ITO, Rohtak V. Shri Sh. Mahavir, Rohtak

ITA 2838/DEL/2011

• Counselvise Citation: 283820114 RSA 2011
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 04-08-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 01-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Keywords: Gift; Business income; Opportunity of being heard; Peak credit

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH E DELHI ] BEFORE SHRI RAJPAL YADAV, JM AND SHRI K. D. RAN JAN, AM I. T. APPEAL NO. 2838 (DEL) OF 2011. ASSESSMENT YEAR : 2008-09. THE INCOME-TAX OFFICER, SHRI MAHAVIR, W A R D : 2, VS. 139 A, PREE T VIHAR, R O H T A K. OLD HOUSING BOARD COLONY, R O H T A K. PAN / GIR NO. APO PM 0927 K. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI NAVIN GUPTA, ADV.; DEPARTMENT BY : SHRI R. S. NEGI, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 8-09 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS), ROHTAK. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.10,10,600/- MADE BY AO ON ACCOUNT OF UNEXPLAINED CASH DEPOSITS IN BANK. T HE ASSESSEE FAILED TO GIVE ANY DOCUMENTARY EVIDENCE AND EXPLANATION REGARDING CASH DEPOSITED BY HIM IN BANK DURING ASSESSMENT PROCEEDINGS; 2 I. T. APPEAL NO. 2838 (DEL) OF 2011. 2. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN HOLDING THE INCOME FR OM TRANSACTIONS IN SHARES AS STGC (SHORT TERM CAPITAL GAINS) INSTEAD OF INCOME F ROM SHARE TRADING BUSINESS HELD BY ASSESSING OFFICER; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.93,000/- OUT OF 1,05,000/- MADE BY AO ON ACCOUNT OF ESTIMATING THE BUSINESS IN COME AT RS.1,20,000/- INSTEAD OF RS.15,000/- SHOWN BY THE ASSESSEE, WITHO UT GIVING ANY REASONS AND BY IGNORING THE FACTS NARRATED IN THE ASSESSMENT ORDER . 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.10,10,600/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNEXPLAINED CAS H DEPOSITS IN THE BANK. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT AS PER AIR REPORT THE ASSESSEE DEPOSITED RS.10,10,600/- WITH INDUSIND BANK, ROHTAK. THE ASS ESSEE WAS ASKED THE SOURCE OF CASH DEPOSITS. IT WAS SUBMITTED BY THE ASSESSEE THAT AMOUNT OF RS. 10,10,600/- WAS DEPOSITED OUT OF SALES PROCEEDS OF KIRYANA BUSINESS AND GIFTS RECEIVED FRO M RELATIVES. HOWEVER, THE ASSESSEE FAILED TO FILE ANY SUSTAINABLE DOCUMENTARY EVIDENCE IN SUPPOR T OF ITS CONTENTION. THE ASSESSEE COULD NOT FURNISH ANY GIFT DEED, GENUINENESS OF GIFTS AND CON FIRMATIONS FROM DONORS AND CREDITWORTHINESS OF THE PARTIES. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE THE AO TREATED THE AMOUNT DEPOSITED IN THE INDUSIND BANK OF RS.10,10,600/- AS INCOME F ROM UNDISCLOSED SOURCES. 4. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED TH AT THE ASSESSEE DECIDED TO CLOSE DOWN ITS KIRYANA BUSINESS WHICH WAS EVIDENCED FROM THE FACT THE CLOSING BALANCE WAS ONLY RS.9,750/- AS ON 31 ST MARCH, 2008 AS AGAINST THAT ON 31 ST AUGUST, 2007 OF RS.4,80,500/- AND INVESTED THE SAL E PROCEEDS IN SHARES. THE SAID CASH DEPOSITS WERE MA DE IN 20 TRANSACTIONS WHEREAS THE ASSESSEE HAD ALSO WITHDRAWN RS.5,57,700/- IN 11 TRANSACTIONS OVER A PERIOD OF TIME. THE AO IGNORED THE CASH WITHDRAWALS WHICH HAVE BEEN ROTATED AND RE-DEP OSITED IN THE BANK ACCOUNT AND MADE 3 I. T. APPEAL NO. 2838 (DEL) OF 2011. ADDITION OF ENTIRE CASH DEPOSITS. IN FACT ONLY P EAK INVESTMENT OF RS.5,88,000/- COULD HAVE BEEN CONSIDERED BY THE AO. THE SOURCE OF THIS PEAK INVE STMENT WAS THE SALE PROCEEDS OF STOCK OF KIRYANA BUSINESS OF RS.4,80,000/- AND THE REMAINING FROM CASH IN HAND OF RS.69,700/- AS PER BALANCE SHEET AS ON 31 ST MARCH, 2007. IT WAS ALSO SUBMITTED IF THESE FACTS WERE TAKEN INTO ACCOUNT ENTIRE PEAK INVESTMENT STOOD EXPLAINED AND, THEREFORE, THERE WAS NO NEED FOR MAKING ANY ADDITION. THE LD. CIT (APPEALS) ON CONSIDERATION O F FACTS OBSERVED THAT THE EXPLANATION OF CIRCULATION OF CAPITAL APPEARED TO BE PLAUSIBLE AND , THEREFORE, PEAK INVESTMENT COULD BE CONSIDERED FOR EXAMINING THE SOURCE OF SUCH INVESTM ENT. THE PEAK INVESTMENT STOOD EXPLAINED ON ACCOUNT OF SALE OF OPENING STOCK OF KIRYANA BUSI NESS AND CASH AVAILABLE ON 31 ST MARCH, 2007 AND PROFITS GENERATED IN THE CURRENT YEAR AND EARLI ER YEARS. THE LD. CIT (APPEALS), THEREFORE, DELETED THE ADDITION. 5. BEFORE US THE LD. SR. DR SUBMITTED THAT THE ASSE SSEE HAD TAKEN PLEA BEFORE THE ASSESSING OFFICER THAT AMOUNT OF RS.10,10,600/- DEPOSITED IN THE BANK ACCOUNT WAS OUT OF SALE PROCEEDS OF KIRYANA BUSINESS AND GIFTS RECEIVED FROM THE RELATI VES. HOWEVER, BEFORE THE LD. CIT (APPEALS) HE HAD TAKEN A DIFFERENT STAND SAYING THAT PEAK CREDIT OF RS.5,88,000/- WAS TO BE CONSIDERED. THE AO HAD NOT CONSIDERED THE WITHDRAWALS MADE FROM THE BA NK ACCOUNT. HE FURTHER SUBMITTED THAT IF THE CLOSING STOCK OF RS.4,80,000/- IS CONSIDERED STILL AN AMOUNT OF RS.1,08,000/- WAS LEFT TO BE EXPLAINED. ON THE OTHER HAND, THE LD. AR OF THE AS SESSEE SUBMITTED THAT THE ASSESSEE HAD DEPOSITED IN THE BANK ACCOUNT THE AMOUNTS OUT OF SA LE PROCEEDS OF KIRYANA BUSINESS. THE ASSESSEE HAD WITHDRAWN AMOUNTS ON VARIOUS DATES AMO UNTING TO RS.5,57,700/-. THUS PEAK CREDIT IS AT RS.5,88,000/-. THE ASSESSEE HAD IN ADDITION TO THE SALE PROCEEDS OF KIRYANA BUSINESS THE CASH BALANCE OF RS.69,700/-. THEREFORE, THE ENTIRE AMOUNT OF RS.5,88,000/- STANDS EXPLAINED. HENCE, HE SUPPORTED THE ORDER OF THE LD. CIT (APPEA LS). 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES AND KIRYANA BUSINESS. WE HAVE GONE THROUGH THE COPY OF BANK ACCOUNT WITH INDUSIND BANK. WE FIND THAT CERTAIN SELF-CHEQUES HAD BEEN ISSUED, WHICH HA VE BEEN EN-CASHED BY SOME OTHER PERSONS. 4 I. T. APPEAL NO. 2838 (DEL) OF 2011. CHEQUE OF RS.20,000/- ON 11 TH JULY, 2007 WAS EN-CASHED BY KAPIL GOEL. SIMILARLY ON 12 TH JULY, 2007 AGAIN CHEQUE OF RS.1,00,000/- WAS ENCASHED BY SHRI KAPIL. CHEQUE OF RS.70,000/- ON 7/8/2007 WAS EN-CASHED BY SHRI ANISH. SIMILARLY, T HE CHEQUE ON 1/9/2007 HAD BEEN ENCASHED BY SHRI KAPIL. CHEQUE ON 10 TH MARCH, 2007 FOR RS.25,000/- HAS BEEN EN-CASHED BY SHRI KAPIL. THE RELATIONSHIP BETWEEN THE ASSESSEE AND S/SHRI KAPIL AND ANISH IS NOT KNOWN. THE LD. CIT (APPEALS) HAS ACCEPTED THE THEORY OF PEAK CREDIT WI THOUT RECORDING ANY FINDINGS ON THE ISSUE. HE HAD NOT EXAMINED WHETHER THE CASH WITHDRAWN HAD BEE N RE-DEPOSITED AGAIN. IN THE ABSENCE OF ANY SUCH EXAMINATION IT CANNOT BE SAID THAT AMOUNT WITHDRAWN EARLIER HAS BEEN DEPOSITED SUBSEQUENTLY. SINCE THE ISSUE HAS NOT BEEN EXAMINE D BY THE LD. CIT (APPEALS) WE FEEL IT PROPER TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTIONS TO EXAMINE THE PURPOSE FOR WHICH SAID CASH WAS WITHDRAWN AND WHAT IS THE RELATIONSHI P OF THE ASSESSEE WITH SH.KAPIL AND ANISH WHO HAD WITHDRAWN SOME OF THE CHEQUES; AS ALSO WHET HER CASH WITHDRAWN FROM THE BANK HAD BEEN UTILIZED IN DEPOSITING THE SAME IN THE BANK AC COUNT. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ISSUE AFRESH AND DECIDE THE SAME ON MER ITS, AFTER AFFORDING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 7. THE NEXT ISSUE FOR CONSIDERATION RELATES TO TREA TING THE TRANSACTIONS IN PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAINS AS AGAINST BUSIN ESS INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO SOUGHT INFORMATION ABOUT SHARE T RANSACTIONS. IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE WAS NOT INVOLVED ON SHAR E TRANSACTIONS ON DAY TO DAY BASIS. THE ASSESSEE WAS MAINLY MAKING APPLICATION IN PUBLIC IS SUE AND PURCHASED SHARES FOR INVESTMENT PURPOSES. THEREFORE, THE PROFIT EARNED ON SALE OF SHARES WAS IN THE NATURE OF CAPITAL GAINS. THE AO FROM THE DETAILS OF SHORT TERM CAPITAL GAINS FIL ED BY THE ASSESSEE NOTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SHARE TRADING ON DAY TO DAY BASIS. FOR EXAMPLE THE ASSESSEE PURCHASED SHARES OF POWER GRID ON 17/10/2007, 18/10 /2007, 24/10/2007 AND 26/09/2007 AND SOLD THOSE SHARES ON 29/10/2007, 29/10/2007, 7/11/2 007, 5/10/2007 RESPECTIVELY. AGAIN SHARES OF ICICI BANK WERE PURCHASED ON 9/2/2007 AND 17/8/2 007 WHICH WERE SOLD ON THE SAME DAY. THIS TREND WAS ALSO VISIBLE IN CASE OF OTHER SHARES . THE AO, THEREFORE, CAME TO THE CONCLUSION THE RECEIPT OF RS.7,97,782/- WAS IN THE NATURE OF T RADING RECEIPT AND INCOME OF RS.93,226/- WAS TAKEN AS INCOME FROM TRADING BUSINESS. 5 I. T. APPEAL NO. 2838 (DEL) OF 2011. 8. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED THAT THE ASSESSEE HAD ONLY 40 TRANSACTIONS DURING THE YEAR FOR INVESTMENT PURPOSES BASICALLY B Y INVESTING IN THE IPOS. THE AO HAD NOT GIVEN ANY COGENT REASON FOR TREATING THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. THE LD. CIT (APPEALS) ON CONSIDERATION OF SUBMISSIONS HELD THAT THE ASSESSEE WAS BASICALLY ENGAGED IN SHARE TRANSACTIONS FOR INVESTMENT PURPOSES AND, THEREFORE , THE PROFITS ON SALE OF SHARES WAS TO BE TREATED AS INCOME UNDER THE HEAD SHORT TERM CAPITAL GAINS . 9. BEFORE US, THE LD. SR. DR SUBMITTED THAT THE ASS ESSEE WAS DEALING IN TRADING OF SHARES AND, THEREFORE, THE AO HAS RIGHTLY TREATED THE PURC HASE AND SALE OF TRANSACTIONS AS BUSINESS INCOME. ON THE OTHER HAND, THE LD. AR OF THE ASSES SEE SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 10. WE HAVE HEARD BOTH THE PARTIES. WE HAVE GONE T HROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE DETAILS OF TRANSACTIONS IN INDUSIND BANK L TD., WE FIND THAT THE ASSESSEE HAD ISSUED CHEQUES FOR PUBLIC ISSUES. THE ASSESSEE HAD ALSO M ADE PURCHASES FROM SECONDARY MARKET THROUGH ALANKRIT ASSIGNMENTS LTD. THE ASSESSEE HAD ALSO RE CEIVED REFUND OF IPOS. NEITHER THE LD. CIT (APPEALS) NOR THE AO HAD EXAMINED THAT IN HOW MANY SHARES THE ASSESSEE APPLIED FOR PUBLIC ISSUE, WHICH WERE ALLOTTED. THE LD. CIT (APPEALS) HAS ALSO NOT GIVEN ANY FINDING AS TO WHETHER ALL THE TRANSACTIONS OF PURCHASE OF SHARES WERE FRO M IPOS. IN THE ABSENCE OF ANY SUCH FINDING, WE ARE NOT IN A POSITION TO DECIDE WHETHER THE TRANSAC TIONS INVOLVED ARE OF INVESTMENT IN NATURE OR ARE TRADING IN SHARES. IT IS ALSO A FACT THAT THE ASSESSEE HAD CLOSED DOWN ITS KIRYANA BUSINESS FOR THE PURPOSE OF DEALING IN SHARES. WE, THEREFORE, F EEL IT PROPER TO SET ASIDE THE MATTER TO THE FILE O F THE AO WITH DIRECTIONS TO EXAMINE THE NATURE OF TRA NSACTIONS INVOLVED IN PURCHASE OF SHARES AND DECIDE THE ISSUE ON MERITS, AFTER PROVIDING PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. 11. THE LAST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.93,000/- OUT OF RS.1,05,000/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF ESTIMATING BUSINESS INCOME AT 6 I. T. APPEAL NO. 2838 (DEL) OF 2011. RS.1,20,000/- INSTEAD OF RS.15,000/-. THE AO IN TH E COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE WAS NOT REGISTERED WITH SALES TAX AUTH ORITIES NOR WAS MAINTAINING ANY BOOKS OF ACCOUNTS. THE KIRYANA SHOP WAS HAVING CLOSING STOC K OF RS.4,80,560/- AT THE END OF FINANCIAL YEAR 2006-07. THEREFORE, THE TURNOVER OF SHOP SHOU LD NOT BE LESS THAN RS.40 TO 50 LAKHS PER ANNUM. THE AO ESTIMATED THE INCOME FROM KIRYAYA BU SINESS AT RS.1,20,000/- INSTEAD OF RS.15,000/- SHOWN BY THE ASSESSEE. THIS RESULTED I N ADDITION OF RS.1,05,000/-. 12. ON APPEAL THE LD. CIT (APPEALS) NOTED THAT THE AO WHILE ESTIMATING THE INCOME HAD COMPLETELY OVER LOOKED THE FACT OF CLOSING DOWN OF KIRYAYA BUSINESS. HE, THEREFORE, DELETED THE ADDITION OF RS.1,20,000/-. IN THE ABSENCE OF MAINT ENANCE OF BOOKS OF ACCOUNTS THE LD. CIT (APPEALS) WAS OF THE OPINION THAT INCOME FROM KIRYA NA BUSINESS COULD BE ESTIMATED AT RS.24,000/- UNDER SECTION 44-AF OF THE ACT. HOWEVER , SINCE, THE ASSESSEE HIMSELF ADMITTED IN ITS REPLY DATED 15/11/2010 THAT HE HAD EARNED AN INCOME OF RS.27,000/- FROM KIRYANA BUSINESS, LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ADOPT THE FIGURE OF RS.27,000/-. 13. BEFORE US THE LD. SR. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF T HE LD. CIT (APPEALS). 14. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS NARRATED ABOVE IT IS CLEAR THAT THE ASSES SEE WAS CLOSING DOWN ITS BUSINESS DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER WHILE ES TIMATING PROFITS FROM BUSINESS AT RS.1,20,000/- HAD NOT BROUGHT ANY MATERIAL ON RECOR D THAT THE ASSESSEE HAD TURNOVER BETWEEN RS.40 TO 50 LAKHS PER ANNUM. HE HAD ALSO IGNORED T HE FACT THAT THE ASSESSEE WAS CLOSING DOWN ITS KIRYANA BUSINESS. THE LD. CIT (APPEALS) HOWEVER, H AVING REGARD TO THE FACTS HAS ADOPTED THE PROFIT FROM KIRYANA BUSINESS AT RS.27,000/- WHICH W AS ADMITTED BY THE ASSESSEE IN ITS LETTER DATED 15/11/2010. IN VIEW OF THESE FACTS, IN OUR CONSIDE RED OPINION, THE ADDITION MADE BY THE ASSESSING OFFICER ESTIMATING INCOME OF RS.1,20,000/- CANNOT B E UPHELD. THE LD. CIT (APPEALS) HAS 7 I. T. APPEAL NO. 2838 (DEL) OF 2011. ESTIMATED PROFITS OF RS.27,000/- FROM KIRYANA BUSIN ESS, WHICH IN OUR CONSIDERED OPINION, APPEARS TO BE JUSTIFIED AND HENCE NO INTERFERENCE IS CALLED FOR. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED, FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 23 RD SEPTEMBER, 2011. SD/- SD/- [ RAJPAL YADAV ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 23 RD SEPTEMBER, 2011 . *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.