ITO, New Delhi V. Sh. Arun Kumar Tiwari, New Delhi

ITA 4294/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3749 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 17-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Assessee Lawyers: Y K JONE JA
• Keywords: Unexplained cash credit; Income from undisclosed sources; Peak credit; Additional evidence
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 4294(DEL)2010 ASSESSMENT YEAR: 2007-08 INCOME TAX OFFICER, SHRI ARUN KUMAR TIWARI, WARD 33(3), NEW DELHI. V. PROP. M/S. ARUN ELEC TRO, T-581, BALJEET NAGAR, NEW DELHI-8. (APPELLANT) (RESPONDENT) APPELLANT BY: MRS. ANUSHA KHURANA, SR. DR RESPONDENT BY: SHRI Y.K. JONE JA, CA ORDER PER A.D. JAIN, J.M. THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2007-08, TAKING THE FOLLOWING GROUNDS:- 1. LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF UNEXPLAINED CASH CREDITS ONLY TO THE EXTENT OF ` 1,49,110/- ON THE GROUND THAT PEAK CREDIT METHOD IS THE CORRECT M ETHOD OF DETERMINING THE INCOME IN CASE OF UNEXPLAINED CASH CREDITS AND DELETING THE REST OF THE ADDITION WHEN THE CIT(A) H AS TAKEN INTO CONSIDERATION A DETAILED CASH FLOW STATEMENT FOR TH E ENTIRE YEAR WHICH WAS FURNISHED BEFORE HIM AND A DETAILED CASH BOOK OF THE ASSESSEE FOR THE YEAR (PARA 4 OF THE CIT(A) ORDER), WHICH EVIDENCES WERE NOT PLACED BEFORE THE AO, AND EFFECT IVELY, CIT(A) HAS ADMITTED ADDITIONAL EVIDENCE IN VIOLATIO N OF RULE 46A AND THE AO HAS NOT BEEN GIVEN AN OPPORTUNITY TO EXAMINE THE SAME BY THE CIT(A) IN VIOLATION OF RULE 46A. ITA 4294(D EL)10 2 2. LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF UNEXPLAINED CASH CREDITS ONLY TO THE EXTENT OF ` 1,49,110/- ON THE GROUND THAT PEAK CREDIT METHOD IS THE CORRECT M ETHOD OF DETERMINING THE INCOME IN CASE OF UNEXPLAINED CASH CREDITS AND DELETING THE REST OF THE ADDITION, WHEN A PERUSAL O F A COPY OF THE BANK ACCOUNT IN QUESTION CLEARLY INDICATES THAT THE PEAK CREDIT METHOD IS INAPPLICABLE IN THIS CASE SINCE THE AMOU NTS REMITTED INTO THE BANK ACCOUNT ARE IMMEDIATELY WITHDRAWN AND ACCORDINGLY, THE FACTS OF THE CASE OF JHAMATMAL TAK HATMAL KIRANA MERCHANTS V. CIT, 152 CTR 311(MP) ARE SQUARE LY APPLICABLE TO THE CASE SINCE THE STATEMENT OF CREDI TING AND DEBITING ITSELF SHOWS THAT THERE IS NO QUESTION OF PEAK CREDIT INVOLVED IN THE MATTER AND IT IS ONLY A MATTER OF J UGGLERY DEVISED BY THE ASSESSEE TO SOMEHOW EVADE THE INCOME TAX WHI CH ASPECT OF THE MATTER HAS NOT BEEN EXAMINED BY THE CIT(A) W HO HAS ACCORDINGLY ERRED IN APPLYING PEAK CREDIT METHOD IN THE CASE. 2. THE AO RECEIVED AIR INFORMATION THAT THE ASSESSE E HAD DEPOSITED CASH OF ` 12,17,188/- IN KOTAK MAHINDRA BANK. ON QUERY IN THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE S TATED THAT HE WAS MAINTAINING CASH CREDIT ACCOUNT WITH CENTRAL BANK O F INDIA, BHAGIRATHI PALACE BRANCH, SINCE IT WAS NOT POSSIBL E CARRYING CASH TO AND FROM THE ASSESSEES FACTORY AT NOIDA ; THAT HE HAD MAINTAINED A BANK ACCOUNT WITH KOTAK MAHINDRA BANK WITH AT PAR F ACILITY; AND THAT HE USED THE BANK ACCOUNT FOR DEPOSIT OF CASH AND CO LLECTION FROM PAPERS OUT OF WHICH HE HAS WITHDRAWN FRO PAYMENT OF EXPENSES AND PAYMENT TO CREDITORS. THE AO OBSERVED THAT THE SA ID SAVINGS BANK ACCOUNT OF THE ASSESSEE HAD NOT BEEN REFLECTED IN T HE ASSESSEES ITA 4294(D EL)10 3 BALANCE SHEET. CONCLUDING THAT THE AMOUNT OF ` 12,17,188/- WAS USED BY THE ASSESSEE FOR DEPOSITING IT AS INCOME FROM OT HER SOURCES, THE AO ADDED THE ENTIRE CREDITS MADE IN THE BANK ACCOUNT, AMOUNTING TO ` 12,17,188/-, AS THE INCOME OF THE ASSESSEE U/S 68 O F THE I.T. ACT. 3. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION TO THE EXTENT OF ` 10,68,078/-, WHILE CONFIRMING THE ADDITION TO THE EXTENT OF ` 1,49,110/-. 4. AGGRIEVED, THE DEPARTMENT HAS FILED THE PRESENT APPEAL. 5. CHALLENGING THE IMPUGNED ORDER, THE LD. DR HAS A RGUED THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF UNEXPLAINED CASH CREDITS ONLY TO THE EXTENT OF ` 1,49,110/-; THAT THE LD. CIT(A) ERRED IN OBSERVING THAT THE PEAK CREDIT METHOD WAS THE CORRE CT METHOD OF DETERMINING THE INCOME IN THE CASE OF THE ASSESSEE; THAT WHILE DELETING THE ADDITION, THE LD. CIT(A) HAS ERRED IN CONSIDERI NG A DETAILED CASH FLOW STATEMENT FOR THE ENTIRE YEAR AND A DETAILED C ASH BOOK OF THE ASSESSEE, WHICH DOCUMENTS WERE NEITHER PRODUCED BEF ORE THE AO NOR PUT TO THE AO BY THE LD. CIT(A); THAT THE LD. CIT(A )HAS ERRED IN NOT TAKING INTO ACCOUNT THE FACT THAT THE BANK ACCOUNT OF THE ASSESSEE CLEARLY INDICATED THAT THE PEAK CREDIT METHOD WAS INAPPLICABLE, SINCE ITA 4294(D EL)10 4 THE AMOUNTS REMITTED INTO THE BANK ACCOUNT WERE IMM EDIATELY WITHDRAWN; THAT THE DECISION IN JHAMATMAL TAKHATMA L KIRANA MERCHANTS V. CIT, 152 CTR 311(MP) IS SQUARELY APPL ICABLE, SINCE THE STATEMENT OF CREDITING AND DEBITING ITSELF SHOW S THAT THERE IS NO QUESTION OF PEAK CREDITS INVOLVED. 6. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, STRONGLY RELIED ON THE IMPUGNED ORDER. 7. APROPOS THE ADDITIONAL EVIDENCE ALLEGEDLY CONSID ERED BY THE LD. CIT(A) AT THE BACK OF THE AO, THE LEARNED COUNS EL HAS CONTENDED THAT NO FRESH EVIDENCE WAS FILED BEFORE T HE LD. CIT(A) AND THAT THE CASH FLOW STATEMENT ONLY SHOWED THAT A FTER ACCOUNTING FOR CASH WITHDRAWALS, THE PEAK CREDIT AS ON 1.2.06 WAS OF ` 1,49,110/- AND THAT THE REST OF THE DOCUMENTS WERE ALREADY BEFORE THE AO. ON MERITS, IT HAS BEEN SUBMITTED THAT THE LD. CIT(A) HAS CORRECTLY OBSERVED THAT THE PEAK CREDIT METHOD WAS THE CORRECT METHOD OF DETERMINING THE INCOME IN THE CASE OF UNE XPLAINED CASH CREDITS. 8. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. THE ASSESSEE IS ENGAGED IN MANUFACTURING OF ELECTRICAL COMPONENTS. DURING THE YEAR, HE HAD MADE SALES OF ` 19,33,479/-, ITA 4294(D EL)10 5 DECLARING PROFIT OF ` 15,14,940/- AND A G.P. RATIO OF 17.06%. THE ASSESSEE HAD DEPOSITED CASH OF ` 12,17,188/- IN HIS SAVINGS BANK ACCOUNT WITH KOTAK MAHINDRA BANK. BEFORE THE AO, HE SUBMITTED THAT HE WAS MAINTAINING HIS CASH CREDIT A CCOUNT WITH CENTRAL BANK OF INDIA, BHAGIRATHI PALACE BRANCH; TH AT SINCE THE BANK WAS SITUATED FAR AWAY FROM HIS BUSINESS PLACE AND IT WAS NOT POSSIBLE TO CARRY CASH TO AND FROM HIS FACTORY AT N OIDA, HE HAD MAINTAINED A BANK ACCOUNT WITH KOTAK MAHINDRA BANK WITH AT PAR FACILITY. DURING THE YEAR HE HAD USED HIS BANK ACC OUNT WITH DEPOSIT AND COLLECTION FROM DEBTORS AND HE WITHDREW CASH FO R PAYMENT OF EXPENSES AND PAYMENT TO CREDITORS; THAT HE HAD NOT DEPOSITED CASH OF ` 12,17,188/- IN ONE STROKE AND HE HAD DEPOSITED AND WITHDRAWN CASH DURING WHOLE OF THE YEAR AS PER HIS BUSINESS R EQUIREMENTS. THE AO OBSERVED THAT THE SAVINGS BANK ACCOUNT OF TH E ASSESSEE WITH KOTAK MAHINDRA BANK HAD NOT BEEN REFLECTED IN THE ASSESSEES BALANCE SHEET; THAT THE CASH TRANSACTIONS IN THE BA NK HAD NOT BEEN EVEN ROUTED THROUGH CAPITAL ACCOUNT OF THE ASSESSEE , FROM WHICH IT WAS EVIDENT THAT THE ASSESSEE HAD BEEN USING THE SA VINGS BANK ACCOUNT FOR THE DEPOSITS OF INCOME FROM UNDISCLOSED SOURCES. ITA 4294(D EL)10 6 9. THE LD. CIT(A) WHILE RESTRICTING THE ADDITION T O ` 1,49,114/- AND GIVING THE ASSESSEE A RELIEF OF ` 10,68,078/-, OBSERVED THAT THE ASSESSEE HAD NOT BEEN ABLE TO FURNISH ANY SATISFACT ORY EXPLANATION ABOUT THE NON-DISCLOSURE OF THE BANK ACCOUNT AND SO , HE HAD REMAINED UNABLE TO SUBSTANTIATE THE SOURCE OF DEPOS ITS MADE IN CASH. WHILE HOLDING THAT THE PEAK CREDIT METHOD W AS TO BE APPLIED IN THE CASE OF UNEXPLAINED CASH CREDITS, THE LD. CI T(A) PLACED RELIANCE ON RAJKOT BENCH DECISION OF THE TRIBUNAL I N THE CASE OF ITO V. MAHESH KUMAR JAYANTI LAL VORA. 10. THE DEPARTMENT, ON THE OTHER HAND, HAS PLACED R ELIANCE ON JHAMATMAL TAKHATMAL KIRANA MERCHANTS V. CIT(SUPRA ). 11. FURTHER, RELIANCE HAS ALSO BEEN PLACED ON BHAI YALAL SHYAM BEHARI V. CIT 276 ITR 38(ALL). 12. IN ACIT V. CHETAN DASS 99 ITR 46(DEL), THE AS SESSEE HAD ADVANCED LOAN OF THREE SUMS AMOUNTING TO ` 30,000/-, IN MARCH, 1963. THE AO ADDED THE AMOUNT OF ` 30,000/- AS THE ASSESSEES INCOME FROM UNDISCLOSED SOURCES. THE TRIBUNAL DIR ECTED THE DELETION OF THIS AMOUNT, OBSERVING THAT THE SUM WAS MORE THAN COVERED BY THE WITHDRAWALS OF ` 50,000/- IN CERTAIN OTHER ACCOUNTS ITA 4294(D EL)10 7 MADE BARELY TWO MONTHS EARLIER AND THE DEPOSITS IN WHICH ACCOUNTS HAD ALSO BEEN BROUGHT TO TAX AS INCOME FROM UNDISCL OSED SOURCES. THE HONBLE HIGH COURT UPHELD THE DECISION OF THE T RIBUNAL. 13. CHETAN DASS(SUPRA), IT IS SEEN, WAS RELIED ON IN ITO V. MAHESH KUMAR JAYANTI LAL VORA (SUPRA). 14. IN BHAIYALAL SHYAM BEHARI V. CIT(SUPRA), IT W AS HELD THAT IN ORDER TO RAISE THE PLEA OF PEAK CREDIT, THE ACT UAL FOUNDATION HAS TO BE LAID BY THE ASSESSEE ALL CASH CREDIT ENTRIES IN THE BOOKS OF ACCOUNT AND ONLY THEREAFTER CAN THE QUESTION OF PEA K CREDIT BE RAISED. I5. IN S.KUPPUSWAMI MUDALIAR V. CIT 51 ITR 757 (MAD), IT WAS HELD THAT WHERE THE INCOME TAX AUTHORITIES MAKE AN ADDITION TO THE INCOME OF THE ASSESSEE OVER AND ABOVE THE IN COME AS DISCLOSED BY THE ASSESSEE, ON AN ESTIMATE BASIS, TH E AMOUNT SO ADDED MUST BE TREATED AS THE REAL INCOME OF THE ASS ESSEE; THAT IT IS NOT OPEN TO THE AUTHORITIES TO TAKE A VIEW THAT THE ADDITION WAS ONLY FOR PURPOSES OF TAXATION AND THAT IT SHOULD NO T BE REGARDED AS THE TRUE INCOME OF THE ASSESSEE. ITA 4294(D EL)10 8 16. IN THE PRESENT CASE, IT IS SEEN THAT THERE ARE REPEATED BANK TRANSACTIONS OF THE ASSESSEE (PAGES 6 TO 9 OF THE A SSESSEES PAPER BOOK), AS AVAILABLE FROM THE ASSESSEES BANK STATEM ENT WITH KOTAK MAHINDRA BANK LTD. THAT BEING SO, THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING TO APPLY THE PEAK CREDIT METHOD. THE AS SESSEE HAD BEEN DRAWING CASH FROM HIS ACCOUNT AND HAD ALSO BEEN DEP OSITED CASH THEREIN. AS SUCH, THE AO OUGHT TO HAVE ALLOWED TH E BENEFIT OF WITHDRAWALS MADE BY THE ASSESSEE FROM THE SAME BANK ACCOUNT, WHICH HAD NOT BEEN DONE. THE AMOUNT OF ` 1,49,110/- REPRESENTED THE PEAK DEFICIT AMOUNT AS ON 1.2.07. IF THIS AMO UNT WAS AVAILABLE WITH THE ASSESSEE, ALL THE DEPOSITS IN THE BANK ACC OUNT COULD HAVE BEEN EXPLAINED AND THERE WOULD HAVE LEFT SURPLUS OF ` 1,31,222/- WITH THE ASSESSEE. 17. IN VIEW OF THE ABOVE, FINDING NO ERROR WITH THE ORDER OF THE LD. CIT(A), THE SAME IS HEREBY CONFIRMED. 18. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.06.2011. SD/- SD/- ITA 4294(D EL)10 9 (G.E. VEERABHADRAPPA) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: 10.06.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR