Sri Lade Dinesh, , Srikakulam V. Income Tax Officer, Ward-3, Srikakulam

CO 106/VIZ/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8244 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 13-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B RAMA KRISHNA
• Keywords: Additional evidence; Set aside
• Section: 142(1); 133A; 201; 143(2); 13; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER& SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ I.T. A.NO. 441 /VIZ/201 8 ( / A SSESSMENT Y EAR : 2011 - 12 ) INCOME TAX OFFICER WARD - 3 SRIKAKULAM ( / APPELLANT) VS. SRI LADE DINESH RELLAVEEDHI ILLISIPURAM SRIKAKULAM [PAN : A GGPL9770J ] ( / RESPONDENT) CROSS OBJECTION NO. 106/VIZ/2018 (ARISING OUT OF I.T.A. NO. 441/VIZ/2018 ) ( / A SSESSMENT YEAR : 2011 - 12) SRI LADE DINESH RELLAVEEDHI ILLISIPURAM SRIKAKULAM [PAN : A GGPL9770J ] VS. INCOME TAX OFFICER WARD - 3 SRIKAKULAM ( / APPELLANT) ( / RESPONDENT) /REVENUE BY : S HRI B RAMA KRISHNA, DR / ASSESSEE BY : SHRI G.V.N.HARI , AR / DATE OF HEARING : 0 6 .01.2020 / DATE OF PRONOUNCEMENT : 22 .01. 20 20 2 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM / O R D E R P ER SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER : TH IS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 2 , VISAKHAPATNAM IN I . T . A . NO. 0030/2014 - 15/ITO , W - 2,SKM/2017 - 18 DATED 2 1 .0 6 .201 8 . CROSS OBJECTIONS ARE FILED BY THE ASSESSEE. 2 . ALL THE GROUNDS OF APPEAL ARE RELATED TO THE ADDITION MADE BY THE ASSESSING OFFICER (AO) RELATING TO THE DEPOSITS MADE IN THE BANK ACCOUNT TO THE TUNE OF RS.1,87,45,260/ - WHICH WAS DELETED BY THE LD.CIT(A) AND ESTIMATED THE INCOME @4% OF THE TOTAL TURNOVER. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF PURCHASE A ND SALE OF LIBERTY RESERVES . DURING THE YEAR UNDER CONSIDERATION, THE AO CONDUCTED A SURVEY U/S 133A OF THE ACT ON 06.12.2012 AND ISSUED NOTICE U/S 14 8 OF THE INCOME TAX A CT , 1961 (IN SHORT ACT) REOPENING THE ASSESSMENT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. IN RESPONSE TO THE NOTICE ISSUED U/S 148, THE ASSESSEE FILED THE RETURN OF INCOME ADMITTING TOTAL INCOME OF RS.3,42,000/ - AND SUBSEQUENTLY, THE AO HAD ISSUED THE NOTICE S U/S 143(2) AND 142(1) AND 3 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM COMPLETED THE ASSESSMENT ON TOTAL INCOME OF RS.1,90,87,260/ - . AS STATED EARLIER, THE ASSESSEE WA S IN THE BUSINESS OF PURCHASE AND SALE OF LIBERTY RESERVES OR DIGITAL POINTS FROM THE THIRD PARTY AND SELLS TO OTHER PARTY AT A HIGHER RATE , THEREBY RECEIVING SOME COMMISSION . TO PURCHASE THE LIBERTY RESERVES, THE ASSESSEE PAYS TO THE CONCERNED PERSON I.E. SELLER OF LIBERTY RESERVES THROUGH BANKING CHANNELS. HE FURTHER SUBMITTED BEFORE THE AO THAT HE DEPOSITS CASH IN THE BANK ACCOUNTS AND THE PERSON IN WHOSE ACCOUNT THE CASH W AS D EPOSITED , CREDITS THE LIBERTY RESERVES TO HIS LIBERTY RESERVE ACCOUNT NO.U0137810(LADE). THE ENTIRE TRANSACTIONS FOR PURCHASE AND SALE OF LIBERTY RESERVES W ERE ROUTED THROUGH THE WEBSITE WWW.LIBERTYRESERVE. COM . THE AO ALSO OBSERVED THAT THE ASSESSEE WAS RECEIVING LIBERTY RESERVES FROM DIFFERENT PERSONS AND SENDING LIBERTY RESERVES TO DIFFERENT PERSONS, BUT IDENTITY OF THE PERSONS FROM WHOM HE RECEIVED THE LIBERTY RESERVES AND TO WHOM HE SENT THE LIBERTY RESERVES WERE NOT AVAILABLE IN THE E - MAIL COPIES SINCE THE TRANSACTIONS WERE ROUTED THROUGH THE EMAIL ACCOUNTS . ONLY LIBERTY RESERVES ACCOUNT NUMBERS OF THE PERSONS FROM WHOM LIBERTY RESERVES WE RE RECEIVED AND LIBERTY RESERVE ACCOUNT NUMBERS OF THE PERSONS TO WHOM LIBERTY RESERVES WE RE SE NT ARE SEEN IN THE COPIES OF THE EMAILS. THE ASSESSEE ALSO ADMITTED THAT HE DID NOT KNOW THE NAME AND ADDRESS OF 4 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM THE PERSONS FR OM WHOM HE WAS TRADING AND IT WAS JUST ONLINE TRADING. THE ASSESSEE FURTHER SUBMITTED BEFORE THE AO THAT HE RECEIVES CALLS TO H IS PHONE NUMBER FROM THE PERSONS WHO WE RE INTERESTED IN PURCHASING THE LIBERTY RESERVES AND ALSO FROM THE PERSONS WHO ARE INTEREST ED IN SELLING THE LIBERTY RESERVES. THERE WERE NO AGREEMENTS OR DOCUMENTARY EVIDENCES. THE PERSON WHO IS INTERESTED IN PURCH ASING THE LIBERTY RESERVES CALLS THE ASSESSEE TO SUPPLY THE LIBERTY RESERVES AND HE REMITS THE AMOUNT TO HIS BANK ACCOUNT OR DEPOSIT CASH IN HIS BANK ACCOUNT DIRECTLY AND IN TURN HE SUPPLIES LIBERTY RESERVES BY PURCHASING FROM OTHERS. THERE W AS NO DOCUMEN TARY EVIDENCE OR DETAILS REGARDING IDENTITY OF THE PERSONS WHO HAS PURCHASED LIBERTY RESERVES OR WHO HAS SOLD THE LIBERTY RESERV ES. ALL THESE TRANSACTIONS WERE ROUTED THROUGH THE WEBSITE WWW.LIBERTYRESERVE.COM . THESE LIBERTY RESERVES WE RE ALSO CALLED AS DIGITAL POINTS. IT IS A KIND OF PAYMENT SYSTEM THAT USES DIGITAL CURRENCY LIKE PAYPAL AND MANY ONLINE STORES ACCEPT LIBERTY RESERVES OR DIGITAL POINTS. THE AO CALLED FOR THE BANK STATEMENTS OF AXIS BANK, ICICI B ANK, IDBI BANK AND ING VYSYA BANK, SRIKAKULAM AND ON VERIFICATION OF THE BANK ACCOUNTS, THE AO FOUND THAT THE TOTAL CREDITS IN DIFFERENT BANK ACCOUNTS WAS RS.1,87,45,260/ - IN THE FINANCIAL YEAR 2010 - 11. THE AO FURNISHED THE DETAILS OF ENTIRE CREDITS MADE 5 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM IN PAGE NO. 4 TO 6 OF THE ASSESSMENT ORDER AND CALLED FOR EXPLANATION OF THE ASSESSEE TO EXPLAIN THE SOURCE . THE ASSESSEE COULD NOT EXPLAIN THE SOURCE FOR THE DEPOSITS MADE IN THE BANK ACCOUNTS AMOUNTING TO RS.1,87,45,260/ - WITH DOCUMENTARY EVIDENCES. T HE AO FURTHER FOUND THAT THE ASSESSEE HA D DEPOSITED CASH AMOUNTING TO RS.46,37,000/ - IN DIFFERENT BANK ACCOUNTS OF VARIOUS OTHER PERSONS FROM WHOM THE ASSESSEE HAD PURCHASED DIGITAL POINTS. THE AO ASKED THE ASSESSEE TO EXPLAIN THE SOURCE FOR MAKING THE DE POSITS IN RESPECT OF OTHER ACCOUNTS WHICH THE ASSESSEE COULD NOT EXPLAIN. THEREFORE, THE AO CALLED FOR EXPLANATION AS TO WHY THE ENTIRE AMOUNT OF RS.2,33,82,260 (18745260 + 4637000) SHOULD NOT BE ASSESSED TO TAX. 3.1. IN RESPONSE TO NOTICE, THE ASSESSEE EXPLAINED THAT HIS CLIENTS WHO WERE RESIDING IN DIFFERENT PLACES OF INDIA HA D DEPOSITED THE AMOUNTS IN HIS BANK ACCOUNT EITHER IN CASH OR BY CHEQUE FOR BUYING AND SELLING THE DIGITAL DOLLARS OR DIGITAL POINTS THROUGH THE ASSESSEE. HE HAD TRANSFERRED THE AM OUNTS TO THE PERSONS WHO WE RE READY TO SELL TH E LIBERTY RESERVES. AFTER THE TRANSACTI ONS WERE FINALIZED THE LIBERTY RESERVE WHICH WAS THE SERVICE PROVIDER FOR ALLOTTING DIGITAL DOLLARS WOULD SEN D AN E - MAIL TO THE ASSESSEE FOR INCOMING AND OUTGOING DIGIT AL DOLLARS , FURNISHING THE DETAILS OF DOLLARS ALLOTTED VIDE THEIR ACCOUNT NUMBERS, AMOUNT OF DOLLARS AND DATE OF 6 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM TRANSACTION. ALL THE TRANSACTIONS WERE EVIDENCED BY EMAILS . H E SUBMITTED BEFORE THE AO THAT HE IS ONLY DOING MEDIATION TOWARDS HIS CLIENT FOR PURCHASE AND SALE OF DIGITAL DOLLARS. ALL THE DEPOS ITS MADE IN THE BANK ACCOUNT WERE DEPOSITED BY THE BUYERS AND SELLERS OF THE DIGITAL DOLLARS. HE SUBMITTED THAT HE IS LIKE KATCHA ARAHATIA, AND ACTS ONLY AS AN AGENT ON BEHALF OF HIS CLIENTS, BUT NEVER ACTS AS A PRINCIPAL. THE AO EXAMINED THE EXPLANATION OF THE ASSESSEE, BUT NOT CONVINCED WITH THE EXPLANATION AND FOUND THAT OUT OF RS. 1,87,45,260/ - WAS DEPOSITED IN THE ACCOUNT AND THE ASSESSEE HAD PURCHASED THE DIGITAL DOLLARS TO THE EXTENT OF RS.46,3 7,000/ - FROM OTHERS AND THERE WAS DIFFERENCE OF RS.1,41,08,260/ - FOR WHICH THE ASSESSEE COULD NOT EXPLAIN THE APPLICATION OF WITHDRAWALS. HENCE, THE AO WAS OF THE VIEW THAT THE SUM OF RS.1,41,08,260/ - WAS INCOME OF THE ASSESSEE, SINCE , THE ASSESSEE HAS N OT UTILIZED THE AMOUNTS FOR PURCHASE OF DIGITAL DOLLARS AND OBSERVED THAT THE ASSESSEE W AS COLLECTING THE AMOUNTS AND GIVING LOANS TO OTHER PERSONS LIKE SRI ANDHAVARAPU SRINIVASA RAO ON INTEREST BASIS. HENCE, TAXED THE SUM OF RS.1,41,08,260/ - AS INCOME FOR THE RELEVANT ASSESSMENT YEAR. 3.2. IN THIS CONNECTION, IT IS RELEVANT TO MENTION THE TRANSACTION OF SRI ANDHAVARAPU SRINIVASA RAO . THE AO VERIFIED THE BANK ACCOUNTS OF THE 7 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM ASSESSEE AND FOUND THAT THE ASSESSEE HAS TRANSFERRED THE FO LLOWING AMOUNTS TO SRI ANDHAVARAPU SRINIVASA RAO. (A) 01.09.2010 - RS.6,00,900/ - (B) 03.09.2010 - RS.3,00,000/ - RS.6,00,000/ - TOTAL - RS. 15,00,900/ - A STATEMENT WAS RECORDED BY THE AO ON 09.01.2013 FROM SRI ANDHAVARAPU SRINIVASA RAO, WHEREIN HE HAD STATED THAT SRI DINESH, THE ASSESSEE IS HIS FRIEND AND AT THAT POINT OF TIME MR.DINESH HAD REQUESTED HIM TO TRANSFER THE SAID AMOUNT S TO JIVITH ROHIT DSOUZA, MANGALORE AND VAIBHAV JAIN, DELHI ON THE SAME DAY F ROM AXIS BANK ACCOUNT, SRIKAKULAM. WHEREAS, THE ASSESSEE HAD STATED THAT HE HA S GIVEN AN AMOUNT OF RS.18,00,000/ - TO SRI ANDHAVARAPU SRINIVASA RAO IN TOTAL RS.18,00,000/ - FOR INTEREST @24% P.A. AND SRI SRINIVASA RAO HAS NOT RETURNED THE AMO UNT. THEREFORE, THE ASSESSEE FILED CIVIL SUIT IN THE HONBLE JUDICIAL FIRST CLASS MAGISTRATE COURT AT SRIKAKULAM FOR THE RECOVERY OF RS.18,00,000/ - VIDE C.C.NO.46/2012 ON 14.09.2011. THEREFORE, THE AO VIEWED THAT THE ASSESSEE HA S COLLECTED THE AMOUNT S FROM VARIOUS INTENDED BUYERS OF THE DIGITAL DOLLARS AND PURCHAS ED DIGITAL DOLLARS TO THE EXTENT OF RS.46,37,000/ - AND T HE BALANCE WAS UTILIZED 8 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM FOR PERSONAL PURPOSE S F OR GIVING LOANS, HENCE HELD THAT THE AMOUNT ACCEPTED OVER AND ABOVE THE AMOUNT UTILIZED FOR PURCHASE OF DOLLARS WAS TO BE TAXED IN THE HANDS OF THE ASSESSEE . 4. THE NEXT ISSUE IS WITH REGARD TO THE AMOUNT OF RS.46,37,000/ - WHICH WAS DEPOSITED BY THE ASSESSEE IN VARIOUS ACCOUNTS OF DIFFERENT PERSONS. THE SAME WAS BROUGHT TO TAX AS INCOME IN HIS HANDS. FOR TAXING BOTH THE SUMS OF RS.1,41,08,260/ - AND THE AMOUNT OF RS.46,37,000/ - , THE AO DID NOT INVOKE ANY OF SECTION S OF THE ACT. 5. AGAINST THE ORDER OF THE AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A) AND FURNISHED SOME ADDITIONAL EVIDENCE I N THE FORM OF CONFIRMATION LETTERS FROM SIX PARTIES WHICH WERE FORWARDED TO THE AO BY THE LD.CIT(A). THE AO EXAMINED THE CONFIRMATION LETTERS AND SUBMITTED THE REMAND REPORT STATING THAT OUT OF SIX PERSONS, FIVE TRANSACTIONS WERE ADMITTED AS CORRECT AND F IVE TRANSACTIONS WERE NOT ADMITTED BY THE RESPECTIVE PERSONS. ACCORDINGLY , THE AO SUBMITTED THE REMAND REPORT STATING THAT THE ADDITIONAL EVIDENCE IN THE FORM OF CONFIRMATION LETTERS FILED BY THE ASSESSEE WERE RELATED TO EARLIER YEAR OR SUBSEQUENT YEAR BU T NOT RELATED TO THE IMPUGNED ASSESSMENT YEAR , HENCE, NOT RELEVANT TO THE IMPUGNED ASSESSMENT YEAR . COPY OF THE REMAND REPORT WAS GIVEN TO THE ASSESSEE BY 9 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM THE LD.CIT(A) AND THE ASSESSEE CONTENDED THAT THE AO IS NOT JUSTIFIED IN REJECTING THE CONFIRMATION LETTERS. THE ASSESSEE FURTHER SUBMITTED BEFORE THE LD.CIT(A) THAT WWW.LIBERTYRESERVES WAS SHUT DOWN DUE TO BAN IN MAY 2013, THEREFORE, THE ASSESSEE WAS UNABLE TO COLLECT THE REQUIRED INFORMATION. T HE LD.CIT(A) CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND OBSERVED THAT THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF PURCHASE AND SALE OF LIBERTY RESERVES AND THE AO DID NOT FIND ANY ASSETS DURING THE COURSE OF SURVEY EQUIVALENT TO THE INCOME ASSESSE D BY THE AO AND IT IS UNJUSTIFIED TO MAKE THE ADDITION OF ENTIRE RECEIPTS AS INCOME SIMPLY BECAUSE THE ASSESSEE WAS UNABLE TO PRODUCE THE COMPLETE DETAILS. THE LD. CIT(A) ESTIMATED THE TURNOVER AT RS.2,50,00,000/ - TAKING INTO CONSIDERATION OF THE FACTS AND CIRCUMSTANCES AND HELD THAT IT IS FAIR AND REASONABLE TO ESTIMATE THE INCOME @4% ON TOTAL TURNOVER WHICH WORKS OUT TO RS.10 LAKHS AND ACCORDINGLY DIRECTED THE AO TO ADD THE BALANCE AMOUNT OF RS.6 LAKHS. W ITH REGARD TO ADDITION OF RS.46,37,000/ - , THE LD.C IT(A) DELETED THE ADDITION HOLDING THAT NO ADDITION REQUIRED TO BE MADE ONCE THE INCOME IS ESTIMATED. THUS, THE LD.CIT(A) ALLOWED THE APPEAL PARTLY. 6. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE DEPARTMENT FILED APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, THE LD.DR ARGUED THAT 10 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM THERE W ERE DEPOSITS TO THE EXTENT OF RS.1.87 CRORES IN THE ASSESSEES ACCOUNT FOR WHICH THE ASSESSEE COULD NOT EXPLAIN THE SOURCE, THEREFORE, ARGUED THAT THE AO HAS RIGHTLY MADE THE ADDITION. SIMILARLY, THE LD.DR ARGU ED THAT THE ASSESSEE MADE THE CASH DEPOSIT OF RS.46,37,000/ - IN DIFFERENT ACCOUNTS OF PARTIES AND COULD NOT EXPLAIN THE SOURCE, THEREFORE, ARGUED THAT THE AO HAS RIGHTLY MADE THE ADDITION OF RS.46,37,000/ - AGGREGATING TO TOTAL ADDITION OF RS 1,87,37,260 / - . T HE LD.DR FURTHER SUBMITTED THAT THOUGH THE ASSESSEE STATED THAT HE WAS ENGAGED IN PURCHASE OF DIGITAL POINTS FROM LIBERTY RESERVES, THE ASSESSEE COULD NOT ESTABLISH AND IDENTIFY THE BUYERS AND SELLERS OF THE DIGITAL DOLLARS, THEREFORE, THE IDENTITY OF TH E PERSONS WHO SOLD DIGITAL DOLLARS REMAINED UNIDENTIFIED. SIMILARLY, THE ASSESSEE MADE DEPOSITS IN VARIOUS ACCOUNTS OF DIFFERENT PERSONS, THE SOURCE WAS NOT EXPLAINED. HENCE, THE LD.DR ARGUED THAT IT IS INCORRECT TO ESTIMATE THE TOTAL TURNOVER AND ESTIMA TE THE INCOME THEREON, WHEN THE ASSESSEE WAS UNABLE TO ESTABLISH AND CORRELATE THE TRANSACTIONS NAME TO NAME OR PERSON TO PERSON. THE LD.DR F URTHER ARGUED THAT DEPOSITING CASH INTO CLIENTS ACCOUNT IS UNUSUAL AS THE ENTIRE TRANSACTIONS IN THIS LINE OF BUSINESS SHOULD BE ROUTED THROUGH ACCOUNT TRANSFER. THUS, THE LD.DR ARGUED THAT THE AO HAS RIGHTLY 11 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM MADE THE ADDITION AND REQUESTED TO SET ASIDE THE ORDER OF THE LD.CIT(A) AND ALLOW THE APPEAL OF THE REVENUE. 7. ON THE OTHER HAND, THE LD.AR SUBMIT TED THAT THE ASSESSEE IS ENGAGED IN THE LIBERTY RESERVES, PURCHASE AND SALE OF DIGITAL DOLLARS WHICH IS EVIDENCED BY E - MAILS SUBMITTED BEFORE THE AO AS WELL AS BEFORE THE CIT(A). THE ASSESSEE WAS RECEIVING ONLY COMMISSION TO THE EXTENT OF 2% OF THE TRANSA CTIONS, THEREFORE SUBMITTED THAT ESTIMATION OF TURNOVER AT RS.2,50,00,000/ - OR TAXING THE ENTIRE RECEIPTS IS UNJUSTIFIED. WITH REGARD TO DEPOSITS MADE IN THE BANK ACCOUNTS OF OTHER PERSONS IT IS UNJUSTIFIED TO HOLD THAT THE ASSESSEE COULD NOT EXPLAIN THE SOURCE, SINCE THE ASSESSEE HAS SUFFICIENT CASH WITHDRAW ALS TO MEET THE PAYMENTS MADE IN DIFFERENT ACCOUNTS OF THE PERSONS. THER EFORE, ARGUED THAT SINCE THERE WE RE SUFFICIENT WITHDRAWALS IN THE BANK ACCOUNTS, THE DEPOSITS MADE IN THE BANK ACCOUNT OF OTHERS NEEDS TO BE TAKEN AS A SOURCE, THUS ARGUED THAT MAKING SEPARATE ADDITION IS UNJUSTIFIED. ACCORDINGLY, THE LD.AR ARGUED THAT ESTIMATION OF INCOME @2% OF THE ENTIRE TURNOVER WOULD MEET THE ENDS OF JUSTICE. HENCE , REQUESTED TO SET ASIDE THE ORDER OF THE LD .CIT(A) AND DIRECT THE AO TO ESTIMATE THE INCOME @2% OF THE TURNOVER OF THE LIBERTY RESERVES INSTEAD OF 4% OF THE TURNOVER. 12 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE LD.CIT(A) HAS CONSIDERED THE NATURE OF LIBERTY RE SERVES, DOWNLOADED FROM THE WEBSITE AND READS AS UNDER : THE APPELLANT SUBMITTED BEFORE THE ASSESSING OFFICER CERTAIN INFORMATION DOWNLOADED FROM WIKIPEDIA. ON CONSIDERATION OF THE SAME I FOUND THAT ( I ) LIBERTY RESERVE WAS A 'COSTA RICA BASED CENTRALIZED D IGITAL CURRENCY SERVICE THAT ALLOWED USERS TO REGISTER AND TRANSFER MONEY TO OTHER USERS WITH ONLY A NAME, E - MAIL ADDRESS AND BIRTH DATE. NO EFFORTS WERE MADE BY THE SITE TO VERIFY IDENTITIES OF ITS USERS, MAKING IT AN ATTRACTIVE PAYMENT PROCESSOR TO SCAM ARTISTS. DEPOSITS COULD BE MADE THROUGH THIRD PARTIES USING A CREDIT CARD OR BANKWIRE, AMONG OTHER DEPOSIT OPTIONS. LIBERTY RESERVE DID NOT DIRECTLY PROCESS DEPOSITS OR WITHDRAWALS. DEPOSITED FUNDS WERE THEN CONVERTED INTO LIBERTY RESERVE DOLLARS OR LIBERT Y RESERVE EUROS, WHICH WERE TIED TO THE VALUE OF US DOLLAR AND THE EURO RESPECTIVELY, OR TO OUNCES OF GOLD. NO LIMITS WERE PLACED ON TRANSACTION SIZES. THE SERVICE MADE MONEY BY CHARGING A SMALL FEE, ABOUT 1% ON EACH TRANSFER. TRANSACTIONS WERE '100% IRREV OCABLE'. LIBERTY RESERVE ALSO OFFERED SHOPPING CART FUNCTIONALITY AND OTHER MERCHANT SERVICES. ( II ) THE PROCEDURE FOR OPERATING IN 'LIBERTY RESERVE' IS THAT ONE HAS TO VISIT THE WEBSITE WWW.LIBEFTYRESERVECOM AND CREATE AN ACCOUNT. ONCE THE ACCOUNT IS CREATED THE MEMBER WILL GET A 'WELCOME MESSAGE' FROM THE WEBSITE. A MEMBER CAN LOGIN TO THE WEBSITE ON THE BASIS OF USER NAME AND PASSWORD GENERATED AT THE TIME OF ACCOUNT CREATION. ( III ) THE SITE HAD OVER ONE MILLION USERS WHEN IT WAS SHUT DAWN BY THE UNITED STATES GO VERNMENT. 8.1. AS OBSERVED FROM THE ORDER OF THE AO, THE ASSESSEE HAS MADE ON LINE TRADING FOR PURCHASE AND SALE OF LIBERTY RESERVES. THOUGH HE WAS UNABLE TO CORRELATE THE TRANSACTION TO TRANSACTION AS OBSERVED FROM THE ASSESSMENT ORDER, THE ASSESSEE WAS ENGAGED ACTIVELY IN PURCHASE AND SALE OF LIBERTY 13 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM RESERVES. HE WAS UNABLE TO CORRELATE THE TRANSACTIONS DUE TO SHUT DOWN OF LIBERTY RESERVES WWW.LIBERTYRESERVES WHICH WAS BANNED. THE ONLY REASON FOR MAKING THE ADD ITION OF RS.1,41,08,260/ - BY THE AO WAS THE ASSESSEE S INABILITY TO ESTABLISH THAT HE HAS PURCHASED THE LIBERTY RESERVES AND VIEWED THAT HE HAD DIVERTED THE FUNDS FOR OTHER THAN BUSINESS PURPOSES. FROM PLAIN READING OF THE ASSESSMENT ORDER PAGE NO.18 AND 19, IT IS OBSERVED THAT THE AO MADE THE ADDITION OF RS.1,41,08,260/ - (18745260 - 14108260) DUE TO ASSESSEES IN ABILITY TO ESTABLISH THE PURCHASE OF DIGITAL DOLLARS AND THE AO DID NOT SUSPECT THE NATURE AND SOURCE OF DEPOSITS MADE IN THE BANK ACCOUNT. THERE IS NO PROVISION TO TAX THE WITHDRAWALS MADE FROM THE BANK ACCOUNT FOR ASSESSEES INABILITY TO EXPLAIN THE APPLICATION OF FUNDS . HOWEVER, IN THE INSTANT CASE, THE ASSESSEE H AD EXPLAINED THAT THE AMOUNTS WERE RECEIVED FROM VARIOUS CLIENTS THROUGHOUT INDIA FOR PURCHASE AND SALE OF DIGITAL DOLLARS THROUGH WWW.LIBERTYRESERVES.COM . THE ASSESSEE ALSO FILED IDENTITY PROOFS IN PAGE NO.189 TO 201 IN PAPER BOOK WITH CONFIRMATION LETTERS FROM VARIOUS PERSONS HAVING PURCHASED DIGITAL DOLLARS FROM THE ASSESSEE. THE ASS ESSEE ALSO FURNISHED COPIES OF E - MAILS FROM VARIOUS E - MAIL ACCOUNTS AND FROM LIBERTYRESERVES.COM WITH REGARD TO RECEIPT OF THE PAYMENT ALONG WITH THE AMOUNTS DEPOSITED IN THE BANK ACCOUNT. THE 14 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM EMAILS CLEARLY SHOW THAT THE PAYMENT WAS MADE BY THE ASSESSEE THROUGH LIBERTY RESERVES ACCOUNT FOR PURCHASE OF DOLLARS. THEREFORE, THERE IS NO REASON TO SUSPECT THAT THE ASSESSEE WAS ENGA GED IN THE BUSINESS OF PURCHASE AND SALE OF LIBERTY RESERVES OR LIBERTY RESERVE POINTS. SINCE THE TRADING WAS MADE ONLINE AND THE LIBERTY RESERVES WAS SHUT DOWN DUE TO BAN IN MAY 2013, THE ASSESSEE COULD NOT FURNISH THE DETAILS AS CALLE D FOR BY THE AO . T HE EMAILS SUBMITTED BEFORE THE AO, CONFIRMATION LETTER SUBMITTED BEFORE THE AO/CIT(A) ESTABLISH THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF LIBERTY RESERVES. THE LD.AR ALSO SUBMITTED THE COPIES OF BANK ACCOUNTS. ON SCRUTINY OF COPIES OF BANK ACCOUNTS, IT IS OBSERVED THAT THE MONEY WAS DEPOSITED AND WITHDRAWN OR TRANSFERRED IMMEDIATELY. THEREFORE, THE CONDUCT OF BANK ACCOUNT ALSO SHOWS THAT THE AMOUNT WITHDRAWN BY THE ASSESSEE WAS NOT UTILIZED FOR THE PERSONAL PURPOSE EXCEPT IN THE CASE OF ANDHAVARAPU SRINIVASA RAO . THE AO DID NOT BRING ANY EVIDENCE TO SHOW THAT THE ASSESSEE HA D DIVERTED THE FUNDS FOR OTHER THAN BUSINESS PURPOSE. IN THE CASE OF ANDHAVARAPU SRINIVASA RAO, THE ASSESSEE HAS ACCEPTED THAT THE AMOUNTS WERE GIVEN T O ANDHAVARAPU SRINIVASA RAO ON INTEREST BASIS AND FILED CIVIL SUIT BEFORE THE HONBLE COURT OF JUDICIAL FIRST CLASS MAGISTRATE AT SRIKAKULAM VIDE CC 15 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM NO.46/2002 ON 14.09.2011. THERE WAS NO OTHER EVIDENCE TO SHOW THAT THE AMOUNT RECEIVED BY THE ASSESSEE W AS NOT UTILIZED FOR THE PURPOSE OF PURCHASE OF DIGITAL DOLLARS AS EXPLAINED BY THE ASSESSEE. THE AO ALSO DID NOT SUSPECT THE SOURCE OF DEPOSIT. THE ONLY CONTENTION OF THE AO WAS THAT OUT OF RS .1,87,45,260/ - , THE ASSESSEE HAD PURCHASED DIGITAL DOLLARS TO T HE EXTENT OF RS.46,37,000/ - AND THE REMAINING AMOUNT WAS NOT UTILIZED FOR PURCHASE OF DIGITAL POINTS. THERE IS NO PROVISION IN THE INCOME TAX ACT TO TAX THE UNUTILIZED BALANCE RECEIVED FROM THE CUSTOMERS. IF THE ASSESSEE FAILS TO PROVIDE THE DIGITAL DOLL ARS, IT WOULD REMAIN AS LIABILITY AND THE ASSESSEE IS OBLIGED TO RETURN THE MONEY TO THE DEPOSITOR. THEREFORE, THE SAME CANNOT BE TREATED AS INCOME OF THE ASSESSEE. T HE AO ALSO DID NOT INVOKE ANY PROVISION OF THE ACT TO TAX THE DIFFERENCE AMOUNT. DURING THE COURSE OF SURVEY CONDUCTED IN THE CASE OF 133A ALSO , NO EVIDENCE WAS FOUND BY THE AO TO HOLD THAT THE ASSESSEE HAS ACQUIRED THE ASSETS EQUIVALENT TO THE DIFFERENCE AMOUNT TAXED BY THE AO AS OBSERVED BY THE LD.CIT(A) . THEREFORE, WE HOLD THAT THE AMOUNT OF RS.1,87,45,260/ - I S TURNOVER OF THE ASSESSEE FOR PURCH ASE AND SALE OF DIGITAL DOLLARS AND INCOME IS TO BE ESTIMATED ON THE TURNOVER . ACCORDINGLY, WE HOLD THAT RS.1,87,45,360/ - 16 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM REPRESENT THE TURNOVER OF THE ASSESSEE IN PURCHASE AND SALE OF DIGITAL DOLLA RS. 8.2. THE NEXT ISSUE IS ADDITION OF RS.46,37,000/ - RELATING TO THE DEPOSITS MADE IN VARIOUS ACCOUNTS. THIS IS THE EXACT AMOUNT WHICH THE AO CONSIDERED AS PURCHASE OF DIGITAL DOLLARS. THE ASSESSEE DEPOSITED VARIOUS AMOUNTS IN DIFFERENT PERSONS ACCOUNTS FOR PURCHASE OF DIGITAL DOLLARS WHICH WAS ACCEPTED BY THE AO. HOWEVER, THE AO HAS MADE THE ADDITION SINCE THE ASSESSEE COULD NOT EXPLAIN THE SOURCE OF DEPOSITS MADE IN THE DIFFERENT ACCOUNTS. THE LD.AR DURING THE APPEAL HEARING SUBMITTED THAT THERE WERE SUFFICIENT WITHDRAWALS IN THE VARIOUS BANK ACCOUNTS TO MAKE THE DEPOSITS IN THE DIFFERENT ACCOUNTS. THEREFORE, THE SOURCE OF DEPOSIT CANNOT BE DISPUTED. ON EXAMINATION OF THE BANK ACCOUNTS FURNISHED IN THE PAPER BOOK, WE OBSERVE TH AT THERE WERE SUFFICIEN T AMOUNT O F CASH WITHDRAWALS FROM THE BANK ACCOUNTS FOR MAKING DEPOSITS IN DIFFERENT PERSONS. THEREFORE, WE DO NOT SEE ANY REASON TO SUSPECT THE SOURCE OF DEPOSIT WHEN THERE WE RE SUFFICIENT WITHDRAWALS IN THE BANK ACCOUNT. ACCORDINGLY, WE HOLD THAT HAVIN G ACCEPTED BY THE AO THAT THE ASSESSEE HAD PURCHASED THE DOLLARS FROM DIFFERENT PERSONS TO THE EXTENT OF RS.46,37,000/ - OUT OF TOTAL DEPOSITS OF RS.1,87,45,260/ - , THERE IS NO REASON TO SUSPECT THE SOURCE OF DEPOSITS 17 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM MADE IN THE DIFFERENT PERSONS OF THE BAN K ACCOUNTS. HENCE, WE UPHOLD THE ORDER OF THE LD.CIT(A). 8.3. THE LD.CIT(A) HAS ESTIMATED THE TURNOVER AT RS.2,50,00,000/ - AND ESTIMATED THE INCOME @4%. THE ASSESSEE IN HIS STATEMENT RECORDED U/S 133A AS WELL AS IN THE RETURN OF INCOME ADMITTED THE INCOM E @2%. THE LD.CIT(A) HAS NOT GIVEN ANY BASIS FOR ESTIMATING THE TURNOVER AT RS.2,50, 00,000/ - WHEN THE TURNOVER WORKS OUT TO SUM OF RS.2,32,82,260/ - AS PER PAGE NO.9 OF THE ASSESSMENT ORDER. OUT OF 2,33,82,260/ - , A SUM OF RS.15,00,000/ - WAS GIVEN AS LOAN TO SRI ANDHAVARAPU SRINIVASA RAO AS DISCUSSED IN PAGE NO .17 OF THE ASSE SSMENT ORDER. THEREFORE, WE FIND THAT THE TOTAL TURNOVER OF THE ASSESSEE WORKS OUT TO RS.2,33,82,260/ - BUT NOT RS.2,50,00,000/ - AS HELD BY THE LD.CIT(A). ACCORDINGLY , WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND DIRECT THE AO TO ESTIMATE THE INCOME AT 2% ON TOTAL TURNOVER OF RS.2,33,82,260/ - AND DISMISS THE APPEAL OF THE REVENU E . 9 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE PARTLY ALLOWED . 18 I.T.A. NO. 441/VIZ/2018 AND CO NO.106/VIZ/2018, A.Y.2011 - 12 LADE DINESH, SRIKAKULAM ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JANUARY, 2020. S D/ - S D/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 22 . 01 .20 20 L.RAMA, SPS / COPY OF THE ORDER FORWARDED TO: - 1 . / THE REVENUE INCOME TAX OFFICER, WARD - 3, SRIKAKULAM 2 . / THE ASSESSEE - SRI LADE DINESH, RELLAVEEDHI, ILLISIPURAM, SRIKAKULAM 3. THE COMMISSIONER OF INCOME TAX - 2, VISAKHAPATNAM 4. THE COMMISSIONER OF INCOME TAX (APPEALS) - 2 , VISAKHAPATNAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM