AI Structured Summary
Not yet generated for this judgment
Judgment
Per Raj Kumar Chauhan, Judicial Member:
The appeal of the asse ssee is d irected against the order dated 18.03.2026 of ld. CIT(A)/NFAC , Delhi passed u/s 250 of the Income- tax Act, 1961 (hereinafter referred to as ‘the Act’) wherein addition made in the assessment order dated 09.12.2019 were co nfirmed and appeal was dismissed.
Facts in brief as called out from the orders of the authorities below are that the assessee has e-filed return of income for the concerned year on 31.10 .2017 declaring income of Rs.18,83,560/-. The case was selected for scrutiny under CASS on the issue that “assessee has deposited large cash during the demonetization period and abnormal increase in sales with decr ease in profitability co mpared to preced ing previous year”. Notice u/s 143(2) of the Act dated 21.09.2018 was issued ask ing details. The case was fixed for hearing on 26.09.2018. Further notice u/s 142(1) along with questionnaire was issued on 28.08.2019. The notice re mained uncomplied and final opportunity was g iven by issuing letter dated 22.11.2019 listing the matter for 27.11.2019 . No reply was received on the stipulated date and the assessee has avoided the proceedings. Accordingly, the ex-parte assessment was co mpleted by making various additions as enumerated in para 3 of the assessment order.
Aggrieved by the impugned order, the assessee filed appeal before the ld . CIT( A) who dismissed the appeal by observing that despite adjournment granted and fresh no tice u/s 250 of the Act dated 02.03.2026, no further submissions or response has been filed by the appellant. It is fur ther observed by the ld. CIT(A) in para 8.4 that the appellant merely furnished unsigned ledger accounts and copies of certain bank statements and has failed to furnish crucial documentary evidence required to discharge the onus u/s 68 of the Act. In the se facts and cir cumstances, the assessment order was upheld and the addition made therein were confirmed.
Aggrieved by the impug ned order, the assesse e is in appeal before us and has raised the following grounds:
“1.That on the facts a nd circu mstances of the case, th e Order passed b y t he L d. CIT(A) und er S ection 2 50 of th e Inco me Tax A ct , 1961 is illeg al, a rbitr ary and bad in law an d on fa ct s.
2.Th at on the fa cts an d circum st ances of the case, the Ld. C IT( A) erred in confirm ing th e add ition of R s. 5 3,7 5,00 0/-und er S ect ion 68 o f t he A ct, with out p roperly apprec iat ing th e explanations and evidences furni shed by t he Appellan t establishing the id entit y, genuinen es s and credit worthi ness of th e credito rs, a nd wit hout grantin g the A ppellant a pr oper opportun ity to subst ant iat e the sam e.
3.Th at on the fa cts an d circum st ances of the case, the Ld. C IT( A) erred in confirm ing th e add ition of R s. 2 5,9 0,00 0/-und er Sect ion 69 A of th e Act, i gnoring tha t t he c ash deposits w er e duly explain ed b y the A pp ella nt as being ou t of cash-in- hand available in the books of a ccou nt and business rece ipts, and with out properly ap p recia ting th e explan atio ns and evidences placed on rec ord.
4.Th at on the fa cts an d circum st ances of the case, the Ld. C IT( A) erred in confirm ing th e add ition of R s. 1 2,5 0,19 2/-on acco unt of ‘Low Gross Profit ’, w ithout appreciatin g that th e b ook s of accou nt were duly ma intained and audited u/s 44AB of the Act a nd t he additions we re mad e without rejecting the bo oks of accounts or poi n ting out an y specific defects w hile passing th e impugned order.
5.Th at on the fa cts an d circum st ances of the case, the Ld. C IT( A) err ed in uphold ing th e Ld. A O’s su bstitu tion o f t h e rate of Gross Profit to 8.11% of the turnover me rely on the basis o f com parison wit h the p revious year, wi th ou t ap preciating the cha nged market condition s and th e VAT exemption o n foot wear a nd nume rous relevant factors having beari ng on the t urnover , costs, expenses a nd gr oss pr ofit.
6.Th at on the fa cts an d circum st ances of the case, the Ld. C IT( A) erred i n confirming th e additions desp ite the fact th at proper and effective oppo rtu nity of bei ng hear d was not grant ed t o th e Appellan t durin g assessmen t pr oceed ings, thereby vio lating the p rincipl es of na tural j ustice and cau sin g great preju dice to th e A ppell ant.
7.Tha t on the facts and ci rcumstances of th e case, th e assessment ord er u/s 1 43(3) dese rves to be quashed and each of th e additio ns ma de therein d eserv ed to b e quashed/ deleted on law an d facts and Ld. C IT (A ) erred in law as well as on facts in n ot doing so.
8.Th at on the fa cts an d circum st ances of the case, the Ld. C IT( A) h as erred i n law and on fact s in not ad mitt ing and pr operly c onside ring t he eviden ces a nd submission s of th e A ppellant and rej ect ing the same w ithout co gen t reason s, rendering the impug ned order n on-spea king , mech anical, an d p assed with out prope r application of mind .
9.Th at in any case an d in any view o f the matter, scruti n y assessment and mak ing of variou s additions i n th e assessment orde r i s not leg ally valid on vari ous factual and legal g rounds. Th erefore, im pugned assessmen t order deserves to b e quashed a nd each of the ad ditions mad e th erein des erved to be quashed/ deleted on law and facts an d Ld. C IT(A) er red in law as wel l as on fact s in not doing so.
10.Th at t he impug ned ord er passed by the l earned CIT(A ) an d t he addit ions made t herein are arbitra ry, unj ustified, cont rary to facts and law and therefor e liable t o be set aside.”
We have heard the ld. AR and the ld. DR. The ld. AR at the very outset sub mitted that the assessment orde r was ex-parte and the contents of the impugned order would show that the assessee could not file the co mplete details before the ld. CIT(A) to discharge the onus u/s 68 of the Act. It is submitted that the proceedings before the ld. CIT(A) took place during the Covid-19 and the assessee during that period was not in India and was in Dubai and could not file the requisite details in the absence of communication from the CA. He has filed copy of the passport to show the presence of the assessee in Dubai. It is further argued that the contents of para 5.3 of the ld. CIT( A)’s order would show that only 7 days time was given to file reply despite that the asse ssee was not in India and was in Dubai at that time. It is further submitted that the war between Iran and Amer ica has also prevented the assessee from comp liance which was required to be done within 7 days. It is therefore submitted that since the assessment order was ex-parte and assessee could not file comple te details before the ld. CIT(A), therefore, ends of justice requires that an opportunity be given to the assessee to co ntest his case before the ld. AO by filing the details required to prove the genuineness of the transaction and further that on merit the assessee's case is strong as he has a valid explanation for deposit of the cash during the demonetizatio n period because there was huge withdrawal by him from the account and all these facts needs to be thoroughly examined w hich can be done only by the AO . It is further submitted that the appellant has given sufficient explanation for not appearing before the AO as well as the ld. CIT(A) due to the circumstances beyond his control and therefore it is prayed that matter be restored to the file of the AO and the impugned order be se t aside.
The ld. DR, on the other hand, would argue that 7 days time was sufficient and short time was given because of the target to be met by ld. CIT(A) . The ld. DR arg ued that the file may be sent to ld. CIT(A) for de cid ing afresh and need not be sent to the A.O.
In rejoinder argument, ld. AR would submit that there was another reason also as to why the assessee could not appear before the A.O . because a criminal case FIR was registered against CA of the assessee and for that reason there was communicatio n gap between the CA of the assessee which has resulted into passing of the Assessment Order ex-parte and the se circumstances were also beyond the contro l of the assessee and ends of justice requires that an effe ctive opportunity of hearing would be given only when the matter is restored to the file of the AO, w ho is the competent authority to comprehensively consider the material in support of the case of the assessee.
We have considered the rival submissions and e xamined the record. Admitted ly, the assessment order is ex-parte. We have also extracted the conte nts of the impugne d order from para 8.3 onwards as under:
“8.3The expla nat ion offe red by t he appella nt has been carefu lly e xam ined. However, t he co n ten tion tha t notices were not responded t o due to the al leged non-t raceabil it y of the Chartered Accoun tant cannot be accepted as a valid j ustification for complete no n-comp liance du ring th e assessment proceed ings. The st atu tory notic es were du ly issued by t he A ssessing Officer an d t he appellant, b eing th e ap pellant, was und er a l egal obligation to comply w ith t he same and furnish the requisite evidence s. T he failu re to do so d uring the ass essment proce edin gs indicat es lack of coop era tio n on t he p art of th e appellant. 8.4 On fu rther exam ination of the d ocuments fi l ed during the appe ll at e pr oceed ings, it is noticed that the ap pella nt ha s m erel y furnished unsign ed ledge r accoun ts and copies of ce rta in ba nk st at ements relating to th e a ll eg ed credit ors. H owev er, th e appell ant has failed t o furnish crucial documen tary evidences required to di scharge t he onus u/s. 68 of the A ct. In particular, t he ap pellant has not p roduced PA N details, copies of in co me tax r etu rn a cknow ledgements, ad dress pr oof, A ad haar or o ther iden tity docu ments of t he c reditor s, which are essent ial t o estab lish the identi ty and tax profile of t he credito rs. Further, the creditwo rthiness of th e cred it ors has n ot been demonst rated, as no finan cial statem ent s, capital accounts or bal ance sheets o f th e cred it ors have bee n furnished to establish th eir financ ial capa ci ty to advan ce such loan s. The ban k st atements placed on record m erely show certain ent ries b ut do not establish the source of fu nds in th e han ds of the cr editors pr ior to ad vancing t he loan s, and therefore the sourc e of sour ce rema ins u nexplained.
8.5It is also observed t hat no loan agreement s, pro perly execut ed confirmations, det ails r eg ard ing interest t erm s, repaymen t schedule or e vidence of s ubsequ ent repaymen t have been fur nish ed to est ablish the genuin eness of th e loa n t ransact ions. The ledg er ext racts p rodu ced by th e ap pellant are int erna l do cu ment s prepared by the appel lan t an d are t herefo re self-s erving in nat ure a nd cannot inde pendently es tablish t he genu ineness of th e tr ansactions. Further, the re are appar ent inconsisten cies in th e amounts of loans explained b y the a ppellant , for instance, the appellant cla ims tha t the loan from Veena K athuria was on ly R s.7 0,00 0/- wh ereas the assessmen t records indicat e a m uch higher amount. Such incon sist encies cast serious d oubt on the reliab il ity o f th e explan atio n offered by t he ap pellant.
8.6It is also pertin ent to n ote that t he notices issued b y th e Assessing Officer t o ce rtain credit ors u/s. 13 3(6) of th e A ct we re eith er ret urned unserved or remain ed un compli ed wit h, and the appel lant has failed to produce the cr edit ors for verification eit her du ring the assessment proceedin g s. In t he absence of such verifi cati on an d cred ib le do cu ment ary evid ence t o sub stant iat e the i dent ity and cred itwo rthiness of the credito rs, t he loan t ransact ions cannot be accep ted a s ge nuine.
8.7In view of t he above facts and circumst ances, it is h eld th at the app ellant has failed t o discharge the bu rden c ast upon h im u/s. 68 of t he Act . A ccording ly, t he addition of R s. 53,75,000/- made by t he Assessin g Officer is confirm ed.
Addition on a cc ount of Ca sh De po sits during Demonetiz ation period o f Rs. 25,90,0 00/-
9.1The s econd issue relates to the additi on of R s.25 ,90,000/- on a ccount of cash deposits mad e dur ing th e demonet iz ation perio d, wh ich wa s treated as unexplained money by the A ssessing Officer u/s. 69A of th e A ct.
9.2Du ring the appellat e pr oceedings, the appellan t subm itted th at the actual cash deposit ed during th e demon etiz ation p eriod was R s. 16,34,000/- and that th e same w as deposit ed out of the cash-i n -hand availa ble a s on 08.11.2016 amount ing to R s. 17,02,429/-. However , it is ob served t hat the ap pellant fai led to furnish an y r eliab le an d verifiable eviden ce such as cont emporaneou s c ash bo ok, da y-t o-day cash reg ist er or sup porting vouch ers t o substantiate the availabi lity of su ch ca sh balance as claim ed.
9.3The explanation offe red by t he ap pellant is not suppo rted by prop er documentary evidence and app ear s to be a mere aft erthou ght. The app ellant did not pro duce th e bo oks of account, ca sh book o r st ock regist ers d u ring t he assessment proceedi ngs despit e bei n g sp ecifically requi red to do so by t he A ssessing Offic er. Eve n during th e appell at e pr oceed ings, no satisfacto ry evid ence has been produced t o conclusively esta bl ish tha t the cash depo sits du ring th e demon etiz ation period were out o f gen uine business receipts or e xisting cash balance.
9.4In the absence of credible sup port ing evid ence, th e explan atio n furnished by th e a ppellant regarding the sou rce of cash dep osits canno t be accepted. Therefore, th e A ssessin g Officer was just ified in treating th e cash dep osits of Rs. 2 5,90 ,00 0/- a s unexpl ained m oney u /s. 69A of t h e A ct. A ccord ingly, the addition of R s.25,90,000/- is confirm ed.
Addition on ac cou nt of Lo w Gross P rofit amo unt ing to Rs. 12,50,192/-
10.1The A sse ssing Officer observed th at the gr oss pr ofit rate declared b y the appellant during t he year under considerat ion w as 6.88%, w hich wa s lower than the 8. 11% decla red in th e prec eding year. The appe llant was specificall y requ i red t o explain the reasons fo r such fa ll in th e gro ss profit rat e and t o produce the book s of acc oun t an d st ock register for verif ication. H oweve r, the appell an t failed t o furni sh any explan atio n o r pr oduce the required records durin g t he assessment proceedi ngs.
10.2In t he a bsence of an y explanation or supp ort ing evidence, th e Assessing Officer estim ated the gross pr o fit by applying t he rate of 8.11% , bein g the gross profit rat e decla red b y the ap pellant in the p reced ing year, a nd conseq uent ly ma de t he resulata nt addit ion of R s. 12,50,192/- .
10.3During th e app ellat e p roce edi ngs, th e appe llan t cont ended that the fa ll in gross pr ofit w as due to a VAT notificatio n g rant ing exemp tion on f oot wear havin g MRP not exceed ing R s. 50 0 per pair a n d due to increased comp et ition in th e m ark et. H owever, t he appellant has failed to substantiat e the sa id contention wi th co gen t do cu ment ary eviden ce such as comparative purchase a nd sales dat a, stock records, price va riation s or othe r suppo rting business rec ords.
10.4It is also pert inent to note that t he appell ant d id not pr oduce the book s o f account , stock reg isters o r ot her pr imar y reco rds eith er befo re t he A ssessing Officer or during the appellate proceeding s for verif ication. In th e ab sence of such records, the explan ation offered by t h e ap pellant regardin g th e fa ll in g ross profit rat e rem ains unsubst ant iated.
10.5Therefo re, consid ering t he failure of the a ppellant t o substantiate the re asons for the d ecli ne in gross p rofit and th e a bsence of sup port ing documenta ry evid ence, th e action of the Asse ssin g Officer in est imating t he gross pr ofit bas ed on t he past yea r’s results is found to b e reasona bl e and j ustified. Accordingly, the addit ion of R s. 12,50,192/- ma de by the A ssessin g Officer on acc ount of low g ross p rofit is con firmed .
11.In view of th e for egoi ng d iscussio n, t he addit ions mad e by t he A ssessing Offi ce r on accoun t of u nsecured loans of R s. 53,75,000/-, u nexplained cash deposit s dur ing demon etiz ation am ounting to R s. 25,90, 000/- and low gross pr ofit of R s. 1 2,50 ,19 2/- are fou nd to be justifie d. T he ap pellant ha s failed to furnish sa tisfactory explan ation s or cred ible d ocumentary evidence t o reb ut the find ings of th e A ssessin g O fficer. A ccordingly , th e grou nds of appeal raised by t he ap pellant are dismissed.
12.In the result , t he appeal is dism issed .”
The contents of the impugned order as extracted above would show that the assesse e failed to furnish crucial docume ntary evidence to discharge the o nus u/s 68 of the Act as noted by the ld. CIT(A) himself in para 8 .4 of the order. Therefore, ends of justice requires that the assessee in the given facts and circumstances w herein he has justified his non-compliance before the AO as well as before the ld. CIT(A), is required to be given an effective opportunity of hearing by furnishing necessary evidence and documents in support of his case with respect to all the three additions made therein. For the above reasons, we are of the considered opinion that the ends of justice w ould be me t by restoring the matter to the file of the AO for decid ing the same afresh, after affording an effective opportunity of hearing to the assessee for presenting the case. Accordingly, the matter is restored to the file of the AO for fresh adjudicatio n in accordance with the directions given hereinabove. The assessee is also directed to make the necessary submissions/detailed material before the ld . AO within the period of 60 days of this order.
In the result, the appeal of the assessee is allowed for statistical purposes.