Balakrishnan Mohan, CHENNAI V. ITO, CHENNAI

ITA 1625/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4616 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 11-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 01-06-2016
• Court: TRIBUNAL
• Assessee Lawyers: R SIVARAMAN SHRI B NI
• Keywords: Unexplained investment; Capital asset; Business income; Peak credit; Deemed to accrue or arise in india
• Section: 44AD; 143(3)

Judgement Text

, / , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B/SMC, CHENNAI , ! ' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER ./ITA NO.1625/MDS/2016 # $ %&$ / ASSESSMENT YEAR : 2010-11 BALAKRISHNAN MOHAN, NO.37, FLAT 3C, ROSELYN GARDEN, BARNABY ROAD, KILPAUK, CHENNAI 600 010. [PAN: ALBPM 6829R] VS. INCOME TAX OFFICER, NON CORPORATE WARD-5(3), CHENNAI. ( /APPELLANT ) ( / RESPONDENT ) '( ) * / APPELLANT BY : SHRI R.SIVARAMAN, ADVOCATE +,'( ) * / RESPONDENT BY : SHRI B.NISCHAL, JT. CIT - % ) . / DATE OF HEARING : 11.04.2017 /& ) . / DATE OF PRONOUNCEMENT : 09.05.2017 /O R D E R PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-5, CHENNAI (C IT(A) FOR SHORT) DATED 20.03.2016, DISMISSING THE ASSESSEES APPEAL CONTES TING HIS ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREI NAFTER) DATED 15.03.2013 FOR THE ASSESSMENT YEAR (AY) 2010-11. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE, AN INDIVIDUAL, WAS OBSERVED DURING THE COURSE OF THE ASSESSMENT PROCEE DINGS TO HAVE CASH DEPOSITS IN HIS BANK ACCOUNT (WITH AXIS BANK, ANNA NAGAR, CH ENNAI) DURING THE RELEVANT PREVIOUS YEAR (I.E., FROM 01.04.2009 TO 31.03.2010) AT . 23.21 LACS. FORM-26AS 2 ITA NO.1625 /MDS/2016 (AY 2010-11) BALAKRISHNAN MOHAN V. IT O STATEMENT FOR THE RELEVANT YEAR BORE CONTRACT RECEI PT (OF THE TRANSPORT BUSINESS) FROM INDIAN OIL CORPORATION (IOC) AT . 3,36,288/-, ON WHICH . 7,438/- HAD BEEN DEDUCTED AS TAX AT SOURCE (TDS). THE ASSESSEE S RETURN OF INCOME FOR THE RELEVANT YEAR, HOWEVER, DISCLOSED INCOME BY WAY OF INTEREST AND CONSULTANCY CHARGES, AT . 1,51,350/- AND . 1,62,750/- RESPECTIVELY. THE ASSESSEE, ADMITTING TO BE NOT MAINTAINING ANY BOOKS OF ACCOUNT, EXPLAIN ED TO BE UNDERTAKING TRANSPORT AND FINANCING BUSINESS. FURTHER, THE TRAN SPORT BUSINESS IS ON COMMISSION BASIS, WHICH RANGES FROM 10% TO 15% OF T HE TRANSACTION AMOUNT. IT IS THIS (COMMISSION) INCOME THAT HAD BEEN WRONGLY W ORDED AS CONSULTANCY INCOME IN THE RETURN, AND WHICH THEREFORE INCLUDED THE INCOME ON IOC RECEIPT, THOUGH TDS HAD BEEN OMITTED TO BE CLAIMED. THAT, TH E MONEY LENDING BUSINESS WAS BEING DONE IN AN UNORGANIZED MANNER AND, FURTHE R, ONLY IN CASH, WITH INTEREST RATES RANGING FROM 17% TO 24% PER ANNUM. T HE SOURCE OF THE CASH DEPOSITS OF . 23.21 LACS WAS STATED AS FROM THE DEBTORS OF THE TRANSPORT AND FINANCE BUSINESSES, NAMES OF WHICH WERE GIVEN, WHIL E CONCEDING THAT THEIR ADDRESSES AND PANS COULD NOT BE FURNISHED ON ACCOUN T OF THE RESERVATION OF THE DEBTORS. THE SOURCE OF THE CASH DEPOSITS BEING THUS NOT SATISFACTORILY EXPLAINED, THE ENTIRE CASH DEPOSITED IN ACCOUNT WAS CONSIDERED AS UNEXPLAINED AND DEEMED AS THE ASSESSEES INCOME U/S. 69/69A OF THE ACT (EV EN AS THE ASSESSMENT ORDER MAKES REFERENCE TO S. 68). THE SAME STANDS CONFIRM ED IN APPEAL ON THE LD. CIT(A) FINDING THE ASSESSEES CASE TO BE WHOLLY UN- EVIDENCED. THE PLEA AS TO THE APPLICABILITY OF S. 44AD OF THE ACT COULD NOT A LSO THEREFORE BE ACCEPTED. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 3. I HAVE HEARD THE PARTIES, AND PERUSED THE MATERI AL ON RECORD. 3.1 THE ASSESSEES CLAIM OF BEING IN TRANSPORT BUSI NESS IS BORNE OUT BY THE RECEIPT FROM THE IOC, A PUBLIC SECTOR UNDERTAKING, ON THAT COUNT. HOW, IT IS WONDERED, COULD THEN THE REVENUE NOT ACCEPT THE SAM E ? TRUE, THE ASSESSEE HAS 3 ITA NO.1625 /MDS/2016 (AY 2010-11) BALAKRISHNAN MOHAN V. IT O NOT SHOWN TO BE OWNING ANY GOODS CARRIAGES. HOWEVER , OWNING THE SAME IS NOT A PRE-REQUISITE FOR BEING IN THE TRANSPORT BUSINESS WHICH, AGAIN, IS VALIDATED BY THE IOC RECEIPT. THE NEXT QUESTION IS THE QUANTUM O F THE RECEIPT AS WELL AS THAT OF THE PROFIT, STATED TO BE IN THE RANGE OF 10% TO 15%. THE REVENUE HAS NOT RAISED ANY DOUBT ON THE PROFIT PERCENTAGE, WHICH IS AT A HEALTHY RATE, YET IGNORED THE SAME. IN FACT, ANY DOUBT COULD ONLY BE ON THE BASIS OF THE SAME BEING BELOW THE NORMATIVE RATE OBTAINING IN THE RELEVANT TRADE, QUA WHICH THERE IS EVEN NO WHISPER, MUCH LESS MATERIAL. AN ASPECT OF THE MATTE R SHALL REQUIRE BEING CLARIFIED HERE. THE ASSESSEE STATES OF EARNING COMMISSION, WH ILE AT THE SAME TIME CLAIMS TO BE HAVING TRADE DEBTORS QUA THE TRANSPORT BUSINESS. THE WORD COMMISSION AS USED HERE IS A MISNOMER, AND SIGNIFIES THE DIFFEREN CE BETWEEN THE RATE/S AT WHICH THE GOODS CARRIAGES ARE TAKEN ON HIRE AND ON WHICH THEY ARE CONTRACTED OUT. THAT WOULD IMPLY THAT THE ASSESSEE, AT ANY GIVEN POINT O F TIME, HAS OUTSTANDING DUES OF THE TRANSPORT BUSINESS, I.E., AGAINST THE TRANSP ORT WORK UNDERTAKEN, AND WHICH HE STATES AS RECEIVED, IN PART EXPLANATION OF THE C ASH DEPOSITS IN HIS BANK ACCOUNT. THE AMOUNT REALIZED WOULD, PRESUMABLY, ALS O GO TO PAY THE TRADE CREDITORS OF THE SAID BUSINESS. THIS FOLLOWS AN ACC EPTANCE OF THE ASSESSEE BEING IN THE TRANSPORT BUSINESS, WHICH IS ESTABLISHED. 3.2 THE SECOND PART OF THE ASSESSEES EXPLANATION I S OF BEING IN THE FINANCE BUSINESS, EARNING INTEREST ON THE MONEYS LENT AT RA TES RANGING FROM 17% P.A. TO 24% P.A. THE REVENUE HAS AGAIN NOT ACCEPTED THE SAM E, REJECTING IT AT THE THRESHOLD. IT IS SO SAID AS THE EXPLANATION, ON ITS VERY FACE, MERITS ACCEPTANCE. THE MONEYS LENT FORM PART OF THE ASSESSEES UNDISCL OSED CAPITAL INVESTED IN THE SAID BUSINESS, AND WOULD THEREFORE STAND TO BE ASSE SSED AS DEEMED INCOME ON ACCOUNT OF UNEXPLAINED INVESTMENT THEREIN U/S. 69. THIS IS AS THERE IS NO CLAIM BY THE ASSESSEE OF HAVING UTILIZED BORROWED FUNDS, TO ANY EXTENT, FOR THE SAME, WHICH IN ANY CASE WOULD HAVE TO BE PROVED. FURTHER , SO WOULD, I.E., ASSESSABLE AS INCOME, BE THE INTEREST, AS BUSINESS INCOME U/S. 28(I). WHAT, THEREFORE, ONE 4 ITA NO.1625 /MDS/2016 (AY 2010-11) BALAKRISHNAN MOHAN V. IT O MAY ASK, IS UNACCEPTABLE ABOUT THE EXPLANATION, PAR TICULARLY CONSIDERING THE CHURNING OF FUNDS (IN THE ASSESSEES BANK ACCOUNT) (AS INFERRED FROM THE ASSESSEES PLEADING OF ADOPTING THE PEAK CREDIT (BA LANCE) IN THE BANK ACCOUNT) . THE ASSESSEE PLEADS FOR THE ACCEPTANCE OF THE PEAK CREDIT BALANCE IN HIS BANK ACCOUNT AS INDICATIVE OF THE FUNDS THEREIN THAT ARE NOT EXPLAINED, CLAIMING, THUS, A ROTATION OF FUNDS, I.E., IN THE BUSINESS/ES BEING UNDERTAKEN. THE INTEREST RATES, AS STATED, ARE ALSO AT A HEALTHY FIGURE, CORRESPOND ING WITH THE RATES OBTAINING IN THE UNORGANIZED SECTOR, WHICH ARE MARKEDLY HIGHER T HAN THAT OBTAINING IN THE REGULAR BANK OR ORGANIZED SECTOR. IN OTHER WORDS, B OTH THE CAPITAL INVESTMENT AND THE INTEREST THEREON, I.E., THE TOTAL RECEIPT, WOUL D STAND TO BE BROUGHT TO TAX. THIS OF-COURSE IS SUBJECT TO APPLYING A TURNOVER RATIO, WHICH ANY BUSINESS WOULD ENTAIL. THE REVENUE HAS, IN REJECTING THE PLEA, ACT ED MECHANICALLY, WITHOUT APPLYING ITS MIND WITH REFERENCE TO THE OBTAINING FACTS AND THE MERITS OF THE ASSESSEES STATEMENT. IN FACT, CONSIDERING THE TURN OVER (TOTAL RECEIPT) TO BE A PART OF THE TRANSPORT BUSINESS INSTEAD (CONDUCT OF WHICH IS PROVEN), WOULD IMPLY A LOWER PROFIT RATE AND, BESIDES, A LOWER AMOUNT BEIN G ADDED ON ACCOUNT OF CAPITAL INVESTMENT IN-AS-MUCH AS THE SAID BUSINESS WOULD EN TAIL A HIGHER CAPITAL TURNOVER RATIO, BESIDES TRADE CREDITS. 3.3 I MAY NEXT PROCEED TO EXAMINE THE ASPECT OF QUA NTUM, I.E., AS TO WHAT, UNDER THE CIRCUMSTANCES, WOULD BE A REASONABLE ESTI MATE OF THE AMOUNT/S LIABLE TO BE ASSESSED AS INCOME ON THE BASIS OF THE ADMITT ED FACTS. THE ASSESSEES DISCLOSED INCOME IS AS UNDER: INTEREST (FINANCE BUSINESS) . 1,51,350/- TRANSPORT BUSINE . 1,62,750/- APPLYING THE AVERAGE RATE OF PROFIT (INCOME) WOULD INDICATE THE VOLUME OF THE TWO BUSINESSES, AS UNDER: A. FINANCE BUSINESS: . 7.21 LACS ( . 1,51,350/- @ 21% (AVERAGE INTEREST RATE)). 5 ITA NO.1625 /MDS/2016 (AY 2010-11) BALAKRISHNAN MOHAN V. IT O B. TRANSPORT BUSINESS: . 13.18 LACS ( . 1,62,750 @ 12.5% (AVERAGE RATE OF COMMIS SION). ASSUMING THE FUNDS IN THE FINANCE BUSINESS TO BE RETURNED AT AN AVERAGE OF SIX MONTHS, TURNOVER OF THE SAID BUSINESS IS TWO TIMES THE CAPITAL, I.E., .14.42 LACS. AGGREGATING THE TWO WORKS TO . 27.6 LACS ( .14.42 LACS + . 13.18 LACS). THIS BROADLY MATCHES THE TURNOVER IN THE ASSESSEES ACCOUNT, WHICH IS AT . 26.57 LACS (I.E., . 23.21 LACS (CASH DEPOSITED) + . 3.36 LACS (IOC RECEIPT)), VALIDATING THE ASSESSEES CLAIM AS REGARDS THE RECEIPTS BEING A PART OF THE TWO BUSINESSES AFORE-STATED, AS WELL AS THE PROFIT RATES OBTAINING THEREIN. THE ASSESSMENT OF INCOME MAY NOW BE MADE AS UNDER: A. FINANCE BUSINESS A. INTEREST INCOME: . 1,51,350/- B. CAPITAL INVESTED: . 7.25 LACS (ASSUMING A TURNOVER/CAPITAL RATIO OF 2 ) B. TRANSPORT BUSINESS A. PROFIT: .1,70,188/- (*) B. CAPITAL INVESTED: . 1.25 LACS (ASSUMING A TURNOVER/CAPITAL RATIO OF ~ 12) [(*) . 1,62,750/- PLUS . 7,438 ON ACCOUNT OF TDS] THE PROFIT OF THE TWO BUSINESSES, SAVE THE AMOUNT O F TDS, IS ALREADY DISCLOSED. THE ADDITIONAL INCOME THAT WOULD THEREFORE STAND TO BE ASSESSED IS ON ACCOUNT OF THE CAPITAL DEPLOYED IN THE TWO BUSINESSES, I.E., . 8.50 LACS . NOW, IT MAY WELL BE THAT THE PEAK CREDIT, WHICH SH ALL HAVE TO BE RECKONED FOR BOTH THE BANK ACCOUNTS TOGETHER, EXCEEDS . 8.5 LACS. THE SAME COULD WELL BE AS THE CAPITAL ESTIMATED AS INVESTED IS ONLY AN APP ROXIMATION, WHICH COULD THUS VARY, THOUGH WITHIN A RANGE, ON ACCOUNT OF THE (AVE RAGE) PROFIT RATE BEING DIFFERENT FROM THAT USED IN THE CALCULATION OR EVEN ON ACCOUNT OF A VARIATION IN THE TURNOVER RATIO. WHERE SO, THE AMOUNT LIABLE TO BE ADDED WOULD STAND TO BE INCREASED ON ITS BASIS . SO, HOWEVER, IN DOING SO THE ASSESSEE OUGHT TO BE GIVEN DUE CREDIT FOR THE PROFIT COMPONENT INCLUDED IN THE TURNOVER UP TO THE RELEVANT 6 ITA NO.1625 /MDS/2016 (AY 2010-11) BALAKRISHNAN MOHAN V. IT O DATE (OF THE PEAK CREDIT). FOR EXAMPLE, IF THE PEAK CREDIT IS (SAY) . 12 LACS (AS ON 30.09.2009), THE ADJUSTED PEAK CREDIT WOULD BE AS F OLLOWS: PEAK CREDIT : . 12.00 LACS PROPORTIONATE PROFIT : . 1.61 LACS (TOTAL PROFIT . 3.22 LACS X 6/12) ADJUSTED PEAK CREDIT: . 10.39 LACS ( . 12 LACS - . 1.61 LACS) THIS COULD IN FACT BE FINE TUNED FURTHER BY ESTIMA TING THE PROFIT COMPONENT, INSTEAD OF ON TIME BASIS (I.E., AT 6 OUT OF THE T OTAL 12 MONTHS), ON THE BASIS OF THE RECEIPT, I.E., UP TO THE DATE OF THE PEAK CREDI T. THE AVERAGE PROFIT RATE BEING 12 PER CENT (I.E., . 3.22 LACS ON A TOTAL GROSS RECEIPT . 26.64 LACS). AS SUCH, A PEAK CREDIT OF (SAY) . 10 LACS, IRRESPECTIVE OF THE DATE ON WHICH IT OBT AINS, WOULD YIELD AN ADJUSTED PEAK CREDIT OF . 8.80 LACS, SO THAT IT IS THIS AMOUNT THAT WOULD STAND TO BE ADDED, AND NOT . 10 LACS. THEN, AGAIN, THERE COULD BE A SCENARIO OF THE ADJUSTED PEAK CREDIT BEING BELOW . 8.50 LACS. THIS WOULD NOT BY ITSELF WARRANT A REDUCTION IN THE AMOUNT OF ADDITIO N ON ACCOUNT OF THE CAPITAL EMPLOYED IN THE TWO BUSINESSES. THIS IS AS, APART F ROM THE BANK BALANCE, WHICH THE PEAK CREDIT IN A BANK ACCOUNT SIGNIFIES, THE AS SESSEE HAS ADMITTEDLY OTHER WORKING CAPITAL ASSETS IN THE FORM OF TRADE DEBTORS , AND WHICH HAVE NOT BEEN TAKEN INTO ACCOUNT. THIS IS AS THE INVESTMENT IN TH E TRADE HAS BEEN ESTIMATED ON THE BASIS OF A WORKING CAPITAL (I.E., CASH TO CASH) CYCLE, AND WHICH INCLUDES TOWARD TRADE DEBTS/CREDITS AS WELL. THE ASSESSEES ARGUMENT WITH REFERENCE TO PEAK CREDIT IN THE ACCOUNT THUS STANDS ALSO ADDRESS ED. THE ADDITION FOR . 23.21 LACS IS THUS RESTRICTED TO . 8.50 LACS, OR SUCH OTHER SUM AS MAY BE COMPUTED O N THE BASIS OF THE ASSESSEES BANK ACCOUNTS, AS EXPLA INED HEREINBEFORE. QUA PROFIT, ONLY THE TDS AMOUNT ( . 7,438/-) WOULD STAND TO BE FURTHER ADDED. THE ASS ESSEE GETS PART RELIEF. NEEDLESS TO ADD, THE ASSESSEE SHA LL BE ALLOWED CREDIT IN RESPECT OF TDS ON THE IOC RECEIPT. 7 ITA NO.1625 /MDS/2016 (AY 2010-11) BALAKRISHNAN MOHAN V. IT O 3.4 BEFORE PARTING, I MAY ADD, THAT THE ASSESSEES ARGUMENT WITH REFERENCE TO S. 44-AD IS NOT MAINTAINABLE IN THE FACTS AND CIRCU MSTANCES OF THE INSTANT CASE. THIS IS AS THE ASSESSEE IS ADMITTEDLY ENGAGED IN TH E TRANSPORT BUSINESS, EXCLUDED AS AN ELIGIBLE BUSINESS U/S. 44-AD. TWO, THE TURNOV ER OF THIS BUSINESS AND, CONSEQUENTLY, THAT OF THE OTHER (FINANCE) BUSINESS, IS NOT SPECIFIED, ONLY WHEREUPON COULD THE SAID PROVISION BE APPLIED. THEN , AGAIN, APART FROM THE PROFIT COMPONENT, WHICH HAS BEEN ACCEPTED , THE ADDITION SUSTAINED IS ONLY ON ACCOUNT OF THE ASSESSEES CAPITAL DEPLOYED IN THE S AID BUSINESSES, BEING UNEXPLAINED, ESTIMATED ON THE BASIS OF THE PROFIT R ATE/S AS DISCLOSED AND THE NORMATIVE TRADE TURNOVER RATIOS. 3.5 I DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED ON MAY 9, 2017 AT CHENNAI . SD/- ( ) (SANJAY ARORA) ! /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED, MAY 9, 2017. EDN 1 ) +#.23 43&. /COPY TO: 1. '( /APPELLANT 2. +,'( /RESPONDENT 3. - 5. ( )/CIT(A) 4. - 5. /CIT 5. 3%67 +#.# /DR 6. 78$ 9 /GF