Additional disallowance is unsustainable without converting from limited to full scrutiny

Fact and issue of the case

Present appeal is filed by assessee against the order dated 02.02.2023 passed by NFAC, Delhi for A.Y. 2017-18 on following grounds of appeal: “

General Ground

The order passed by the learned CIT(A) to the extent prejudicial to appellant is bad in law and liable to be quashed.

Conversions of Limited Scrutiny to Extensive Scrutiny and as a result’ addition of long term capital gain of Rs.1,00,93,764/-:

The learned CIT(A) has erred in confirming the addition of Rs.1,00,93,764/- to income without providing any findings and operative part on the part of power of Assessing Officer to convert Limited Scrutiny into extensive one without compliance with CBDT Instruction No.07/2014 [F.NO.225/229/2014-ITA.II], dated 26th September 2014. On the said ground alone the said addition of Rs.1,00,93,764/- be deleted and impugned order be quashed.

Without prejudice, assuming without admitting that the impugned addition of Rs. 1,00,93,764/- was required to be made, the learned CIT(A) has erred in not considering the very fact that the Respondent has not even considered the submissions made by the Appellant in respect of reinvestment of capital gains in purchase of another agricultural land and merely confirmed that the reinvestment made is not made within prescribed period of 2 years. Therefore, the impugned Assessment Order as well as Appeal Order be quashed to the extent of addition of long term capital gain of Rs.1,00,93,764/-.

The learned CIT(A) has erred in not admitting the additional evidence to justify incurrence of expenditure in re-investment of proceeds from sale of agricultural land.

The reasons of CIT(A) for rejection of admission evidence are incorrect, contrary to facts, bad in law and liable to be quashed.

Cash Deposits of Rs.43,39,000/- treated as unexplained and invocation of provisions of Section 69A of the Act:

The learned CIT(A) has erred in not admitting the fact that the entire cash deposits are the results of business income earned by the Appellant and the same has been offered under the provisions of Section 44AD of the Act. Without considering the said facts, the learned CIT(A) dismissed the Appeal. That being so, the appeal proceedings be treated as void and bad in law.

Without prejudice to the foregoing, the learned CIT(A) has erred in not providing any findings or operative part as to why the amount of cash deposits be added to income and the provisions of Section 69A and 115BBE be invoked. Accordingly, the said addition of Rs.43,39,000/- be deleted and impugned order be quashed.

In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order passed by the learned CIT(A) to the extent prejudicial to the appellant be quashed, or in the alternative, the above grounds including the relief prayed for be allowed. The appellant prays accordingly.”

Observation of the court

We have perused the submissions advanced by both sides in the light of records placed before us.

Admittedly cash was deposited to the account of the assessee for which no explanation was offered by assessee regarding the source before the authorities. It was submitted that the cash deposited are business receipts in the hands of assessee. It is also submitted that, the sum was received in cash prior to the date of demonetisation.

The total cash deposited during the relevant Financial Year is Rs.41,19,500/-. The Ld.AO has made disallowance of Rs.43,39,000/- u/s. 69A r.w. 115BBE of the act. There is a disparity in the cash deposit as per the statement filed by the assessee, scanned and reproduced hereinabove vis-a-vis the observation of the Ld.AO in para 5 of the assessment order. The summary of the total deposits provided by the assessee at page 22 of paper book reveals that in Canara Bank account there is a deposit of Rs. 37 Lakhs and in State Bank of Mysore account, a sum of Rs.4,19,500/- was deposited.

In any event, assessee has not provided any details as to the source of such cash deposited for the relevant financial year except for stating that these are business receipts. In the interest of justice, we remand this issue back to the Ld.AO for necessary verification in accordance with law. Assessee is directed to file all relevant details in respect of the source of actual cash deposited into the bank accounts in order to exonerate himself from the rigour of section 69A r.w. 115BBE of the Act. Accordingly, ground no. 3 raised by the assessee stands partly allowed for statistical purposes. In the result, the appeal filed by the assessee stands allowed for statistical purposes.

Order pronounced in the open court on 25th July, 2023.