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Smt. Bhavana Jain, Prop. M/s Akash Metal Industries, outside Barsi Gate, Hansi, Haryana Vs. ITO, Ward-1, Hisar, Haryana
September, 22nd 2021

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH, ‘SMC’: NEW DELHI

(Through Video Conferencing)

BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER

ITA No.5137/DEL/2019
[Assessment Year: 2013-14]

Smt. Bhavana Jain, ITO,
Prop. M/s Akash Metal Ward-1,
Industries, outside Barsi Gate, Hisar, Haryana
Hansi,
Haryana-125033 Revenue
PAN-AASPJ7764L

Assessee

Assessee by Sh. K. Sampath, Advocate,
Revenue by Sh. V. Rajkumar, Advocate
Sh. Gaurav Pundir, Sr. DR

Date of Hearing 24.08.2021
Date of Pronouncement 21.09.2021

ORDER


This appeal filed by the assessee is directed against the

order of the learned CIT(A)-5, Ludhiana, dated 18.04.2019

pertaining to Assessment Year 2013-14. The assessee has

raised following grounds of appeal:-

1. On the facts and in the circumstances of the case and in
law the Ld. CIT (Appeals) erred in initiating proceedings
u/s 147/148 of the Income Tax Act, 1961 without there
being valid reasons leading to belief of escapement of
income and also passing order u/s 143(3) r.w.s. 147 of
the Act without providing reasons recorded;
2 ITA No.5137/Del/2019

2. On the facts and in the circumstances of the case and in
law the Ld. CIT (Appeals) erred in confirming the following
additions made by the Assessing Officer:

i) Rs. 19,17,500/- on account of sale of TMT
scrap treating the same as unexplained
income;

ii) Rs.57,387/- on account of expenses incurred on
insurance and electricity wrongly invoking u/s
40A(3) of the Act;

iii) Rs.8,000/- on account of notional interest
disallowed on transactions with M/s S.K.
Traders;

iv) Rs.50,000/- on account of car expenses,
telephone expenses and salary of staff on ad-
hoc basis.

2. Facts giving rise to the present appeal are that a survey

operation u/s 133A of the Income Tax Act, 1961 (hereinafter

‘the Act’) was carried out at the business premises of the

assessee on 02.09.2014. Thereafter, case of the assessee was

reopened by issuing notice u/s 148 of the Act. Thereafter, the

Assessing Officer proceeded to frame the assessment. The AO

during the course of assessment proceedings, recorded that

during the survey operation, certain documents i.e. A-3 blue

diary was impounded and certain entries of Rs.19,17,500/-

was found to be unrecorded in the books of accounts. The AO,

therefore, issued show-cause notice to the assessee to explain

the same. In response to the notice, it was stated by the
3 ITA No.5137/Del/2019

assessee that diary was for the purpose of keeping track of the
entries for memory only. However, the explanation of the
assessee was not found acceptable by the AO on the basis that
one of the entries of Rs.75,000/- was duly recorded in the
books of accounts. The Assessing Officer, therefore, made
addition of Rs.19,17,500/-. Further, the AO noticed that the
assessee had made expenditure in cash amounting to
Rs.29,699/- on 20.12.2012 and Rs.27,688/- on 12.11.2012
respectively violating the section 40A(3) of the Act. This
amount was added to the income of the assessee, the AO also
noticed that the assessee had bank transaction with M/s S. K.
Traders, Hansi but there was no business transaction,
therefore, a sum of Rs.8,000/- was added in the income of the
assessee as notional interest. The Assessing Officer also made
addition of Rs.50,000/- on account of ad-hoc disallowance of
the expenditure related to Car, Phone, service or staff. Thus,
the AO assessed income at Rs.24,29,887/- against returned of
income of Rs.3,96,980/-.

3. Ground no.1 of the assessee’s appeal is against the

reopening of the assessment. At the time of hearing, no
4 ITA No.5137/Del/2019

arguments was addressed on this ground, therefore, this
ground of appeal is dismissed.

4. Ground No.2 (i) is against the sustaining the addition

of Rs.19,17,500/-, the learned counsel for the assessee

submitted that the authorities below were not justified in

making addition, he submitted that the addition has been

made purely on the basis of noting in the diary without any

corroborative evidence. He submitted that the law is well settled

that no addition can be made on the basis of entry in the diary

without corroborative evidence. He further submitted that even

otherwise also the AO should not have made the entire addition

even if it is assumed that without prejudice to the submissions

that no addition could be made, the only profit element could

be taxed.

5. On the contrary, the learned DR opposed the

submissions and supported the orders of authorities below. The

learned DR submitted that submissions of the learned counsel

for the assessee are misplaced. He submitted that the AO has

specifically recorded, which has not been disputed by the

assessee that out of entry made in the diary of Rs.75,000/- was

found recorded in the books of accounts, therefore, it cannot be
5 ITA No.5137/Del/2019

construed that the figures mentioned in the diary were
imaginary and nonexistence.

6. I have heard the rival submissions, perused the

material available on record and gone through the order of the

authorities below. The assessee’s explanation with regard to

interest in the loose sheet i.e. blue diary found during the

course of search was that it was for the purpose of memory and

the addition could not have been made solely on the basis of

loose paper which is against the well settled law in this regard.

Moreover, the entire alleged receipt could not partake character

of profit. The profit element embedded into such receipt could

be subjected to tax. There is no ambiguity under law that no

addition can be made merely on the basis of loose paper

without being substantiated by any corroborative evidence. In

the present case, undisputedly, one of the entries of

Rs.75,000/- was found to be duly recorded in the books of

accounts, therefore, I am in the agreement with the contention

of the learned DR that such figures found on loose sheet could

not be imaginary. The moot question arises whether the entire

receipt is correctly taxed or only the profit element should have

been taxed. Admittedly, the AO has not invoked section
6 ITA No.5137/Del/2019

69/69A of the Act. Therefore, I am of the considered view that
only profit element should have been taxed. I, therefore, direct
the AO to restrict the addition of Rs.1,91,750/- @ 10% of the
gross receipts. This ground of assessee’s appeal is partly
allowed.

7. Coming to Ground No.2(ii) relates to addition on

account of disallowance of expenditure, where payment has

been made in cash exceeding Rs.20,000/-.

8. The Ld. Counsel for the assessee submitted that the

payments are genuine, hence the AO should have not invoked

the provisions of Section 40A(3) of the Act.

9. On the contrary, the Ld. DR submitted that the

assessee failed to demonstrate that the payments fall in any of

the exception clause as mentioned in the section 40A(3) of the

Act.

10. I have considered the rival submissions. I am in

agreement with the contention of the Ld. DR that the assessee

was required to demonstrate that the payments which has been

made in excess of Rs.10,000/- fall under any of the exception

as provided u/s 40(3) of the Act and Rules framed thereunder.
7 ITA No.5137/Del/2019

Hence, the findings of the authorities below are affirmed. The
ground of the assessee’s appeal is dismissed.

11. Ground no. 2(iii) relates to charging of the tax on

earning of notional interest and the ground no. 2(iv) relates to

ad-hoc disallowance of Rs.50,000/-.

12. The Ld. Counsel for the assessee submitted that both

the addition have been made on the basis of conjectures and

surmises which is not permissible under the law. He

submitted that there is no specific finding by the AO and the

disallowance has been made purely on guess work.

13. On the other hand, the Ld. DR opposed the

submission of the Ld. Counsel for the assessee and relied on

the order of the authorities below.

14. I have heard the rival submission. I find merit in the

contention of the assessee that both the additions has been

made on the basis of surmises only. The AO has made

disallowance purely on the basis of guess work. Therefore, the

AO is hereby directed to delete the addition of Rs.8,000/- on

account of notional interest and Rs.50,000/- made on account

of ad-hoc disallowance out of car, telephone and salary of staff
8 ITA No.5137/Del/2019

and other expenses. Thus, the ground no.2(iii) and ground
no.2(iv) of the appeal are allowed.

15. In the result, the appeal of the assessee is partly

allowed.

Above decision was pronounced in the open court on
conclusion of Virtual Hearing on 21.09.2021.

Sd/- Sd/-
[KUL BHARAT]
[KUL BHARAT] JUDICIAL MEMBER
JUDICIAL MEMBER
Delhi; Dated: 21/09/2021. Asst. Registrar,
ITAT, New Delhi
f{x~{tÜ?

Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR

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