Tirupati Jewels Vs ITO (ITAT Delhi)

Conclusion: Addition of Rs. 2.25 crore made by AO against assessee for unexplained cash deposits was deleted as assessee had discharged the onus and prove the genuineness of the transaction and addition was based on mere suspicion of AO.

Held: Assessee-firm was engaged in trading gold, silver, and diamond jewelry, filed its income tax return for the 2017-18 assessment year, declaring an income of Rs. 4.5 lakh. Subsequently, tax authorities flagged the firm for scrutiny due to cash deposits totaling Rs. 2.25 crore made in its HDFC Bank account during the demonetization period. Assessee contended that these deposits stemmed from legitimate cash sales of jewelry conducted during the busy festival season of October and early November, bolstered by the Dussehra and Diwali holidays. It provided its purchase and sale records, stock summaries, and details of festival sales as supporting documents to validate its claim.  However, AO dismissed the explanation, arguing that the evidence was inadequate and that assessee had not provided enough documentation to verify the deposits as arising from legitimate business activities. Consequently, AO treated the deposits as unexplained income under Section 69A of the tax legislature, which covered undisclosed assets. It was held that assessee had explained the reason of the increase of the cash sale during the year under consideration. Assessee had deposited Rs.2,25,00,000/- during the demonetization period in the bank account and explained the reason of the cash deposit, hence he had discharged the onus and prove the genuineness of the transaction. In view of the above, there was no justification for sustaining addition of Rs.2,25,00,000/- u/s.69A. AO had wrongly made the addition of Rs.2,25,00,000/-, therefore, the addition made by AO

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the assessee is directed against the order of the NFAC/Commissioner of Income Tax (Appeals), Delhi, [hereinafter referred to as “CIT(A)”], vide order dated 30.08.2023 pertaining to A.Y. 2017-18 arises out of the order passed by the Assessing Officer dated 27.12.2019 under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred as ‘the Act’].

2. The assessee has raised the following grounds of appeal :-

1. That on the facts and circumstances of the case and provision of law the Ld. CIT(A) has failed to appreciate that the impugned order of assessment is illegal, bad in law, without jurisdiction and time barred.

2. That on the facts and circumstances of the case and the pro-vision of law the Ld. CIT(A) has failed to appreciate that the assessment order passed by the Ld. AO needs to be quashed as the order has been passed without issuing notice u/s. 143 (2) by the AO who was having jurisdiction over the appellant.

3. That on the facts and circumstances of the case and the pro-vision of law the Ld. CIT(A) has failed to appreciate that the impugned order of assessment has been passed without providing reasonable opportunity to the assessee to present his case before the AO prior to passing of the adverse order.

4. That on the facts and circumstances of the case and the pro-vision of law the Ld. CIT(A) has failed to appreciate that the AO has erred in treating the amount of cash deposits of Rs.2,25,00,000/- in the Bank accounts as unexplained income u/s. 69A of the IT act ignoring the fact that the assessee has submitted all the relevant documents with regard to the source of the cash deposits in the bank account and the addition made by the AO are based on mere suspicion, surmises and conjectures which are unsustainable, arbitrary and unjustified.

5. That on the facts and circumstances of the case and the pro-vision of law the Ld. CIT(A) has failed to appreciate that the AO has erred in making the above said addition of Rs.2,25,00,000/-on account of cash deposit in the bank account ignoring the fact that the cash deposits has been made out of the sales made during the year and on the same income has already been offered for taxation.

6. That on the facts and circumstances of the case and the pro-vision of law the Ld. CIT(A) has failed to appreciate that the AO has erred in applying the amended provision of sec. 1 15BBE brought into the statue book w.e.f. 15.12.2016 through taxation laws (second) amendment act, 2016 ignoring the fact that on the date of cash deposits, the provision of amended 11 5BBE were not applicable. The above action of the AO is unfair and arbitrary and against the principal of natural justice.

7. That on the facts and circumstances of the case and the pro-vision of law the Ld. AO has erred in initiating the penalty proceedings u/s. 271AAC of the Act.

3. The brief facts of the case are that the assessee firm filed its return of income for A.Y. 2017-18 on 31.10.2017 declaring total income of Rs.4,51 ,620/-. The case was selected for scrutiny assessment through CASS to verify “cash deposit during demonetization period.” Accordingly, notices u/s. 143 (2) and 142 (1) of the Act were issued. The assessee made cash deposit to the tune of Rs.2,25,00,000/- into the bank account to HDFC Bank Ltd. during the demonetization period. During the course of assessment proceedings, the assessee claimed that the source for the cash depositing during the demonetization period was cash sales but failed to furnish necessary documentary evi-dence in support of its claim. Therefore, the AO treated the cash deposits as unexplained money and made the addition of Rs 2,25,00,000/- u/s. 69A of the Act, as unexplained money. Aggrieved the order of the A O the assessee has filed the appeal before the Ld.CIT(A) who vide his order dated 27-12-2019 dismissed the appeal against which the assessee is in appeal before us.

4. The Ld AR has submitted that the notice u/s 143(2) of the Act was issued by the ITO Ward 30(3) and the assessment order was passed by AO of the ITO Ward 30(6) without giving the notice and without jurisdiction. He has further submitted that the sources of the cash deposit of Rs.22500000/- was cash sale which was duly explained before the AO. He also has submitted that the main reason for increase of sale was the cash sale of the jewellery during the festival seasons. In the support of the contention he has filed a paper book containing pages no 1to 215 in which he attached copy of the notice u/s143(2) dated 21-09-2018, copy of the notice u/s 142(1), copy of reply dated 03-10-2019, copy of notice u/s 142(1), copy of reply dated 04- 11-2019, copies of no-tices u/s 142(1) of various date and copy of reply dated 17-12-2019. Reliance has been placed on the following judgments :-

1. PCIT 3, New Delhi Vs. M/s. Agson Global Pvt. Ltd. by Hon’ble High Court, ITA No. 6 8/2021 & CM No.9319/2021

2. CIT Vs. Smt. Charu Aggarwal (2022) 140 com (Chandigarh – Trib.)/ (2022) 96 ITR (T) 66 (Chandigarh- Trib.)

3. CIT, New Delhi Vs. Kailash Jewellery House by Hon’ble Delhi High Court, ITA No.613/2010

4. DCIT Vs. Roop Fashion, 98 (ITR)(T) 419, passed by Hon’ble ITAT Chandigarh.

5. The Ld DR has submitted that the jurisdiction of the AO has not challenged by the assessee. He has further submitted that the assessee has failed to explain the sources of cash deposit, so the addition made by AO be upheld.

6. We have heard the parties and perused the material available on record.

7. The Ld.AR has submitted that the assessment order was passed by ITO ward 30(6) whereas notice u/s 143(2) was issued by the ITO ward 30(4) so the assessment order was without jurisdiction. In the case of Principal commissioner of Income Tax v. Cosmat Traders (P) Ltd.[2023] 146 taxmann.com 207 (Calcutta) the Hon’ble Calcutta High court held as under :-

6. It is the submission of the learned standing counsel for the Department that the assessee had not raised the question of jurisdiction before the assessing officer but participated in the assessment proceedings and, therefore, could not have issued before the Tri-bunal.

7. This argument cannot be acceded to for more than one reasons, firstly, there cannot be any estoppels against the statue. It is not the case of the revenue that the assessee consciously waived his right to raise such a jurisdictional issue. Secondly, the assessee had filed an application before the learned Tribunal seeking leave to raise additional grounds and this application was held and after contest the application was allowed. The learned Tribunal, in fact, recorded that the Department could not controvert any of the submissions of the assessee on the additional grounds which have been raised and, therefore, the application was al-lowed taking note of the matter that the issue goes to the root of the entire proceedings.

8. The Ld DR has submitted that the assessee has not challenged the jurisdiction of the AO. He has submitted that notice u/s 143(2) was served within time. The assessee has attended the proceedings but never challenged the jurisdiction of the AO within time. Reliance has placed on the followings judgment :

1. Abhishek Jain Vs Income Tax officer, ward-55(1), New Del-hi{2018} 94 taxmann.com 355 (Delhi), in this case Hon’ble Delhi High Court held as under :-

“19. We would reiterate that sub-section (1) to Section 124 states that the Assessing Officer would have jurisdiction over the area in terms of any direction or order issued under sub-section (1) or sub-section (2) to Section 120 of the Act. Jurisdiction would depend upon the place where the person carries on business of profession or the area in which he is residing. Sub‑ section (3) clearly states that no person can call in SS. Ahlinvalia (supra) would negate and re-ject arguments question jurisdiction of an Assessing Officer in case of non-compliance and/or after the period stipulated in clauses (a) and (b), which as predicated on lack of subject matter jurisdic-tion. Where an assessee questions jurisdiction of the Assessing Officer within the time limit and in terms of sub-section (3), and the Assessing Officer is not satisfied with the correctness of the claim, he is required to refer the matter for determination under sub-section (2) before the assessment is made. Reference of matter under sub­section (2) would not be required when Assessing Officer ac-cepts the claim of the assessee and transfers the case to another Assessing Officer in view the objec-tion by the assessee. (In terms of sub-section (3) to Section 124 of the Act, the petitioner had “Tost his right to question jurisdiction of the Income Tax Officer, Ward No. 1(1), Noida,

20. Sub-section (5) to Section 124, though limited in scope, would also be applicable in the facts and circumstances of the present case as the Income-Tax Officer, Ward-1 (1), Noida had the power to assess income accruing or arising within the area as it is not the case of the petitioner-assessee that the said officer did not have jurisdiction in view of location of the bank account and/or petitioner’s place of work. Section 124(5) of the Act saves assessment made by an assessing officer provided that the assessment does not bring to tax anything other than income ac-cruing, arising or received in that area over which the assessing officer exercises jurisdiction. Howev-er, notwithstanding Section 124(5), the Act does not postulate multiple assessments by different assessing officers, or assessment of part or portion of an income (see Kanji mal & Sons v. CIT [1983] 12 Taxman 34/[1 982] 138 ITR 391 (Delhi)]. Thus, it is necessary that the Assessing Officers having concurrent jurisdiction ensure that only one of them proceeds and adjudicate. This is the purport and objective behind sub-section (2) to Section 124 of the Act.

23. In view of the above discussion, objections as to the jurisdiction of assessing officer in the present case cannot be equated with lack of subject matter jurisdiction. They relate to place of assessment. Income-Tax Officer Ward 1(1), Noida would not per selack juris-diction, albeit he had concurrent jurisdiction with the Income-Tax Officer Ward-36(1)/58, Delhi. In facts of the present case the contention raised about the lack of jurisdiction would not justify quash-ing the notice under section 147/148 of the Act.”

2. In the case of Commissioner of income tax -III vs Shri Shyam the Hon’ble Delhi High Court held s as under :-

“5. Learned counsel for the assessee contended that the ITAT pos-sessed jurisdiction to return a finding on whether the AO’s order was a nullity, and can give the ver-dict that such adjudication cannot go into the merits of such of the proceedings. Facially, Section124(3) stipulates a bar to any contention about lack of jurisdiction of an AO. It is not as if the provisions of the Act disable an assessee from contending that in the given circumstances the AO lacks jurisdiction; rather Section 124(3) limits the availability of those options at the threshold. The assessee upon receipt of notice of the kind mentioned in Clause (a) and (b) of sub-section 3 has the option to urge the question of jurisdiction; the expressed tenor and terms of the provisions clarify that such objections are to be articulated at the threshold or at the earlier points of time. The two points of time specified in Section 124(3) (a) are as un-der:

(i) Within one month from the date of service of notice or;

(ii) After completion of assessment – whichever is earlier.

6. In the present case, there is no dispute that the reassessment no-tice was issued by the AO on 22.03.2010; upon its receipt, the assessee reiterated its earlier return on 21.04.2010. Since its response led to objections as to the jurisdiction, it lost the capacity to urge the ground by virtue of the provision under Section 124(3) (a). This condition has been ob-viously overlooked by the ITAT which proceeded to set aside the assessment and completed the re-assessment proceedings. The impugned order is consequently set aside; the question of law urged by the Revenue is answered in its favour. The matter is remitted for consideration on the merits of the appeal concerning the additions made in the reassessment proceedings.”

9. The assessee has not challenged the jurisdiction before the AO within time so this argument is not tenable. Ground decided accordingly.

10. We find that the assessee is engaged in the business of trading of gold, silver and diamond jewel-ry since 2014. We observed that the source of the cash deposit of Rs.1,00,00,000/- in the HDFC bank account on 10.11.2016 and Rs.1,25,00,000/- on 13.11.2016 was the cash sales made during the months of October & November and during the period 01.11.2016 to 08.11.2016. We fur-ther observed that the cash sales made has been included in the sales in the month of October and first week of November was that, Dussehra and Diwali festivals which were celebrated from 30-10-2016 to 10.11.2016. Accordingly in the month of October, 2016 there was substantial increase in sales with regard to increase in sale during the above said period after the announcement of the de-monetization on 08.11.2016 at 8 pm shutters of the jewellers were opened and during the period 8.30 pm to 12.00 am substantial sales were made by the jewellers. We find that during the assess-ment proceedings, copy of the purchase register and sale register item wise and value wise was filed. Further copy of the complete item wise and value wise stock summary of the FY 20 16-17 was also filed before the AO and the assessee also filed the copy of the returns. We also observed that even the book of accounts has not been rejected by the AO. We observed that in support of the above, the assessee has filed the paper book in which he has filed details of the sale and purchase of the jewellery and the same was increased due to the festival occasion because the people may have cho-sen to purchase the jewellery in cash. Therefore, the assessee has explained the reason of the in-crease of the cash sale during the year under consideration. We observed that the assessee has de-posited Rs.2,25,00,000/- during the demonetization period in the bank account and explained the reason of the cash deposit, hence he has discharged the onus and prove the genuineness of the transaction. In view of the above, there is no justification for sustaining addition of Rs.2,25,00,000/- u/s.69A of the Act. In view of the above, we hold that the Ld. AO has wrongly made the addition of Rs.2,25,00,000/-, therefore, the addition made by the AO and confirmed by the Ld CIT(A) is liable to be deleted. Accordingly, the appeal of the assessee is liable to be allowed.

11. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 01.10.2024.