Sunil Fatandas Chavlani, Ahmedabad V. The ITO, Ward-7(2)(1), Ahmedabad

ITA 269/AHD/2020

AI Insights

The case involves an appeal by Sunil Fatandas Chavlani against the order of the CIT(A) which upheld the addition of Rs. 29,56,440 as unexplained investment under section 69 of the Income Tax Act, 1961, due to cash deposits in the assessee's bank account. The assessee argued that the cash deposits were from his business activities and not unexplained income. The Tribunal noted the procedural delay in filing the appeal, attributed it to the assessee's ignorance and reliance on a tax consultant, and condoned the delay. On merit, the Tribunal found that while there were cash deposits, there were also withdrawals, and the entire amount should not be treated as income. The Tribunal applied a presumptive rate of 8% on the deposits, aligning with the assessee's business activities, and partly allowed the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135615 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 27-12-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 19-05-2020
• Other Referred Cases: S.R. Koshti Vs. CIT, Vareli textile industry vs CIT, Mahabeer Prasad Jain V/s CIT, Nareskumar V/s CIT, O.G. Sunil V/s DCIT, Shri Parbat M. Chamriya Vs ITO, Mahesh K. Bhutiya 'Parth' vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Unexplained investment; Business income; Principle of natural justice; Revised return; Reassessment proceedings; Ignorance of law
• Section: 147; 68; 69; 148; 144; 44AD; 142(1); 69A

Judgement Text

आयकर आयकरआयकर आयकर अपी अपीअपी अपीलीय लीयलीय लीय अिधकरण अिधकरणअिधकरण अिधकरण, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद यायपीठ यायपीठ यायपीठ यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ SMC” BENCH, AHMEDABAD SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No. 269/AHD/2020 िनधा रण िनधा रणिनधा रण िनधा रण वष वष वष वष /Asstt. Year: 2014-2015 Sunil Fatandas Chavlani, A-92, A-Ward, Opp. Kalavati, Patiya, Kubernagar, Ahmedabad-380340. PAN: APXPX2041P Vs. I.T.O, Ward-7(2)(1), Ahmedabad. (Applicant) (Respondent) Assessee by : Shri S.N. Divatia, A.R with Shri Samir Vora, A.R Revenue by : Shri Purushottam Kumar, Sr. D.R सुनवाई क तारीख/Date of Hearing : 28/12/2022 घोषणा क तारीख /Date of Pronouncement: 01/03/2023 आदेश आदेशआदेश आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-7, Ahmedabad, dated 31/07/2019 arising in the matter of assessment order passed under s. 144 r.w.s. 147 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2014-15. 2. At the outset, we note that there was a delay in filing the appeal of the assessee for 226 days. The delay was explained by the assessee on two counts. Firstly, the assessee being illiterate cannot understand the seriousness of the tax ITA no.269/AHD/2020 A.Y. 2014-15 2 matter and secondly, all the documents related to the tax matters were handed over to the tax consultant and the accountant. Thus, the assessee was under the believe that the necessary step must have taken by the tax consultant. 3. However, on receipt of the recovery notice it was realized that the appeal was not filed by the tax consultant within the stipulated time which has caused delay in filing the appeal. As per the assessee, it was not the fault of the assessee for the delay in filing the appeal before the ITAT. To this effect, the assessee has filed the affidavit which is placed on record. 3.1 In view of the above, the Ld. counsel for the assessee prayed to condone the delay and admit the appeal for fresh hearing on merit. 4. On the contrary the Ld. DR opposed to condone the inordinate delay caused by the assessee out of his ignorance. 5. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the appeal to be filed on or before October 2019 was filed on 28/05/2020, with the delay of 226 days. At this juncture, it is important to note that there was a lock down in the country due to outbreak of covid-19 and the Hon’ble Supreme Court condoned the delay vide order dated 15-03-2020 in the case of Cognizance for Extension of Limitation, reported in 125 taxmann.com 151 for certain period of time. Thus, the period of 65 days i.e (226-161) falls during the covid period and therefore such period cannot be considered as delay in filing the appeal. 5.1 For the balance period of 161 days i.e.(226-65), we note that the assessee has given two reasons. Firstly, he was illiterate. As far as this reason is concerned we are not impressed with the same for the reason that ignorance of law is not a valid excuse for condonation of delay. In other words, the assessee is expected to ITA no.269/AHD/2020 A.Y. 2014-15 3 be vigilant enough in perusing the tax matter and he could not sit with folded hands on reasoning that he was ignorant of the provision of law. The second reason was given by the assessee is that the tax consultant failed to file the tax appeal before the ITAT. However, there is no documentary evidence filed by the assessee so as to establish that there was a fault on the part of the tax consultant in filing the appeal except making the statement in the affidavit. However, the Ld. DR has not brought anything contrary to the affidavit filed by the assessee. 5.2 Be that as it may be, what is important is this that the revenue has treated the entire amount of cash deposit in the bank as income of the assessee without pointing out any basis for such inference. In this regard, we have seen bank statement available on record. On perusal of the same we find that there were cash deposits as well as cash withdrawal from the bank. How the cash withdrawal has been utilized by the assessee, there is no finding of the revenue authorities? As such, it is possible that the amount of cash withdrawal has been re-deposited in the bank, in such a situation it would lead to double addition which is not desirable under the provision of law. Thus, it appears that the income of the assessee has not been determined on scientific basis. 5.3 Indeed, there is a delay in filing the appeal of the assessee but if entire cash deposit is added to the total income of the assessee then the hardship that the assessee is going to face is not commensurate to the mistake committed by him in filing the appeal within the stipulated time. Besides, it also appears to us that the assessee has got meritorious case and therefore, the case of the assessee should not be rejected on account of technical lapses. We also note that the Hon’ble Gujarat High Court in the case of S.R. Koshti Vs. CIT reported in 276 ITR 165 has held as under: The position is, therefore, that, regardless of whether the revised return was filed or not, once an assessee is in a position to show that the assessee has been over-assessed under the provisions of the Act, regardless of whether the over-assessment is as a result of assessee’s own mistake or otherwise, the CIT has the power to correct such an assessment under section 264(1) of the Act. If the CIT refuses to give relief to the assessee, in such circumstances, he would be acting de hors the powers under the Act and ITA no.269/AHD/2020 A.Y. 2014-15 4 the provisions of the Act and, therefore is duty-bound to give relief to an assessee, where due, in accordance with the provisions of the Act. 5.4 From the above it is revealed that the income of the assessee should not be over assessed even there is a mistake of the assessee. As such the legitimate deduction for which the assessee is entitled should be allowed while determining the taxable income. We also note that the Hon’ble Gujarat High Court in the case of Vareli textile industry versus CIT reported in 154 Taxman 33 wherein it was held as under: It is equally well-settled that where a cause is consciously abandoned (as in the present case) the party seeking condonation has to show by cogent evidence sufficient cause in support of its claim of condonation. The onus is greater. One of the propositions of settled legal position is to ensure that a meritorious case is not thrown out on the ground of limitation. Therefore, it is necessary to examine, at least prima facie, whether the assessee has or has not a case on merits. 5.5 Thus, considering all the facts stated above we are inclined to condone the delay and proceed to adjudicate the issue on merit. 6. The assessee has raised the following grounds of appeal: 1.1 The order passed U/s.250 on 31-7-2019 by CIT(A)-7 , A'bad upholding the addition of Rs.29,56,440/-as unexplained investment u/s.69 towards cash deposits in bank account made by AO is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced by the appellant with regard to the impugned additions. The Ld CIT(A) ought to have allowed sufficient opportunity before disposing the appeal. 2.1 The Ld.CIT(A) has grievously erred in law and on facts in confirming addition of Rs.29,56,440/-as unexplained investment u/s.69 towards cash deposits in bank account . 2.2 That in the facts and circumstances of the case as well as in law, the Ld.CIT(A) ought not to have upheld addition of Rs.29,56,440/-as unexplained investment u/s.69 towards cash deposits in bank account. It is, therefore, prayed that the addition of Rs. 29,56,440/- upheld by the CIT(A) may kindly be deleted. 6.1 The only effective issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 29,56,440/- under section 68 of the Act on account of cash deposits in bank. ITA no.269/AHD/2020 A.Y. 2014-15 5 7. The facts in brief are that the assessee is an individual and claimed to be earlier engaged in the business of hosiery but due to loss changed to fruit hawker. The assessee for the year under consideration has not filed return under section 139 of the Act. The AO from A.I.R/N.M.S information found that during the year under consideration, cash aggregating to Rs. 29,54,440/- was deposited in the bank account of the assessee maintained with ICICI Bank. Accordingly, notice under section 148 of the Act was issued for initiating income escapement proceedings under section 147 of the Act. However, the assessee failed to file return in response to notice issued under section 148 of the Act. Thereafter, several notices under section 142(1) of the Act were issued but no reply was received by the AO. Therefore, the AO in absence of reply from the assessee proceeded to framed assessment under section 144 r.w.s. 147 of the Act and assessed the income of the assessee at Rs. 29,54,440/- by treating the cash deposit as unexplained cash credit under section 68 of the Act. 8. On appeal by the assessee, the learned CIT(A) also confirmed the order of the AO by observing as under: 6.1 I have carefully considered assessment order and submission filed by appellant. The AO has issued reassessment notice on the ground that, appellant has made cash deposit of Rs 29,56,440 in his saving bank account with 1CICI bank limited. As appellant has not furnished any explanation in assessment proceedings, AO made addition of such cash deposits-.- The appellant has objected to such addition and contended that he has small job work of hosiery products and cash deposits are out of such business. The appellant has submitted computation of income as well as annual account containing profit & loss account, balance sheet. The appellant has not submitted any proof regarding business activity carried out by him. The appellant in profit & loss account has shown sales of Rs 19,83,980 which does not co relate with cash deposits as he has failed to provide any cash book, bank book and bank statement in support of such claim. The appellant in profit <"fe loss account lias claimed that lie has incurred expenditure of Rs 17,45,201 as Job work charges but not proved sources of such expenditure and if appellant himself is showing net profit from such business at Rs 2,09,500, such amount docs not justify cash deposits of Rs.29,56,440 in bank account. Merc submission of so called Profit & loss and Balance Sheet does riot justify cash deposited in bank account. 6.2 Reliance is placed on decision of Allahabad High Court in case of Mahabeer Prasad Jain V/s CIT 399 ITR 600 [2018] wherein it is held that when Assessee had purchased draft by depositing cash, but failed to provide source of such cash for making investment, addition made under Section 69 was justified. The Hon'ble Punjab & Haryana High Court in the case of Nareskumar V/s CIT 393 ITR 389 ITA no.269/AHD/2020 A.Y. 2014-15 6 [2017] has held that when Assessee explains that cash deposits by him in his bank account was from sales effected by him but has failed to establish nexus between receipts and deposit in his bank account, amount was rightly added under Section 69 of the IT Act. The Hon'ble Kerala High Court in the case of O.G. Sunil V/s DCIT 383 ITR 617 [2O17] has held that Tribunal was right in upholding Assessee's income in regard to unexplained credits in bank and investment in property on the ground that there was no material or explanation about the source and means. Reliance is also placed on decision of Hon'ble Mumbai 1TAT in the case of Shri Parbat M. Chamriya Vs ITO ITA No. 3059/Mum/2O15 wherein it is held as under: "....6.5 As regards contention of the appellant that he had declared profit at higher than what is required u/s 44AF, in my considered opinion, is only a afterthought action of the appellant to cover up his undisclosed income. The appellant is not negating the possession of bank account and balance in it. However, the question remained unanswered that why these deposits were not offered to taxation. Thus, on merit also, the ground taken by the appellant is dismissed." 3.3.2 On a perusal of the orders of the authorities below and an appreciation of the facts on record, we find that as argued by the learned D.R. for Revenue, except for raising the grounds of appeal (supra), the assessee has failed to bring on record any evidence to establish his claims that the deposits in the ICICI Bank, saving bank account at IChar (W), Mumbai was out of receipts connected wkh his business transactions. In our view the assessee has failed to controvert the findings of the authorities below that he was not engaged in any business activity during the year under consideration. Therefore, in our considered opinion, the said unexplained deposits amounting to "27,l0,812/- i the source of which has not been satisfactorily explained by the assessee, has been correctly treated as unexplained money under section 69A of the Act and brought to tax in the assessee's hands. In this view of the matter, and finding no reason to interfere with the decision of the learned CIT(A) in the impugned order, we uphold the same. Consequently, the grounds at S.No.1 to 4 raised by the assessee being devoid of merit are dismissed.” In the present case, appellant has failed to justify cash deposited in his bank account for Rs.29,56,440 hence addition made by AO is confirmed and related ground of appeal is dismissed. 9. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 9.1 The ld. AR before us filed a paper book running from pages 1 to 37 and submitted that the entire amount of cash deposit cannot be assumed as income of the assessee. As such, there were various withdrawals from the bank by the assessee which were available with the assessee for re-deposit. 9.2 On the other hand, the learned DR vehemently supported the order of the authorities below. ITA no.269/AHD/2020 A.Y. 2014-15 7 10. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, there was cash deposit by the assessee in the year under consideration for the sum of Rs. 29,56,440/- in the bank account which was treated as income of the assessee by the authorities below. As far as cash deposited in the bank is concern, there is no dispute. The controversy arises whether the amount of cash deposit represents the income of the assessee in its entirety. In this regard, we note that there were simultaneous withdrawals as well from the bank over the period under consideration. But the authorities below have not given any benefit to the assessee on account of such withdrawals. In our considered view, if the cash deposit is treated as income then on the same logic the withdrawal from the bank in cash should be treated as an expense until and unless some contrary information is available on record. These contrary informations may include the expenses incurred by the assessee for his personal purposes such as foreign travelling, household expenses, marriages, education or any other expense of personal nature. Likewise, there is also a possibility of having withdrawn the money by the assessee from the bank for the purpose of making some investment which is of capital nature. However, the authorities below have not gone/ considered all the factual aspects but reached to the conclusion that the cash deposits represent the income of the assessee. 10.1 It is noteworthy that in the identical facts and circumstances this tribunal in the case of Mahesh K. Bhutiya ‘Parth’ vs. ITO in ITA No. 289/RJT/2019 reported in 2022 TaxPub (DT) 5115 has held as under: 6. We have heard both the parties. We have noted that the Revenue has accepted the income returned by the assessee from his business by applying 5% profit rate to his turnover of Rs. 20,85,825/-. It is evident therefore that it is an accepted fact that the assessee is a very small businessman and it is common knowledge that such small businessmen conduct almost their entire business in cash. Therefore it cannot be ruled out completely that the entire turnover of the assessee was in cash. Having said so another very pertinent fact is that neither do such small businessmen maintain any books of accounts worth its while nor are they required under law to maintain books of accounts as per Section 44AD of the Act, as per which the assessee had returned the impugned income on presumptive basis. But having said so, the assessee still needs to substantiate his turnover with certain documentary evidences so that the correct estimation of his net profits by applying the rate specified under the section can be made. However in the peculiar facts of the case before us the assessee was asked to justify this fact after a lapse ITA no.269/AHD/2020 A.Y. 2014-15 8 of six years in reassessment proceedings. Considering the fact that he was a very small businessman, operating in unorganized sector, it was asking for too much to produce bills to substantiate his turnover in cash that too after a lapse of six years. In these peculiar facts and circumstances we are of the view that having accepted the fact that the assessee had conduced business to the tune of Rs. 20 lakhs odd which in all probability was conducted in cash and the department having found out no other source of income available with the assessee, the entire deposits of Rs. 18,66,000/- in cash in the bank can be safely attributed to the business receipts of the assessee only. We may add that very small businessmen like the assessee for whom the law itself provides a convenient method for declaring their incomes by returning taxes on at a presumptive rate, thus doing away with the onerous requirement of maintaining books of account and other documents , noting that it acted as a detterent to such businessmen from declaring their income ,the Revenue is expected to take a considerate and holistic view on such matters and not waste its efforts and energies in making such paltry additions . 10.2 In the above case, the Tribunal was pleased to adopt presumptive rate for determining the income of the assessee. Relying on the above Judgment of the ITAT, we are inclined to adopt the same basis to determine the income of the assessee. Thus, we work out the income of the assessee at Rs. 2,36,500/-(round off) being 8% of total cash deposit of Rs. 29,56,440/-. Hence, the ground of appeal of the assessee is partly allowed. 11. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the Court on 01/03/2023 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 01/03/2023 Manish