SUHARSH R JOSHI, MUMBAI V. ITO 21(2)(4), MUMBAI

ITA 6262/MUM/2014

• Counselvise Citation: 626219914 RSA 2014
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 06-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 09-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Business income; Peak credit
• Section: 68

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (ACCOUNTANT MEMBER ) . . , ./ I.T.A. NO . 6262 / MUM/20 14 ( / ASSESSMENT YEAR : 20 0 9 - 10 ) SHRI SUHARSH R JOSHI, 2 ND FLOOR, MEGHDOOT LIDO LHS LTD, 31/32, JUHU ROAD, SANTACRUZ (W), MUMBAI - 400049 / VS. INCOME TAX OFFICER, 21 (2)( 4 ), MUMBAI ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAAPJ7684F / APPELLANT BY SHRI SUBOTH RATNAPARKHI / RSPONDENT BY SHRI K P R R MURTY / DATE OF HEARING : 6 .8 . 201 5 / DATE OF PRONOUNCEMENT : 6 . 8. 201 5 / O R D E R PER B ENCH: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 01 - 08 - 2014 PASSED BY LD CIT(A) - 22, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2009 - 10. THE ASSESSEE IS AGGRIEV ED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE ASSESSMENT OF RS.11,51,913/ - RELATING TO BANK DEPOSITS MADE U/S 68 OF THE ACT. 2. THE FACTS OF THE CASE ARE THAT THE AO RECEIVED AIR INFORMATION THAT THE ASSESSEE HAD DEPOSITED AGGREGATE AMOUNT OF RS.1 1,51,953/ - IN THE ACCOUNT MAINTAINED BY HIM WITH NASHIK BRANCH OF BANK OF BARODA. THE ITA NO. 6262 / MUM/20 14 2 SAID BANK ACCOUNT WAS NOT DISCLOSED TO THE DEPARTMENT. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT HE IS CARRYING ON THE BUSINESS OF DEALING IN SOAPS AND FMCG PRODUCTS ON A SMALL SCALE AND THE DEPOSITS MADE INTO THE BANK ACCOUNT REPRESENTS THE SALE PROCEEDS/COLLECTION FROM DEBTORS. ACCORDINGLY IT WAS SUBMITTED THAT THE PROFIT FROM THE BUSINESS ACTIVITIES MAY BE ESTIMATED @ 5% OF THE TURNOVER AS PER THE PROVISIONS OF SEC . 44AF OF THE ACT BY TREATING THE AGGREGATE AMOUNT OF DEPOSITS AS TURNOVER OF THE ASSESSEE. HOWEVER, THE ASSESSEE COULD FURNISH ONLY FEW BILLS TO SUPPORT THE PURCHASES. HE COULD NOT FURNISH DETAILS OF REGISTRATION REQUIRED TO BE OBTAINED FROM VARIOUS GOVE RNMENT DEPARTMENTS. IT WAS ALSO SUBMITTED THAT HE DOES NOT MAINTAIN ANY ESTABLISHMENT/SHOP AND THE BOOKS OF ACCOUNTS WERE ALSO NOT MAINTAINED. IN VIEW OF THE ABOVE, THE AO DID NOT ACCEPT THE CLAIM THAT THE DEPOSITS REPRESENT BUSINESS RECEIPTS. ACCORDINGL Y, HE ASSESSED THE ENTIRE AMOUNT OF RS.11,51,953/ - AS INCOME OF THE ASSESSEE. 3. BEFORE THE LD CIT(A), THE ASSESSEE REITERATED THE SAME CONTENTIONS. BESIDES THE ABOVE, THE ASSESSEE ALSO SUBMITTED THAT THE PEAK CREDIT AMOUNT OF RS.1,99,850/ - MAY BE AS SESSED AS INCOME, IF THE CLAIM OF BUSINESS TRANSACTIONS ARE NOT ACCEPTED. THE LD CIT(A) NOTICED THAT THE ASSESSEE DID NOT DISCLOSE THE IMPUGNED BANK ACCOUNT IN HIS RETURN OF INCOME. FURTHER, FULL DETAILS RELATING TO PURCHASES AND SALES WERE ALSO NOT FURN ISHED BY THE ASSESSEE. HENCE, THE LD CIT(A) REJECTED THE CLAIM THAT THE DEPOSITS REPRESENT BUSINESS RECEIPTS. THE CLAIM OF ASSESSMENT OF PEAK CREDIT AMOUNT WAS ALSO REJECTED BY THE LD CIT(A) ON THE REASONING THAT THERE IS NO CO - RELATION BETWEEN THE CREDI TS AND THE DEBITS. SINCE THE LD CIT(A) HAD HELD THAT THE ASSESSEE DID NOT PROVE THAT THERE WAS RETAIL BUSINESS, THE CLAIM OF ADOPTION OF INCOME @ 5% OF TURNOVER U/S 44AF OF ITA NO. 6262 / MUM/20 14 3 THE ACT WAS ALSO REJECTED. ACCORDINGLY, THE LD CIT(A) DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. THE LD COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ONE OF THE PARTNERS OF A PARTNERSHIP FIRM LOCATED IN NASHIK AND THE SAID FIRM IS ENGAGED IN THE MANUFACTURE OF SOAPS. BESIDES THE ABOVE THE ASSESSEE HAS BEE N CARRYING ON TRADING IN OTHER BRANDED SOAPS AND FMCG PRODUCTS ON A SMALL SCALE IN HIS INDIVIDUAL CAPACITY AND USED TO SUPPLY THEM TO THE CUSTOMERS OF THE PARTNERSHIP FIRM. THE SAID CUSTOMERS DEPOSITED THE FUNDS INTO HIS BANK ACCOUNT AND THE IMPUGNED DEPO SITS REPRESENT SALES COLLECTIONS. SINCE THE ASSESSEE DID NOT MAINTAIN REGULAR BOOKS OF ACCOUNT, HE COULD NOT FURNISH ALL THE DETAILS THAT WERE CALLED FOR BY THE ASSESSING OFFICER. ACCORDINGLY HE SUBMITTED THAT THE NET PROFIT SHOULD HAVE BEEN ESTIMATED @ 5% OF THE AGGREGATE AMOUNT OF DEPOSITS AS PER THE PROVISIONS OF SEC. 44AF OF THE ACT. 5. IN THE ALTERNATIVE, HE SUBMITTED THAT THE PEAK CREDIT OF RS.1,99,850/ - SHOULD HAVE BEEN TAKEN AS THE INCOME OF THE ASSESSEE, IF THE CLAIM OF BUSINESS WAS REJECTE D, SINCE THERE HAS BEEN CONTINUOUS DEPOSITS AND WITHDRAWALS OF CASH. 6. THE LD D.R CONTRARY, PLACED STRONG RELIANCE ON THE ORDER PASSED BY LD CIT(A). HE SUBMITTED THAT THE ASSESSEE HAS FURNISHED ONLY FEW PURCHASE BILLS, WHICH FORM ONLY MINISCULE PE RCENTAGE. HE SUBMITTED THAT THE ASSESSEE HAS CLAIMED TO HAVE DEALT IN MEDIMIX BRAND SOAP, WHICH IS MANUFACTURED IN SOUTH INDIA. FURTHER, THE ASSESSEE HAS NOT FURNISHED ANY OTHER VERIFIABLE EVIDENCES LIKE, SALES TAX REGISTRATION ETC., TO PROVE THE CLAIM OF CARRYING ON OF THE BUSINESS. THE ASSESSEE HAS ALSO NOT MAINTAINED BOOKS OF ACCOUNT. ACCORDINGLY, THE LD D.R SUBMITTED THAT THE ITA NO. 6262 / MUM/20 14 4 LD CIT(A) HAS RIGHTLY REJECTED THE CLAIM OF THE ASSESSEE. HENCE THE QUESTION OF ESTIMATING THE PROFIT U/S 44AF OF THE ACT DOES NOT ARISE. THE CLAIM OF PEAK CREDIT WAS ALSO RIGHTLY REJECTED, SINCE THE DEPOSITS HAVE BEEN MADE FROM DIFFERENT CITIES AND HENCE IT CANNOT BE SAID THAT THE AMOUNT WITHDRAWN ON AN EARLIER OCCASION WAS USED TO MAKE DEPOSIT IN THE SUBSEQUENT DATE. 7. I HEARD THE PARTIES AND PERUSED THE RECORD. I HAVE ALSO GONE THROUGH THE COPY OF BANK ACCOUNT PLACED IN THE RECORD. A PERUSAL OF THE BANK STATEMENT WOULD SHOW THAT THE DEPOSIT INTO THE IMPUGNED BANK ACCOUNT HAS BEEN MADE FROM VARIOUS CITIES, I.E., IT IS NOT A CASE THAT THE ASSESSEE HIMSELF HAS DEPOSITED MONEY AND WITHDRAWN THE SAME AND AGAIN DEPOSITED MONEY. THE VERY FACT THAT THE MONEY HAS BEEN DEPOSITED FROM VARIOUS CITIES ONLY SHOWS THAT THE DEPOSIT WAS RELATED TO SOME OTHER ACTIVITY CARRIED ON BY THE ASSESSEE. HENCE, AS RIGHTLY POINTED OUT BY LD D.R, THE PEAK CREDIT THEORY SHALL NOT HAVE APPLICATION IN SUCH KIND OF SITUATION. 8. THEN THE NEXT QUESTION THAT ARISES IS AS TO WHAT COULD BE THE NATURE OF DEPOSIT MADE INTO THE BANK ACCOUNT. ACCORD ING TO THE ASSESSEE, THE SAME REPRESENTS SALES COLLECTIONS, BUT THE SAID CLAIM WAS NOT ACCEPTED BY THE TAX AUTHORITIES FOR THE REASON THAT THE ASSESSEE HAS FAILED TO PROVE THE SAME WITH ADEQUATE MATERIALS. IT IS A FACT THAT THE ASSESSEE COULD NOT SUBSTAN TIATE HIS CLAIM WITH ENOUGH MATERIALS, BUT I AM OF THE VIEW THAT UNDER SUCH CIRCUMSTANCES, THE NATURE OF DEPOSITS SHOULD BE GATHERED FROM THE SURROUNDING CIRCUMSTANCES. THE IMPUGNED DEPOSITS WERE FOUND TO HAVE BEEN MADE INTO THE BANK ACCOUNT FROM VARIOUS CITIES, WHICH MEAN THAT THERE IS SOME CONNECTION BETWEEN THE ASSESSEE AND THE PERSONS WHO HAD DEPOSITED INTO THE BANK ACCOUNT FROM VARIOUS CITIES. HOWEVER, IDENTIFY ITA NO. 6262 / MUM/20 14 5 OF THOSE PERSONS HAS NOT BEEN ESTABLISHED AND HENCE THEY CANNOT BE TREATED AS CAPITAL RECE IPTS. SINCE THE ASSESSEE HAS FURNISHED CERTAIN PURCHASE BILLS AND SINCE THE ASSESSEE IS ALSO A PARTNER IN A FIRM CARRYING ON SOAP BUSINESS, THE CLAIM THAT IT REPRESENTS SALES COLLECTIONS RELATING TO THE BUSINESS CARRIED ON BY HIM, IN MY VIEW, CANNOT BE ALTOGETHER RULED OUT. IT IS PERTINENT TO NOTE THAT THE REVENUE HAS NOT EXAMINED ABOUT THE POSSIBILITY THAT THE SAID COLLECTIONS REPRESENTED THE FUNDS OF THE PARTNERSHIP FIRM AND HENCE AT THIS STAGE, IT MAY NOT BE PROPER TO LINK THESE FUNDS WITH THE PARTNE RSHIP FIRM. UNDER THESE SET OF FACTS, IN MY VIEW, THE CLAIM OF THE ASSESSEE THAT THE SAME REPRESENTS BUSINESS RECEIPTS CANNOT BE FOUND FAULT WITH. 9. I NOTICE THAT THE ASSESSING OFFICER HAS EXAMINED THE DEPOSITS FROM THE ANGLE OF THE PROVISIONS OF SE C. 68 OF THE ACT. HOWEVER, IN VIEW OF THE FACT THAT THE DEPOSITS WERE FOUND TO HAVE BEEN MADE INTO THE BANK ACCOUNT FROM VARIOUS CITIES, THE THEORY OF UNEXPLAINED CASH CREDIT MAY NOT BE APPLICABLE IN VIEW OF THE EXPLANATIONS FURNISHED BY THE ASSESSEE. HEN CE, I AM INCLINED TO ACCEPT THE CLAIM OF THE ASSESSEE THAT THE SAME REPRESENTS BUSINESS RECEIPTS. ACCORDINGLY, IN MY VIEW, THE PROVISIONS OF SEC. 68 DO NOT HAVE APPLICATION TO THE FACTS OF THE PRESENT CASE. 10. ONCE IT IS HELD THAT THE IMPUGNED DEPOSIT S MAY REPRESENT SALES COLLECTION, THEN THE QUESTION OF ESTIMATION OF PROFIT WOULD ARISE. THE ASSESSEES CLAIM IS THAT THE PROVISIONS OF SEC. 44AF SHOULD BE APPLIED. HOWEVER, IN MY VIEW, THE SAID PROVISIONS CAN BE APPLIED ONLY IF THE ASSESSEE MAINTAINS SO ME RECORD TO SHOW THAT THE BUSINESS WAS ACTUALLY CARRIED ON AND FURTHER HE SATISFIES ABOUT THE QUANTUM OF SALES. IN THE INSTANT CASE, THE ASSESSEE HAS FAILED TO SHOW ANY RECORD AND HENCE, IN MY ITA NO. 6262 / MUM/20 14 6 VIEW, THE PROVISIONS OF SEC. 44AF SHALL NOT HAVE APPLICATION IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 11. I NOTICE THAT THE ASSESSEE HAS PUT UP AN ALTERNATIVE CONTENTION THAT THE PEAK CREDIT AMOUNT OF RS.1,99,850/ - MAY BE TAKEN AS INCOME OF THE ASSESSEE. THE ABOVE SAID AMOUNT WORKS OUT TO 17.34% OF THE AGGRE GATE AMOUNT OF DEPOSIT OF RS.11,51,953/ - . HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS NOT COME OUT WITH DETAILS OF ACTUAL SALES AND HENCE IT CANNOT BE SAID THAT THE AMOUNT OF RS.11,51,953/ - REPRESENTS THE ACTUAL SALES. THE POSSIBILITY OF HIGHER SALES CANNOT BE ALTOGETHER RULED OUT. THE ASSESSEE HAS ALSO NOT FURNISHED ANY DETAILS ABOUT THE PROFIT RANGE EARNED BY HIM. FURTHER, THESE BUSINESS TRANSACTIONS HAVE NOT BEEN DISCLOSED TO THE REVENUE ALSO IN THE INCOME TAX RETURN FILED BY THE ASSESSEE. HENCE, TAKING INTO CONSIDERATION ALL POSSIBLE LAPSES, IN MY VIEW, THE PRESENT ISSUE WOULD MEET THE ENDS OF JUSTICE, IF THE NET PROFIT FROM THE ALLEGED BUSINESS ACTIVITIES IS ESTIMATED AT 25% OF THE AGGREGATE AMOUNT OF DEPOSITS OF RS.11,51,953/ - . I ORDER ACCORDI NGLY. ACCORDINGLY, THE ORDER PASSED BY THE LD CIT(A) IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO SUSTAIN THE ADDITION TO THE EXTENT STATED ABOVE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORD INGLY ON 6 TH AUGUST 2015. 6 TH AUGUST, 2015 SD ( . . / B.R. BASKARAN) / ACCOUNTANT MEMBER MUMBAI: 6 TH AUG , 2015 . ITA NO. 6262 / MUM/20 14 7 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI