SHRI BHAGWATI FARMS, ALWAR V. DCIT, Central Circle, Alwar

ITA 452/JPR/2024

• Counselvise Citation: [2024] 103 COUNSELVISE.COM (IT) 3898 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-08-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 08-04-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONISHA CHOUDHARY
• Assessee Lawyers: P.C. PARWAL
• Keywords: Business income; Rejection of books of accounts
• Section: 153A; 68; 69; 13; 69A; 20

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC’’ JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ds le{k BEFORE: Hon’ble SHRI SANDEEP GOSAIN, JUDICIAL MEMBER vk;dj vihy la-@ITA No. 452/JP/2024 fu/kZkj.k o"kZ@Assessment Year : 2017-18 Shri Bhagwati Farms Bhagwati Sadan Swami Dayanand Marg, Alwar cuke Vs. The DCIT Central Circle Alwar LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJFS 8812 K vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by : Shri P.C. Parwal, CA jktLo dh vksj ls@Revenue by: Mrs. Monisha Choudhary, Addl. CIT-DR lquokbZ dh rkjh[k@Date of Hearing : 20/08/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 02 /09/2024 vkns'k@ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A)- 4, Jaipur dated 20-02-2024 for the assessment year 2017-18 raising therein following grounds of appeal. ‘’1. That the ld. assessing officer has erred in law as well as on the facts and circumstances of the case in giving a finding in the assessment order that the partners could not introduce the SBN in the capital account being not legal tender, this finding is an erroneous finding in as much as the partners have not introduced the SBN in the firm during the demonetization period, thus the disallowance is made on the wrong premises and the learned Commissioner of Income-Tax (Appeals)-IV has erred in not deciding the said ground of appeal in the order appealed against. 2 ITA NO. 452/JP/2024 M/S. SHRI BHAGWATI FARMS VS DCIT, CENTRAL CIRCLE, ALWAR 2. That the ld. assessing officer has erred in law as well as facts and circumstances of the case in making an addition of Rs.1325000.00/- on account of unexplained money deposited during the demonetization period by way introduction of capital through partners within the meaning of Section 69A r.w.s. 115BBE of the Income Tax Act, 1961 and ld Commissioner of Income-Tax (Appeals)-IV has erred in sustaining a sum of Rupees 1225000.00 out of the same. 2.1 Both the grounds raised by the appellant are interconnected and interrelated and relates to challenging the order of ld. CIT(A) in confirming and sustaining the addition made by the AO on account of unexplained money deposited during the demonetisation period. Therefore the Bench has decided to dispose off these Grounds through the present common order The Bench has heard the Counsel for both the parties and have also perused the material/documents placed on record, judgements cited by the respective parties as well as orders passed by the revenue authorities. From the records, the Bench noticed that the assessee filed the return of income declaring Nil and Agriculture Income of Rs.16,25,700/-. During the year under consideration, the following five partners of the assessee introduced capital on 8.11. 2016. Name of Partner Amount Saurabh Data Rs.3,00,000/- Vijay Kumar Data Rs.3,00,000/- Niranjan Lal Data Rs.2,75,000/- Nirmala Devi Rs.2,00,000/- Gayatri Devi Rs.1,50,000/ 3 ITA NO. 452/JP/2024 M/S. SHRI BHAGWATI FARMS VS DCIT, CENTRAL CIRCLE, ALWAR As per the case setup by the assessee initially the assessee had cash in hand of Rs. 3,60,103/- as on 3rd November 2016 and after the receipt of capital contribution the cash in hand of the assessee increased to Rs.15,85,103/- and out of this amount the assessee had deposited a sum of Rs.13,25,000/- in the bank account on 18.11. 2016. But on the contrary the AO observed that during the demonetisation period SBN were not legal tender and therefore partners could not introduced the SBN in the capital account and hence treated the said amount of Rs.13,25,000/- deposited during the demonetization period as unexplained money under section 69A of the Income Tax Act and taxed the same under section 115 BBE of the Act. 2.2 On appeal ld. CIT(A) accepted the cash deposit of Rs.1.00 and confirmed the remaining addition of Rs.12,25,000/- under section 69 of the Act or alternatively under section 68 of the act by observing as under. (i) The partners never in the past introduced capital in cash. It is very abnormal that on the date of announcement of demonetization all the partners introduced capital through cash. (ii) There was no urgency for introduction of capital by the 5 partners in cash in as much as assessee was having cash in hand of Rs.3,62,118/- on 01.11.2016. Though there is no bar that partners cannot introduce capital in cash but the peculiar circumstances made the entire transaction abnormal and beyond human probabilities. iii. The entry made in the books on 08.11.2016 is not bonafide and it has been created after 8 PM of 08.11.2016 when the demonetization was announced to accommodate the already available demonetized currency. iv. The assessee has furnished cash flow statement of partners but the same are summary statements and not audited, hence cannot be verified. The major component in the cash 4 ITA NO. 452/JP/2024 M/S. SHRI BHAGWATI FARMS VS DCIT, CENTRAL CIRCLE, ALWAR flow statement is drawings which are fluctuating. Further though the cash flow statement shows cash in hand of the partners but that does not mean that cash was actually available with the partner on that date. Cash flow statement has been filed only of 3 partners. Hence adverse inference is required to be drawn against the assessee. v. The Ld. CIT(A) relied on the decision of Vivek & Jajodiya Vs. ITO (2010) 123 ITR 136 for preponderance of probability, decision of Hon’ble Supreme Court in case of Sreelekha Banerjee Vs. CIT (1963) 49 ITR 112, Madras High Court in case of Durai Murugan Kathir Anand Vs. Addl. CIT (2022) 443 ITR 423 to hold that onus is on the assessee to prove that funds deposited in his bank account are from the sources from which it is being claimed but assessee has not discharged the onus of showing the genuineness of transaction and identity of the transaction. vi. AO is not required to show the source of money deposited in the bank account. The explanation of the assessee is to be seen in totality and as a whole. The claim of assessee is not supported by preponderance of probability in its favour. The cash flow statement of three partners does not show the true picture and are not reliable. 2.3 During the course of hearing, the ld.AR of the assessee filed a written submission praying therein to delete the addition confirmed by the ld.CIT(A). 2.4 On the other hand, the ld. DR supported the order of the ld.CIT(A). 2.5 After having minutely going through the facts of the case I noticed that the AO made the additions under section 69A by presuming that partners introduced the capital during the demonetization period in SBN which was not a legal tender. But as per records these facts are not correct as the partner had introduced the capital on 8.11.2016 which was prior to demonetization. The AO has not brought on record any evidence to demonstrate that assessee had any other source of income except the Agriculture Income which is exempt from the tax. In this regard the attention of the Bench was drawn to the fact and the documents which reflects 5 ITA NO. 452/JP/2024 M/S. SHRI BHAGWATI FARMS VS DCIT, CENTRAL CIRCLE, ALWAR that assessee had been regularly declaring the Agriculture Income which was accepted by the AO therefore in such a circumstances even the presumption of the revenue authorities that Amount deposited in the bank account during demonetization period is unexplained money of the Appellant is not correct. More particularly when such deposit is verifiable from the books of accounts which are primarily out of the capital introduced by the partners. I have also noticed that AO has not rejected the books of accounts of the appellant and has not pointed out any taxable source of income of the Appellant. It is a fact that strict rule of evidence do not apply to the income tax proceedings and thus human conduct and preponderance of the probabilities needs to be considered before making any addition under section 69 inasmuch as the section uses the word 'may' and not 'shall'. Therefore in my view even if the source of deposit in the bank account is not found to be satisfactorily explained even then no additions can be made in the peculiar facts of the case, for this preposition I found strength from the decision of Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT (1995) 214 ITR 0801 has held that surrounding circumstances and the test of human probabilities should be considered/ applied in assessing the income. This principal is again approved by Hon’ble Supreme Court in case of CIT vs. Smt. P.K. Noorjahan (1999) 237 ITR 570. In this case, assessee was a Muslim lady aged 20 years. She made certain investments in land. The explanation of assessee regarding the source of the 6 ITA NO. 452/JP/2024 M/S. SHRI BHAGWATI FARMS VS DCIT, CENTRAL CIRCLE, ALWAR purchase money for these investments was that the same were financed from out of the savings from the income of the properties which were left by her mother’s first husband. The said explanation offered by the assessee was rejected and addition was made u/s 69. The Tribunal, however, held that even though the explanation about the nature and sources of the purchase money was not satisfactory but in the facts and circumstances of the case it was not possible for the assessee to earn the amount invested in the properties and that by no stretch of imagination could the assessee be credited with having earned this income in the course of the assessment year or was even in a position to earn it for a decade or more. The Tribunal took the view that although the explanation of the assessee was liable to be rejected, s. 69 of the Act conferred only a discretion on the ITO to deal with the investment as income of the assessee and that it did not make it mandatory on his part to deal with the investment as income of the assessee as soon as the latter’s explanation happened to be rejected. According to the High Court, the Tribunal had not committed any error in taking into account the complete absence of resources of the assessee and also the fact that having regard to her age and the circumstances in which she was placed she could not be credited with having made any income of her own and in these circumstances the Tribunal was right in refusing to make an addition of the value of the investments to the income of the assessee. Ld. counsel appearing for the Revenue, has urged that the Tribunal as well as the High Court 7 ITA NO. 452/JP/2024 M/S. SHRI BHAGWATI FARMS VS DCIT, CENTRAL CIRCLE, ALWAR were in error in their interpretation of s. 69 of the Act. It was held by Hon’ble Supreme Court as under:- “We are unable to agree. As pointed out by the Tribunal, in the corresponding clause in the Bill which was introduced in Parliament, the word "shall" had been used but during the course of consideration of the Bill and on the recommendation of the Select Committee, the said word was substituted by the word "may". This clearly indicates that the intention of Parliament in enacting s. 69 was to confer a discretion on the ITO in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the ITO is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory. The question whether the source of the investment should be treated as income or not under s. 69 has to be considered in the light of the facts of each case. In other words, a discretion has been conferred on the ITO under s. 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. In the instant case, the Tribunal has held that the discretion had not been properly exercised by the ITO and the AAC in taking into account the circumstances in which the assessee was placed and the Tribunal has found that the sources of investments could not be treated as income of the assessee. The High Court has agreed with the said view of the Tribunal. We also do not find any error in the said finding recorded by the Tribunal. There is thus no merit in these appeals and the same are accordingly dismissed.” As per the facts of the present case, the assessee has no source of income other than Agriculture Income which is exempt from the tax. Therefore, even if the explanation of the assessee in the opinion of the lower authorities was not satisfactory even then it cannot be presumed that the amount deposited in the bank account is out of the undisclosed income of the assessee without bringing on record an iota of evidence. Even otherwise to my mind, there is no bar that if earlier partners have not contributed capital in cash they cannot contribute the capital subsequently in cash. The Peculiar urgency cannot be a reason to doubt the capital 8 ITA NO. 452/JP/2024 M/S. SHRI BHAGWATI FARMS VS DCIT, CENTRAL CIRCLE, ALWAR contributed by the partners in cash and an important fact which skipped from the attention of the revenue authorities that all the five partners who introduced the capital are regularly assessed to tax. In case of Sh. Niranjan Lal Data, Sh. Saurabh Data and Sh. Vijay Data cash flow statement is submitted. The same is backed by availability of opening cash in hand disclosed in the income tax return and their bank statement (Pg 4-32 of Paper Book filed with appeal papers). No discrepancy has been found in such cash flow statement except pointing out variation in the household withdrawals in different years. It may be noted that such withdrawal has been accepted in the hands of these persons in the assessment framed u/s 153A of the Act. Thus the capital contribution by these 3 partners is verifiable from their cash flow statement. In any case when all the 5 partners have accepted the capital contribution made by them with the assessee firm, the same cannot be added u/s 68 of the Act. Now looking from another angle let's presume that had the partners not contributed the capital in the firm, such amount would have been available with them as cash in hand. Such cash in hand in form of SBN would have been deposited by them in their individual bank account. In case of Sh. Niranjan Lal Data, Sh. Saurabh Data and Sh. Vijay Kumar Data, the amount deposited by them with the assessee is more than Rs.2 lacs which is verifiable from their cash flow statement. In case of Nirmala Devi and Gayatri Devi the amount contributed is Rs.2 lacs and Rs.1,50,000/- respectively which is deposited in the 9 ITA NO. 452/JP/2024 M/S. SHRI BHAGWATI FARMS VS DCIT, CENTRAL CIRCLE, ALWAR bank account of assessee during demonetization period. The CBDT vide Instruction No.3/2017 dt. 21.02.2017 has issued Standard Operating Procedure to be followed by the AO in verification of cash transactions relating to demonetisation. In this instruction the source specific verification guideline has been given in the Annexure which at Para 1.1 provides that in case of an individual not having any business income, no further verification is required to be made if total cash deposit is upto Rs.2.5 lakhs. Further in Para 1.4 it is stated that in case of persons engaged in business no additional information is required to be submitted by the persons under verification if total cash out of earlier income or savings is not more than the closing balance as on 31.03.2016 in the return for AY 2016- 17. Therefore, in case of Nirmala Devi and Gayatri Devi the amount being less than Rs.2.50 lakhs and in case of Sh. Niranjan Lal Data, Sh. Saurabh Data and Sh. Vijay Kumar Data the amount contributed being less than the closing cash in hand as on 31.03.2016 (Pg 5, 13 & 24 of Paper Book filed with appeal papers), the same should have been accepted. The various case laws relied by the Ld. CIT(A) are not relevant and are in different context, hence not applicable. As against this in the various cases it is held that if the cash deposited during demonetization period is verifiable from the books of accounts and the same having been accepted, no addition can be made u/s 68/69 of the Act. Reliance in this connection is placed on the following cases:- 10 ITA NO. 452/JP/2024 M/S. SHRI BHAGWATI FARMS VS DCIT, CENTRAL CIRCLE, ALWAR (i) Om Prakash Nahar Vs. ITO (2023) 198 ITD 312 (Delhi) (Trib.) Assessee was a retired Government servant deriving income from pension, bank interest and also earning rent from property as Karta of HUF. He had deposited cash of Rs.63.63 lakhs in his bank account during demonetization. Assessee explained that he was in the habit of withdrawing the money and keeping in the form of cash at home and amount was deposited out of withdrawals from the same account from time to time made during the years 2014, 2015 and 2016, because of his serious illness and old age. AO however disbelieved assessee and made additions to income of assessee. CIT(A) gave part and restricted the addition to Rs.44.13 lakhs after holding that cash withdrawn from account from 1st April, 2016 to 9th Nov., 2016 for sums aggregating to Rs.19.50 lakhs can be held to be out of money withdrawn from the bank account which was deposited after demonetization. It was held that assessee had no source of income apart from rental or pension income and some interest amount and same income earned regularly has been withdrawn regularly leaving very less cash in the bank account and even after household withdrawal there was a huge amount available with assessee in form of cash. In absence of any adverse material, it cannot be presumed that cash deposited by assessee was out of some undisclosed source and thus addition as sustained by CIT(A) was to be deleted. (ii) Smt. Tripta Rani Vs. ACIT (2022) 196 ITD 662 (Chd.) (Trib.) Where cash deposits made in bank accounts of proprietorship concern during demonetization period were routed through regular books of accounts of assessee which were not rejected by AO and no incriminating material was found during search conducted at premises of sister concern of assessee to point out that assessee introduced her own unaccounted money in her proprietorship concern in garb of sale to its sister concern, additions made by AO in respect of such cash deposit were merely based on surmise and conjectures and thus, same were to be deleted. (iii) R.S. Diamonds India (P) Ltd. Vs. ACIT (2023) 198 ITD 344 (Mumbai) (Trib.) Where assessee deposited a sum of Rs.45 lakhs in cash into bank account during demonetization period, since deposit had been made from cash balance available in account books, there was no question of treating same as unexplained cash deposit. Therefore taking into consideration the entire facts and circumstances and also taking in to consideration the legal preposition as discussed by me above, the 11 ITA NO. 452/JP/2024 M/S. SHRI BHAGWATI FARMS VS DCIT, CENTRAL CIRCLE, ALWAR additions confirmed by ld. CIT(A) is directed to be deleted. Thus grounds of appeal raised by the assessee are allowed. 3.0 In the result, the appeal of the assessee is allowed with no orders as to costs. Order pronounced in the open court 02 /09/2024. Sd/- ¼lanhi xkslkbZ½ (Sandeep Gosain) U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 02/09/2024 *Mishra vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Shri Bhagwati Farms, Alwar 2. izR;FkhZ@ The Respondent- The DCIT, Central Circle, Alwar 3. vk;dj vk;qDr@ The ld CIT 4. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 5. xkMZ QkbZy@ Guard File (ITA No.452/JP/2024) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asstt. Registrar