Sohail Azhar, Kolkata V. ITO, Ward - 32(2), Kolkata, Kolkata

ITA 1757/KOL/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5152 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 21-12-2011
• Court: TRIBUNAL
• Department Lawyers: S DUTTA JCIT LD
• Assessee Lawyers: A K TULSIYAN FCA LD
• Keywords: Unexplained cash credit; Business income; Peak credit
• Section: 40A(3); 143(3)

Judgement Text

ITA NO. 1757/KOL/2011-A-AM SOHAIL AZHAR 1 IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, K OLKATA BEFORE : SHRI N.V. VASUDEVAN, JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A NO. 1757/KOL/2011 A.Y : 2008-09 SOHAIL AZHAR VS. I.T.O WARD 32(2), KOLK ATA PAN: ACMPA 3994M (APPELLANT) (RE SPONDENT) FOR THE APPELLANT: SHRI A.K TULSIYAN, FCA, LD.AR FOR THE RESPONDENT: SHRI S.DU TTA, JCIT/LD.DR DATE OF HEARING: 08-12 -2015 DATE OF PRONOUNCEMENT: 13-01-2 016 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE OR DER OF THE LEARNED CIT(A), XIX, KOLKATA IN APPEAL NO. 133/CIT(A)-XIX/ITO, WD.32(2) /KOL/10-11 DATED 19/09/2011 FOR THE ASSESSMENT YEAR 2008-09 AGAINST THE ORDER OF A SSESSMENT FRAMED BY THE LEARNED AO U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL I S AS TO WHETHER CASH DEPOSIT OF RS. 35,83,500/- MADE IN ABN AMRO BANK, WHICH REMAINED UNDISCLOSED CASH COULD BE ADDED AS UNEXPLAINED CASH CREDIT IN THE FACTS AND CIRCUMS TANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE A SSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF FINISHED LEATHER IN THE NAME OF HIS PROPR IETORSHIP CONCERN STYLED AS M/S. ALEENA EXPORTS, DURING THE COURSE OF ASSESSMENT PROCEEDING S THE LD.AO OBSERVED THAT THE ASSESSEE HAS MAINTAINED SAVING BANK ACCOUNT VIDE ACCOUNT NO. 429203 WITH ABN AMRO BANK, 7 AZIMGANJ HOUSE, 3-5, CAMAC STREET, KOLKATA. THE LD. AO ALSO FOUND THAT THE TRANSACTIONS IN THIS BANK ACCOUNT HAVE NOT BEEN DIS CLOSED BY THE ASSESSEE IN HIS REGULAR BOOKS OF ACCOUNT. HE FOUND THAT THE TOTAL DEPOSIT OF RS.35,83,500/- HAS BEEN DEPOSITED IN ITA NO. 1757/KOL/2011-A-AM SOHAIL AZHAR 2 CASH IN THE SAID BANK ACCOUNT AND WITHDRAWALS THERE ON ARE MADE BY CHEQUES. THE ASSESSEE WHEN CONFRONTED WITH THE SAID BANK ACCOUNT REPLIED THAT THE SAID BANK ACCOUNT WAS NOT PART OF HIS BUSINESS ACCOUNT. HENCE, THE SAME WAS N OT DISCLOSED IN THE RETURN AND FURTHER PRAYED FOR ADOPTION OF PEAK CREDIT BALANCE IN THE SAID BANK ACCOUNT TO BE TAXED AS HIS INCOME. THE LD.AO FOUND THAT SINCE NO WITHDRAWALS WERE MADE BY CASH FROM THE SAID BANK ACCOUNT, SUBSEQUENT CASH DEPOSITS COULD NOT BE EXPLAINED BY PREVIOUS CASH WITHDRAWALS AND REJECTED THE THEORY OF PEAK CREDIT BALANCE AND BROUGHT TO TAX THE ENTIRE CASH DEPOSITS OF RS.35,83,500/-. ON 1 ST APPEAL, THE LD. CIT(A) HAS UPHELD THE ADDITION MADE BY THE AO. AGGRIEVED, THE ASSESEE IS IN APPE AL BEFORE US ON THE FOLLOWING MODIFIED GROUND:- 1) THAT THE AO AS WELL AS THE LD. C!T(A) FAILED TO PROPERLY ANALYZE THE CREDIT & DEBIT IN THE BANK A/C NO.429203 WITH ABN A MRO BANK (PRESENTLY NAMED AS ROYAL BANK OF SCOTLAND N.V). TH E ENTIRE CASH DEPOSIT OF RS.35,83,500/- HAS BEEN ADDED WITHOUT CO NSIDERING THE FACT THAT ALL WITHDRAWALS ARE MADE BY A/C PAYEE CHEQUES AND ARE RELATED TO PAYMENTS FOR PURCHASE OF LEATHER. THE SOURCES OF SU CH DEPOSITS ARE SALE PROCEEDS OF LEATHER GOODS IN CASH IN THE OPEN MARKE T. THE AO HAS HIMSELF ACCEPTED THIS FACT SUBSEQUENTLY IN THE ORDE R DT.20.03.2013 PASSED U/S 143(3)/147 FOR THE ASST. YEAR 2007-08. A S SUCH, ONLY RATE OF PROFIT NEED TO BE APPLIED ON THE OUT OF BOOKS SALES AS REFLECTED IN THE SAID BANK A/C AND THE BALANCE OF THE ADDITION NEED TO BE DELETED. 2.2. THE LEARNED AR ARGUED THAT THE CASH DEPOSITS REPRESENT SALE PROCEEDS OF LEATHER AND CHEQUE WITHDRAWALS MADE THEREON ARE TOWARDS PU RCHASE OF LEATHER. HE ARGUED THAT THE SAID BANK ACCOUNT MAINTAINED WITH SAID ABN AMRO BANK BY THE ASSESSEE WAS OPENED IN THE ASSESSMENT YEAR 2007-08. THE ASSESSMENT FOR THE ASSESSMENT YEAR 2007-08 HAS BEEN RE-OPENED BY THE LD.AO TO CONSIDER THE TRANSAC TIONS IN THE SUBJECT MENTIONED BANK ACCOUNT (I.E ABN AMRO BANK) AND THE RE-ASSESSMENT F OR THE ASSESSMENT YEAR 2007-08 HAS BEEN COMPLETED BY THE LD.AO U/S. 143(3) R.W.S 147 O F THE ACT DATED 20-03-2013. IN THE SAID RE-ASSESSMENT, THE LD.AO HAD AGREED THE ENT IRE CASH DEPOSITS BEING SALES PROCEEDS OF LEATHER ARISING OUT OF LOCAL SALES AND CHEQUE WI THDRAWALS MADE THEREON TOWARDS LOCAL PURCHASE OF LEATHER AND ASSESSED ONLY PROFIT DERIVE D THEREON AMOUNTING TO RS. 43,754/- AS AGAINST TOTAL CASH DEPOSITS OF RS. 74,41,000/-. THE LD.AR PLACED HIS RELIANCE ON THE SAID RE- ASSESSMENT ORDER PASSED FOR THE ASSESSMENT YEAR 20 07-08 AND PRAYED FOR ADOPTION OF THE ITA NO. 1757/KOL/2011-A-AM SOHAIL AZHAR 3 SAME FOR THE ASSESSMENT YEAR UNDER APPEAL ALSO AS ADMITTEDLY THE LD.AO HIMSELF STATES THAT THE ASSESSEE HAS GOT NO OTHER SOURCES OF INCOM E. IN RESPONSE TO THIS, THE LD. DR VEHEMENTLY OPPOSED THE ARGUMENTS OF THE LD.AR THA T THE CONTENTION OF SOURCE OF CASH DEPOSIT EMANATING OUT OF LOCAL SALES OF LEATHER W AS NEVER TAKEN BEFORE THE LOWER AUTHORITIES. THE LD.AR FOR THE ASSESSEE FURTHER A RGUED THAT THE DECISION TAKEN BY THE LD.AO FOR THE EARLIER ASSESSMENT YEAR I.E. 2007-08 DOES NOT HAVE ANY BEARING ON THE ASSESSMENT YEAR UNDER APPEAL. ACCORDINGLY, HE PRAY ED BEFORE US FOR NON-INTERFERENCE IN THE ORDERS OF THE LOWER AUTHORITIES. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE ASSESSEE. WE FIND THAT THE UNDISCLOSED BANK ACCOUNT OF THE ASSESSEE AS MAINTAINED BY THE ASSESS EE WITH SAID ABN AMRO BANK CONTAINING CASH DEPOSITS OF RS.35,83,500/- AND CHEQ UE DEPOSIT OF RS.86,455/-. WE ALSO FIND THAT THE ENTIRE WITHDRAWALS FROM THE SAID BAN K ACCOUNT ARE MADE BY CHEQUES. WE ALSO FIND THAT THE SAID BANK ACCOUNT HAS BEEN RE-O PENED IN THE ASSESSMENT YEAR 2007-08 AND TOTAL CASH DEPOSITS OF RS.74,41,000/- WERE MAD E IN THE ASSESSMENT YEAR 2007-08, WHICH HAS BEEN ACCEPTED BEING SALE PROCEEDS ARISIN G OUT OF LOCAL BUSINESS OF LEATHER AND WITHDRAWALS THEREON TOWARDS LOCAL PURCHASE OF LEA THER. WE FIND THAT THE SITUATION IS THE SAME IN THE ASSESSMENT YEAR UNDER APPEAL ALSO. IT I S NOT THE CASE OF THE LD.AO THAT WITHDRAWALS FROM THE SAID BANK ACCOUNT HAVE BEEN M ADE FOR ANY OTHER INVESTMENTS MADE BY THE ASSESSEE. HOWEVER, WE FIND LOT OF FORCE IN T HE ARGUMENTS OF THE LD.DR THAT THE ARGUMENT OF THE LD.AR THAT CASH DEPOSITS ARE NOTHIN G BUT THE SALE PROCEEDS ARISING OUT OF SALE OF LEATHER FROM THE LOCAL MARKET HAVE BEEN R AISED FOR THE FIRST TIME BEFORE US. ADMITTEDLY, THE ASSESSEE HAS STATED BEFORE THE LOW ER AUTHORITIES THAT CASH DEPOSITS ARE NOT ARISING OUT OF BUSINESS RECEIPTS OF THE ASSESSEE. AT THE SAME TIME, WE FIND NO EVIDENCE THAT IS BROUGHT ON RECORD THAT THE ASSESSEE HAS I NDEED GOT ANY OTHER BUSINESS ACTIVITY DURING THE ASSESSMENT YEAR UNDER APPEAL. IN THESE CIRCUMSTANCES, WE DEEM IT FIT AND APPROPRIATE IN THE INTEREST OF JUSTICE AND FAIR PLA Y TO SET ASIDE THIS ISSUE TO THE FILE OF THE LD.AO, TO DECIDE THE SAME IN THE LIGHT OF RE-ASSESS MENT ORDER PASSED FOR THE ASSESSMENT YEAR 2007-08. IF THE SOURCE OF CASH DEPOSITS ARE AC CEPTED TO BE SALE PROCEEDS ARISING OUT OF ITA NO. 1757/KOL/2011-A-AM SOHAIL AZHAR 4 LEATHER BUSINESS IN THE LOCAL MARKET AND SUBSEQUENT WITHDRAWALS THEREON BEING PURCHASES OF LEATHER FOR LOCAL MARKET, THEN IT IS OBVIOUS ONL Y THE PROFIT SHOULD BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. THIS ISSUE REQUIRES FURTHER EXAMINATION BY THE LD.AO. HOWEVER, THE ASSESSEE IS AT LIBERTY TO FILE FURTHER EVIDENCES/DO CUMENTS , IF ANY, IN SUPPORT OF HIS CONTENTIONS BEFORE THE LD.AO IN THE SET ASIDE PROCE EDINGS. ACCORDINGLY, THE GROUND NO.1 OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PUR POSE. 3. THE NEXT GROUND TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE SUM OF RS.14,06,000/- COULD BE DISALLOWED U/S. 40A(3) OF THE ACT WHEN THE SAME WAS PAID TO VARIOUS SUPPLIERS AGAINST PURCHASES. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE HAS MADE THE PAYMENTS TO VARIOUS SUPPLIERS FOR PURCHASE OF FINISHED LEATHER IN MODES OTHERWISE THAN CROSSED CHEQUES OR BANK DRAFTS. ADMITTEDLY, THE ASSESSEE MADE THE PAY MENTS TO THE SUPPLIERS BY WAY OF BEARER CHEQUES IN EXCESS OF RS. 20,000/-. DETAILS O F WHICH ARE MENTIONED IN PAGE 2 OF THE LD.AO. IT WAS EXPLAINED BEFORE THE LD.AO THAT THE ASSESSEE HAD MADE THE PAYMENTS BY CASH CHEQUES BEING BEARER CHEQUES TO ONE SUPPLIER , WHO IN TURN USED TO DISTRIBUTE THE MONIES TO OTHER SUPPLIERS. THE LD.AO FOUND THAT THE RE IS NO EVIDENCE THAT HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE FOR DISTRIBUTION OF MONIE S TO OTHER SUPPLIERS. HE DISALLOWED THE ENTIRE PAYMENT OF RS.14,06,000/- AS VIOLATION OF SE CTION 40A(3) OF THE ACT. IN THE ASSESSMENT. ON 1 ST APPEAL, THE LD.CIT(A) HAS UPHELD THE IMPUGNED ADDI TION OF THE LD.AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON T HE FOLLOWING GROUND:- 2) THAT THE LD. CIT(A) ERRED IN CONFIRMING DISALLO WANCE OF RS.14,06,000/- U/S 40A(3) OF THE INCOME TAX ACT/ 1961 WITHOUT APPR ECIATING THE FACT THAT THE SAME COMPRISES OF THE PAYMENTS TO VARIOUS SUPPLIERS AGAINST PURCHASES MADE BY THE ASSESSEE. THE DISALLOWANCE SO MADE & CONFIRMED BY THE LD. CIT(A) IS WRONG & NEED TO BE D ELETED. 3.3. THE LEARNED AR REITERATED THE SUBMISSIONS MAD E BEFORE THE LOWER AUTHORITIES AND FURTHER ARGUED THAT IN THE INSTANT CASE THE PARTIES /SUPPLIERS HAVE BEEN IDENTIFIED. HENCE, THERE IS NO EFFECTIVE VIOLATION OF SECTION 40A(3). ACCORDINGLY, HE PRAYED BEFORE US FOR ITA NO. 1757/KOL/2011-A-AM SOHAIL AZHAR 5 DELETION OF DISALLOWANCE MADE BY THE LD.AO. IN RES PONSE TO THIS, THE LD.DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 3.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE DETAILS OF PAPER BOOK FILED BY THE AS SESSEE CONTAINING THE CASH BOOK AND LEDGER ACCOUNT OF THE ASSESSEE OF VARIOUS PARTIES/S UPPLIERS TO WHOM CASH PAYMENTS WERE MADE BY THE ASSESSEE. THE FACTS IN THE INSTANT CASE REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITERATED HEREIN FOR THE SAKE OF BREVITY. WE FIND THAT THOUGH THE ASSESSEE HAS MADE THE PAYMENTS IN EXCESS OF RS. 20,000/- BY BEARER C HEQUES, THE PROVISIONS OF SECTION 40A(3) OF THE ACT AS APPLICABLE FOR A.Y 2007-08 IS REPRODUCED HEREIN BELOW FOR THE CONVENIENCE:- (3) (A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE I N RESPECT OF WHICH PAYMENT IS MADE IN A SUM EXCEEDING TWENTY THOUSAND RUPEES OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, NO DEDUCTION SHALL BE ALL OWED IN RESPECT OF SUCH EXPENDITURE ; (B) WHERE AN ALLOWANCE HAS BEEN MADE IN THE ASSESSM ENT FOR ANY YEAR IN RESPECT OF ANY LIABILITY INCURRED BY THE AS SESSEE FOR ANY EXPENDITURE AND SUBSEQUENTLY DURING ANY PREVIOUS Y EAR (HEREINAFTER REFERRED TO AS SUBSEQUENT YEAR) THE ASSESSEE MAKES PAYMENT IN RESPECT THEREOF, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, THE PAYMENT SO MADE S HALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSI ON AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS INCOME OF THE SUBSEQUE NT YEAR IF THE AMOUNT OF PAYMENT EXCEEDS TWENTY THOUSAND RUPEES; PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BU SINESS OR PROFESSION UNDER THIS SUB-SECTION WHERE ANY PAYMENT IN A SUM E XCEEDING TWENTY THOUSAND RUPEES IS MADE OTHERWISE THAN BY AN ACCOUN T PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, IN SU CH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVI NG REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. 3.5 WE FIND THAT SECTION 40A(3) HAS TO BE READ TOGE THER WITH EXCEPTIONS IN RULE 6DD OF THE I.T RULES, 1962. ONE OF THE EXCEPTIONS IN CL AUSE (E) OF RULE 6DD SAYS THAT IF THE PAYMENT IS MADE FOR THE PURCHASE OF THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING ITA NO. 1757/KOL/2011-A-AM SOHAIL AZHAR 6 LIVESTOCK, MEAT, HIDES AND SKINS) OR DAIRY OR POUL TRY FARMING; OR TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTICLES, PR ODUCE OR PRODUCTS. THUS, WE DEEM IT FIT AND APPROPRIATE TO SET ASIDE THIS ISSUE TO THE FILE OF THE LD.AO TO EXAMINE THE IMPUGNED ISSUE AND GIVE A CATEGORICAL FINDING THAT WHETHER T HE SUBJECT MENTIONED PAYMENTS MADE BY THE ASSESSEE FALLS UNDER THE EXCEPTION/CLAUSE PROVI DED IN RULE 6DD OF THE I.T RULES. ACCORDINGLY, GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 4. IN RESPECT OF GROUND NO.3 OF ASSESSEES APPEAL, THE LD.AR OF THE ASSESSEE DURING THE COURSE OF HEARING STATED THAT HE IS NOT PRESSIN G THE SAME. THIS IS TAKEN AS A STATEMENT FROM THE BAR. HENCE, THIS GROUND OF THE ASSESSEE IS DISMISSED AS NOT PRESSED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSE. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 13.1.16 1.. THE APPELLANT: SOHAIL AZHAR 2 ELLIOT ROAD, KOL -16. 2 THE RESPONDENT-INCOME-TAX OFFICER, WARD 32(2), 1 0B MIDDLETON ROW, KOL-71. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS SD/- ( N.V. VASUDEVAN, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 13.1.16 COPY OF THE ORDER FORWARDED TO:-