-02-2018 declaring total income of Rs. 11,90,940. The Learned AO noted that Assessee had made cash deposits of Rs. 87,17,500 in Axis Bank account and Rs. 2,40,000 in HDFC Bank account during the demonetization period from 9-11-2016 to 31-12-2016 aggregating to Rs. 89,57,500. The Learned AO sought for explanation of sources for the said cash deposits. The Learned AO ultimately after giving nominal benefit of cash balance, proceeded to treat the sum of Rs. 88,97,500 as unexplained cash credit taxable under section 68 read with section 115BBE of the Act. Further, the Learned AO on comparison of turnover reflected in the VAT returns filed for three quarters i.e. amounting to Rs. 2,04,51,246 and an estimate of turnover of the second quarter of Rs. 53,91,850 arrived at the total turnover for the whole year at Rs. 2,58,43,098 as against the turnover of Rs. 1,83,57,074 declared in the return of income and treated the differential sum of Rs. 74,86,074 as unaccounted sales bringing to tax Rs. 4,49,165 by applying a gross profit of 6% there on. This action of the Learned AO was upheld by the Learned CITA.

It is not in dispute that the following documentary evidences were duly furnished by the Assessee before the lower authorities:-

The Assessee had declared income under section 44AD of the Act in the return of income and hence it was pleaded that Assessee was not required to maintain any regular books of accounts. This argument of the Assessee is to be dismissed in as much as Assessee is engaged in the business of wholesale trading of spices and had in fact declared business income. The Assessee on his own volition had chosen to offer the income in terms of section 44AD of the Act. First of all, we find that the turnover of the Assessee is beyond the threshold limit and hence Assessee would not be eligible for computation of profits under section 44AD of the Act. Hence, the argument of the learned AR that Assessee was not obligated to maintain books of accounts is hereby dismissed. The sales figures disclosed by the assessee in the trading and profit and loss account has been matched with the VAT returns. The revenue has not brought any evidence on record to prove that the VAT authorities had not accepted the VAT returns filed by the Assessee. Hence the turnover declared in the VAT returns are to be accepted as sacrosanct. Apart from this, the Assessee had duly furnished the sales registers and purchase registers before the lower authorities. No part of purchase of goods had been found to be ingenuine by the revenue. Without effecting purchases, there cannot be any sales. Given the modus operandi adopted by the Assessee for his business, the sales would happen predominantly in cash. The cash sales details were also given by the Assessee before the lower authorities. Hence the availability of cash balance with the Assessee to make the cash deposits stands proved. The source of cash deposits emanating out of business proceeds of the Assessee need to be accepted in the instant case. At the same time, the Assessee would not be eligible for availing presumptive tax scheme under section 44AD of the Act for the year under consideration due to increased turnover. Hence Assessee had to be construed as a normal person carrying on business and veracity of the profits declared therein need to be proved with documentary evidences. However, in order to make good the deficiencies, in our considered opinion, an adhoc estimate of Rs 3,00,000 is being made. This addition on adhoc basis would meet the ends of justice in the facts and circumstances of the instant case. This adhoc addition of Rs 3,00,000 shall be treated as business income of the Assessee eligible for normal rate of taxation and not at the rate of 60% as per section 115BBE of the Act. In view of this addition, there cannot be any separate addition of Rs 4,49,165 on account of gross profit and the same is hereby deleted. Accordingly, the grounds raised by the Assessee are partly allowed.

In the result, the appeal of the Assessee is partly allowed.