THE ITO, Visakhapatnam V. J Lakshmi Narayana Kumar, Visakhapatnam

ITA 287/VIZ/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8725 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 03-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIM R BANGARI
• Keywords: Unexplained cash credit; Charitable institution; Peak credit
• Section: 68

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.287/VIZ/2015 ( / ASSESSMENT YEAR:2011-12 ) INCOME TAX OFFICER WARD-3(3) VISAKHAPATNAM VS. SRI J LAKSHMI NARAYANA KUMAR D.NO.9-6-91/8 OPP.SIVAJI PARK SIVAJIPALEM, VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRIM.R.BANGARI, DR / RESPONDENT BY : SHRI G.V.N.HARI, AR / DATE OF HEARING : 28.02.2018 / DATE OF PRONOUNCEMENT : 09.03.2018 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) [CIT(A)]-1, VI SAKHAPATNAM VIDE ITA NO.1195/2013-14/ITO/W-3(1), VSP/2015-16 DATED 2 2.04.2015FOR THE ASSESSMENT YEAR 2011-12. 2 ITA NO.287/VIZ/2015 SRI J.LAKSHMI NARAYANA KUMAR, VISAKHAPATNAM 2. IN THIS CASE, THE ASSESSEE FILED RETURN OF INCOM E DECLARING TOTAL INCOME OF RS.5,57,390/- ON 28.09.2011. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED ON TOTAL INCOME OF RS.58,14,450/-. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER(AO) MADE THE FOLLOWING ADDITIONS TO THE RETURNED INCOME WHICH WE RE DISPUTED BY THE ASSESSEE : (I) UNEXPLAINED CASH CREDITS - RS.43,42,300/- (II) BONUS AND ACCOUNTING CHARGES RS. 2,16,000/- (III) STAFF SALARIES RS. 6,48,000/- 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE W ENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) RESTRICTED THE DISALLO WANCE OF STAFF BONUS TO10% AND ACCOUNTING CHARGES TO15% OF THE EXPENSES INCURRED. WITH REGARD TO UNEXPLAINED CASH CREDITS U/S 68, THE LD.C IT(A) DIRECTED THE AO TO MAKE THE ADDITION OF PEAK CREDIT. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REV ENUE IS IN APPEAL BEFORE THIS TRIBUNAL AND THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE LD. CIT(A) IS CONTRARY TO THE FACT S AND TO THE LAW APPLICABLE TO THE FACTS OF THE CASE. 3 ITA NO.287/VIZ/2015 SRI J.LAKSHMI NARAYANA KUMAR, VISAKHAPATNAM 2. THE LD. CIT(A) ERRED IN DISALLOWING ONLY 10% OF THE EXPENDITURE CLAIMED ON ACCOUNT OF SALARIES OF RS. 21,60,000/-, AS AGAINST THE 30% DISALLOWED BY THE A.O, CONSIDERING THE FACT THAT TH E EXPENDITURE CLAIMED AGAINST SALARIES WAS UNREASONABLY HIGH. 3. THE LD. CIT(A) ERRED IN DISALLOWING ONLY 10% OF THE EXPENDITURE CLAIMED TOWARDS STAFF BONUS PAID OF RS. 1,80,000/- AS AGAINST THE WHOLE AMOUNT BEING DISALLOWED BY THE A.O, CONSIDERI NG THE FACT THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY BILLS OR VOU CHERS IN SUPPORT OF HIS CLAIM. 4. THE LD. CIT(A) ERRED IN DISALLOWING ONLY 15% OF THE EXPENDITURE CLAIMED TOWARDS ACCOUNTING CHARGES OF RS. 36,000/-, AS AGAINST THE TOTAL AMOUNT BEING DISALLOWED BY THE A.O, CONSIDERI NG THE FACT THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY BILLS OR VOU CHERS IN SUPPORT OF HIS CLAIM. 5. THE LD. CIT(A) ERRED IN HOLDING THAT THE PEAK CREDI T IN THE ASSESSEE'S BANK ACCOUNT WITH REGARD TO CASH WITHDRA WALS AND DEPOSITS MAY BE BROUGHT TO TAX AS AGAINST THE TOTAL UNEXPLAINED CASH CREDITS ADDED TO THE ASSESSEE'S INCOME BY THE A.O. RELIANCE IS PLACED IN THIS REGARD IN THE ORDER OF THE HON'BLE I TAT, MUMBAI, IN THE CASE OF M.H RANEY VS. 110(145 LTD 573(MUM), IN WHICH THE HON'BLE ITAT HELD THAT UNLESS THE ASSESSEE EXPLAINS THE NATURE OF CASH DEPOSITS IN THE BANK AND THEIR UTILIZATION SAT ISFACTORILY, THE PEAK CREDIT METHOD IS NOT APPLICABLE. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF H EARING. 5. GROUND NO. 1 AND 5 ARE GENERAL IN NATURE, WHICH DO NOT REQUIRE SPECIFIC ADJUDICATION. 6. GROUND NO.2 IS AGITATED AGAINST DISALLOWANCE OF STAFF SALARIES TO 10% AGAINST THE DISALLOWANCE MADE BY THE AO AT 30%. 4 ITA NO.287/VIZ/2015 SRI J.LAKSHMI NARAYANA KUMAR, VISAKHAPATNAM 7. GROUND NO.3 IS RELATED TO THE RESTRICTION OF DIS ALLOWANCE OF STAFF BONUS TO 10% AS AGAINST COMPLETE DISALLOWANCE MADE BY THE A.O. 8. GROUND NO.4 IS RELATED TO THE RESTRICTION OF DIS ALLOWANCE TO 15% ON ACCOUNT OF ACCOUNTING CHARGES AS AGAINST TOTAL AMOU NT BEING DISALLOWED BY THE AO DURING THE ASSESSMENT PROCEEDINGS. 9. DURING THE APPEAL HEARING, THE LD. DR SUPPORTED THE ORDERS OF THE AO WHILE THE LD.AR RELIED ON THE ORDERS OF THE CIT. 10. WE HAVE HARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED ON RECORD. GROUND NOS.2, 3 AND 4 ARE RELATED TO THE D ISALLOWANCE OF EXPENDITURE UNDER VARIOUS HEADS IN RESPECT OF SALAR IES, BONUS, ACCOUNTING CHARGES. THE AO DISALLOWED 30% OF THE SALARIES PAI D WITHOUT ASSIGNING ANY REASON. SIMILARLY, IN RESPECT OF BONUS AND ACCOUNTI NG CHARGES ENTIRE AMOUNT WAS DISALLOWED BY THE AO. LD.CIT HAS CONSID ERED THE ISSUE VERY CAREFULLY AND HELD THAT DISALLOWANCE OF 10% OF EXPE NDITURE IN RESPECT OF SALARIES AND BONUS AND 15% OF EXPENDITURE IN RESPEC T OF ACCOUNTING CHARGES WOULD MEET THE ENDS OF JUSTICE. FOR READY REFERENCE, WE EXTRACT RELEVANT PARAGRAPHS OF THE ORDER OF THE LD.CIT WHIC H READS AS UNDER : 7.2 DURING THE APPEAL HEARING, THE AR REPRESENTED THAT THE EXPENDITURE INCURRED TOWARDS SALARIES, STAFF BONUS AND ACCOUNTI NG CHARGES WERE ROUTINE EXPENSES AND CONSIDERING THE TURNOVER OF TH E ASSESSEE, THE 5 ITA NO.287/VIZ/2015 SRI J.LAKSHMI NARAYANA KUMAR, VISAKHAPATNAM EXPENSES CLAIMED CANNOT BE SAID TO BE HIGH. THE ASS ESSEE FILED COPIES OF VOUCHERS FOR THESE EXPENSES BUT NO CREDENCE COULD B E GIVEN AS THEY WERE NOT PRODUCED BEFORE THE AO. THE ASSESSEE ALSO SUBMI TTED INFORMATION THAT THE PERCENTAGE OF EXPENSES INCURRED TOWARDS SALARIE S WAS 3.36% OF THE TURNOVER FOR THE SUBJECT YEAR AND IT WAS 3.57/N FO R AY 2010-11 & 2.69% FOR AY 2009-10. THE NET PROFIT DECLARED FOR AY 2009 -10 WAS 1.12%, FOR AY 2010-11 IT WAS 0.36% AND FOR THE SUBJECT YEAR IT WA S 0.37%. TAKING INTO CONSIDERATION THESE DETAILS, I CONSIDER IT REASONAB LE AND FAIR TO ESTIMATE THE DISALLOWANCE TOWARDS SALARIES & STAFF BONUS AT 10% OF THE EXPENDITURE CLAIMED AND EXPENDITURE TOWARDS ACCOUNT ING CHARGES AT 15% OF EXPENDITURE CLAIMED. ACCORDINGLY THE AO MAY RECOMPUTE THE TOTAL INCOME. 11. DURING THE APPEAL HEARING, THE LD. DR DID NOT B RING ANY TANGAIBLE MATERIAL TO SUBSTANTIATE THE DISALLOWANCE OF SALARI ES AT 30% AND DISALLOWANCE OF ENTIRE EXPENDITURE IN RESPECT OF ST AFF BONUS AND ACCOUNTING CHARGES. NO OTHER MATERIAL WAS PLACED ON RECORD BE FORE US TO CONTROVERT THE FINDING OF LD.CIT(A). THEREFORE, WE DO NOT FIN D ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AND ACCORDINGLY GRO UND NOS.2,3 AND 4 OF REVENUES APPEAL ARE DISMISSED. 12. GROUND NO.5 IS RELATED TO THE ADDITION OF RS.43 ,42,300/- IN RESPECT OF CASH DEPOSITS MADE IN THE BANK ACCOUNT, U/S 68 OF T HE I.T. ACT. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND AS PER AIR INF ORMATION, THAT THE ASSESSEE HAD SAVINGS BANK ACCOUNT NO.01730010002356 2 IN M/S 6 ITA NO.287/VIZ/2015 SRI J.LAKSHMI NARAYANA KUMAR, VISAKHAPATNAM DHANALAXMI BANK, VISAKHAPATNAM AND HAD MADE CASH DE POSITS ON VARIOUS DATES TO THE TUNE OF RS.53,42,300/- IN THE BANK ACC OUNT. THE ASSESSEE EXPLAINED THE CASH DEPOSITS OF RS.10 LAKHS WHICH WA S RECEIVED FROM SRI V. KONDAPPA NAIDU BY WAY OF ACCOUNT PAYEE CHEQUE ON 28 .04.2010 BEARING CHEQUE NO.46608 DEPOSITED IN HIS SB ACCOUNT NO.0173 00100023562. THEREFORE, THE AO MADE THE BALANCE AMOUNT OF RS.43, 42,300/- AS UNEXPLAINED CASH CREDITS U/S 68 OF I.T.ACT AFTER E XCLUDING THE SUM OF RS.10.00 LACS. 13. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND ARGUED THAT THE ASSESSEE HAD MADE CA SH WITHDRAWALS FROM HIS SB ACCOUNT WHICH WERE USED FOR CASH ADVANCES TO THE STAFF MEMBERS AS AND WHEN REQUIRED. THE LD.CIT(A) COULD NOT RULE OU T CASH WITHDRAWALS FORMING SOURCE FOR SUBSEQUENT CASH CREDITS SINCE TH ERE IS NO OTHER EVIDENCE PLACED ON RECORD TO SHOW THAT CASH WITHDRAWALS WERE INCURRED TOWARDS OTHER EXPENSES. THEREFORE, THE LD.CIT(A) DIRECTED THE AO TO COMPUTE THE PEAK CREDIT TO TAX. 14. AGGRIEVED BY THE ORDER OF THE LD.CIT, THE REVEN UE HAS FILED APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, T HE LD.DR ARGUED THAT THE 7 ITA NO.287/VIZ/2015 SRI J.LAKSHMI NARAYANA KUMAR, VISAKHAPATNAM LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO TAX THE PEAK CREDITS INSTEAD OF THE ENTIRE CASH DEPOSITS. THE LD. DR ARGUED THAT T HE ASSESSEE REQUIRED TO EXPLAIN THE SOURCE OF EACH DEPOSIT MADE IN THE BANK ACCOUNT FAILING WHICH THE ENTIRE CASH DEPOSITS REQUIRED TO BE BROUGHT TO TAX. LD. DR RELIED ON THE ORDERS OF THE ITAT MUMBAI BENCH IN THE CASE OF LAT E MR. M.H. RANEY VS. ITO [145 ITD 573]. 15. ON THE OTHER HAND, THE LD.AR RELIED ON THE ORDE RS OF THE CIT(A). 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE IS HAVING A BANK ACCOUNT IN D HANALAKSHMI BANK AND MADE CASH DEPOSITS TO THE TUNE OF RS.42,300/- OUT O F WHICH A SUM OF RS.10 LAKHS WAS EXPLAINED BY THE ASSESSEE. THE ASSESSEE ARGUED BEFORE THE AO AS WELL AS LD.CIT(A) THAT HE USED TO GIVE ADVANCES TO THE STAFF FROM THE AMOUNTS WITHDRAWN FROM THE SB ACCOUNT AND THE SAME WERE DEPOSITED BACK INTO THEIR BANK ACCOUNT. THE ARGUMENT OF THE ASSESSEE WAS THAT THE CASH DEPOSITS WERE MADE IN THE BANK ACCOUNT OUT OF WITHDRAWALS. THERE WAS NO OTHER EVIDENCE BROUGHT BY THE REVENUE BEFORE US INDICATING THAT THE CASH WITHDRAWALS WERE USED FOR ANY OTHER PURPOSE EI THER FOR EXPENDITURE OR FOR ANY OTHER INVESTMENTS. IN THE ABSENCE OF AN Y OTHER EVIDENCE AS 8 ITA NO.287/VIZ/2015 SRI J.LAKSHMI NARAYANA KUMAR, VISAKHAPATNAM OBSERVED BY THE LD.CIT(A), THE POSSIBILITY OF CASH WITHDRAWALS FORMING SOURCE FOR THE SUBSEQUENT CASH CREDITS CANNOT BE RU LED OUT. THE LD. CIT(A) OBSERVED FROM THE BANK STATEMENT THAT THE ASSESSEE HAS WITHDRAWN THE CASH AND REDEPOSITED THE SAME IN THE BANK ACCOUNT. THE DECISION RELIED UPON BY THE REVENUE IS DISTINGUISHABLE ON FACTS IN RESPECT OF INCONSISTENCY WITH NOT ONLY EXPLANATION OF AMOUNTS BEING USED FOR CHARITABLE PURPOSES BUT ALSO THE FACT OF SAME BEING WITHDRAWN IN CASH A ND ALSO BY CHEQUES OSTENSIBLY FOR PERSONAL PURPOSES ON RECURRING BASIS . THE HONBLE ITAT OBSERVED THAT THE PATTERN OF WITHDRAWAL REVEALED TH AT ACCOUNT TO BE EMPLOYED FOR TRANSFER OF FUNDS IN MAIN, I.E. DEPOSI T OF CASH IN ONE PLACE AND ITS WITHDRAWAL AT ANOTHER PLACE AND THE ASSESSEE WA S UNABLE TO DISCHARGE THE ONUS OF SATISFACTORY EXPLANATION QUA CASH DEPOS ITS. THEREFORE, THE CASE LAW RELIED UPON BY THE REVENUE IS DISTINGUISHABLE O N FACTS AND NOT APPLICABLE IN ASSESSEES CASE. THE CIT(A) HAS OBSE RVED THAT THE BANK ACCOUNT CLEARLY INDICATES THE POSSIBILITY OF CASH W ITHDRAWALS FORMING PART OF SOURCE FOR SUBSEQUENT CASH CREDITS AND NO OTHER EVIDENCE WAS SHOWN BY THE REVENUE DEMONSTRATING THAT THE CASH WITHDRAWALS ARE USED FOR ANY OTHER PURPOSE EITHER FOR PERSONAL OR BUSINESS CREDI TS. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AN D THE SAME IS UPHELD. APPEAL OF THE REVENUE IS DISMISSED ON THIS GROUND. 9 ITA NO.287/VIZ/2015 SRI J.LAKSHMI NARAYANA KUMAR, VISAKHAPATNAM 17. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 9 TH MARCH, 2018. SD/- SD/- ( . ) ( ! . . # ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM $ /DATED : 09.03.2018 L.RAMA, SPS & ' / COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT- 2. / THE RESPONDENT 3. THE COMMISSIONER OF INCOME TAX-2, VISAKHAPATNAM 4.THE COMMISSIONER OF INCOME TAX(APPEALS)-2, VISAKHA PATNAM 5. * , * , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM