Obul Reddy Jaganmohan Reddy, Siddipet, Hyderabad V. ITO, Ward-1, Siddipet, Siddipet

ITA 668/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2599 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 13-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L R AMJI RAO
• Assessee Lawyers: A V RAGHURAM
• Keywords: Peak credit
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 668/HYD/2017 ASSESSMENT YEAR: 2009-10 OBUL REDDY JAGANMOHAN REDDY, SIDDPET. PAN AAEPO 5929N VS. INCOME-TAX OFFICER, WARD 1, SIDDIPET. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A.V. RAGHURAM REVENUE BY : SHRI L. RAMJI RAO DATE OF HEARING : 06-09-2017 DATE OF PRONOUNCEMENT : 27-09-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (A) - 11, HYDERABAD, DATED 19-10-2016 FOR AY 2009-10. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE, AN INDIVIDUAL, IS ENGAGED IN THE RETAIL BUSINESS OF SEEDS AND PESTICI DES IN THE PROPRIETARY CONCERNS OF SHRI KRANTHI AGRO CHEMICALS AND SHRI KRANTHI TRADERS. HE FILED HIS RETURN OF INCOME FOR AY 2009- 10 DECLARING TOTAL LOSS OF RS. 2,21,600/-. THE RETURN WAS PROCESSED U/ S 143(1) ON 25/08/2010. THE CASE WAS SELECTED FOR SCRUTINY AS P ER CASS FOR VERIFICATION OF CASH DEPOSITS OF RS. 1,08,51,789/- MADE IN ING VYSYA BANK, GUNTUR. ACCORDINGLY, NOTICE U/S 143(2) WAS IS SUED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED TH AT THE ASSESSEE HAD NOT DISCLOSED ONE BANK ACCOUNT MAINTAINED BY HI M IN ING VYSA BANK, GUNTUR. THE TOTAL DEPOSITS IN THIS ACCOUNT W ERE TO THE EXTENT OF 2 ITA NO. 668/H/17 OBUL REDDY JAGANMOHAN REDDY, SIDDIPET. RS. 1,16,23,545/-. WHEN ASKED TO EXPLAIN THE SOURCE OF THESE DEPOSITS, THE ASSESSEE HAD SUBMITTED A LETTER BEFOR E THE AO EXPLAINING THAT THESE TRANSACTIONS WERE RELATING TO COMMISSION BUSINESS DEALING IN COTTON TRADING. ASSESSEE SUBMIT TED THAT HE RECEIVES RS. 10 PER QUINTAL FROM THE FARMERS AS COM MISSION. DURING THIS YEAR, ASSESSEE HAD ARRANGED APPROXIMATELY 5812 QUINTALS ON COMMISSION BASIS AND EARNED A COMMISSION OF RS. 58, 120/-. HE FURTHER SUBMITTED THAT THE TRANSACTIONS MADE IN ING VYSYA BANK, GUNTUR IS USED MAINLY FOR THE PURPOSE OF COLLECTING CASH FROM PURCHASE AND THE SAME IS DEPOSITED IN HIS ACCOUNT A ND THE AMOUNT IS WITHDRAWN IN SIDDIPET, SAME AMOUNT IS DISTRIBUTED T O FARMERS. ASSESSEE BELIEVED THAT THESE TRANSACTIONS ARE NOT BELONGING TO HIS BUSINESS ACTIVITIES, THEREFORE, HE HAD NOT SUBMITTE D THESE BANK TRANSACTIONS AT THE TIME OF AUDIT AND THE COMMISSIO N WAS NOT REPORTED IN HIS RETURN OF INCOME. 2.1 AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESS EE AND TREATED THE BANK DEPOSITS AND WITHDRAWALS AS BUSINESS TRANS ACTIONS AND ESTIMATED THE INCOME OF THE ASSESSEE CONSIDERING TH E ABOVE TRANSACTIONS AS TURNOVER OF THE ASSESSEE IN COTTON TRADING AND ESTIMATED AT THE DECLARED RATE OF 1.08% CLEAR OF AL L EXPENSES. FURTHER, THE AO MADE THE ADDITION OF PEAK CREDIT CO NSIDERING THE SAME AS INVESTMENT MADE IN THIS ACTIVITY AND THE AD DITION MADE WAS OF RS. 11,01,504/-. 3. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERR ED AN APPEAL BEFORE THE CIT(A) CONTESTING BOTH THE ADDITIONS. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, CIT(A) CONFIRMED BOTH THE ADDITIONS AS REASONABLE AND OBSE RVED THAT ON PERUSAL OF THE BANK STATEMENT SHOWS THAT NOT ALL CR EDITS ARE IN CASH AND AT GUNTUR. HE FURTHER OBSERVED THAT A SUM OF RS . 1,64,686/- WAS RECEIVED TO THE CREDIT OF THE ASSESSEE IN THIS ACCO UNT BY CLEARING FROM 3 ITA NO. 668/H/17 OBUL REDDY JAGANMOHAN REDDY, SIDDIPET. WARANGAL AND SIMILARLY ON 17/03/2009 THERE WAS A DE POSIT OF RS. 2,71,082/- RECEIVED BY CHEQUE FROM SIDDIPET. HE OPI NED THAT LIKE- WISE NOT ALL WITHDRAWALS ARE TO SELF OR TO CASH AS WAS EXPLAINED IN THE WRITTEN SUBMISSIONS PURPORTEDLY FOR DISBURSEMEN T TO FARMERS. FURTHER, HE OBSERVED THAT IN THE ABSENCE OF ANY EVI DENCE AS TO THE MANNER OF DEPLOYMENT OF THE WITHDRAWALS, AO HAD GRA NTED A BENEFICIAL INTERPRETATION THAT THE DEBITS/WITHDRAWA LS WERE BEING TURNED AROUND INTO THE CREDITS/DEPOSITS. IN DOING SO, HE W AS GUIDED BY THE PERIODICITY AND REPETITIVE NATURE OF THE TRANSACTIO NS THAT ARE USUALLY CHARACTERISTIC OF BUSINESS OPERATIONS AND HENCE, TH E AO CONSIDERED THESE TRANSACTIONS AS BUSINESS TRANSACTIONS AND ACC ORDINGLY INCOME WAS ESTIMATED. HE FURTHER OBSERVED THAT THERE IS NO EVIDENCE REGARDING ON WHOSE ACCOUNT THESE TRANSACTIONS WERE PUT IN PLACE, OR TO WHOM AND TO WHAT EXTENT THE AMOUNTS RECEIVED IN THE ACCOUNT WERE DISTRIBUTED. IN THIS SCENARIO, CONSISTENT WITH THE PREMISE OF BUSINESS ACTIVITY, THE CIRCULATING CAPITAL OF THE ASSESSEE H AS TO HAVE A CREDIBLE SOURCE. HE, THEREFORE, OPINED THAT THE ESTIMATION O F THIS SOURCE IN THE FORM OF A PEAK DEPOSIT AVAILABILITY WORKED OUT BY T HE AO IS, THEREFORE, IN ORDER. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS NOT ONLY ERRO NEOUS BOTH ON FACTS AND IN LAW BUT IS PERVERSE TO THE EXTENT I T IS PREJUDICIAL TO THE ASSESSEE. 2. THE LEARNED CIT(A) ERRED IN. CONFIRMING THE ACTI ON OF THE AO IN MAKING ADDITION OF RS.11,01,504 AS PEAK CREDIT I N BANK. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE AO HAS NOT BROUGHT ON RECORD ANY INFORMATION SUGGESTIN G THERE ARE PURCHASES TO TREAT THE DEPOSITS AT GUNTUR BANK ACCO UNT TO BE ASSESSEE'S TURNOVER TO ESTIMATE INCOME AND FURTHER ADD PEAK DEPOSITS IN THE BANK. 4. THE LEARNED CIT(A) FURTHER ERRED IN HOLDING THAT THIS IS NOT A CASE OF REJECTION OF BOOKS OF ACCOUNT AND ESTIMATIN G INCOME TO DELETE ADDITION OF PEAK DEPOSIT THOUGH THE AO HAS H ELD THE DEPOSITS IN THE BANK TO BE TURNOVER AND. RESORTED T O ESTIMATE 4 ITA NO. 668/H/17 OBUL REDDY JAGANMOHAN REDDY, SIDDIPET. INCOME ON SUCH TURNOVER WHICH AMOUNT TO REJECTION O F BOOK RESULTS AND THUS ERRED IN CONFIRMING THE ADDITION O F RS.11,01,504. 5. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 6. GROUND NOS. 1 & 5 ARE GENERAL IN NATURE. GROUND NOS. 2 TO 4 ARE RELATING TO ADDITION ON ACCOUNT OF PEAK CREDIT AND ESTIMATION OF INCOME ON UNDISCLOSED TURNOVER. 7. LD. AR SUBMITTED THAT AO HAS ESTIMATED THE INCOM E TREATING THE DEPOSITS AND WITHDRAWALS AS TURNOVER, BUT, AT THE S AME TIME, HE SHOULD NOT HAVE MADE ADDITION ON ACCOUNT OF PEAK CR EDIT. HE SUBMITTED THAT ASSESSEE HAS CARRIED ON ONLY THE COM MISSION BUSINESS AND WHATEVER ARE THE DEPOSITS/WITHDRAWALS IN THE AC COUNT, THEY PERTAIN TO SUCH COMMISSION BUSINESS. HE FURTHER SUB MITTED THAT AO HAS MADE GRAVE ERROR BY MAKING ADDITION ON ACCOUNT OF PEAK CREDIT WITHOUT PROPERLY BRINGING ON RECORD ANY COGENT MATE RIAL TO DEMONSTRATE THAT ASSESSEE HAS, IN FACT, INDULGED IN COTTON TRADING. 8. LD. DR, ON THE OTHER HAND, SUBMITTED THAT ASSESS EE HAS ALWAYS TAKEN A STAND THAT HE IS INTO ONLY COMMISSION BUSIN ESS AND HE SUPPORTED THE ORDERS OF REVENUE AUTHORITIES. 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. ASSESSEE HAS MADE DEPOSITS AND CORRESPON DING WITHDRAWALS IN THE BANK ACCOUNT MAINTAINED IN ING V YSYA BANK, GUNTUR. EVEN THOUGH, ASSESSEE HAS APPLIED HIS BUSIN ESS CONNECTION TO MARKET THE COTTON TRADING WITH PURCHASERS, ASSES SEE HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SUPPORT HIS CONTE NTION THAT HE HAS CARRIED ON ONLY COMMISSION BUSINESS AND NOT TRADING BUSINESS. CIT(A) HAS BROUGHT ON RECORD THAT ASSESSEE HAS NOT ONLY MA DE DEPOSITS AND WITHDRAWALS, BUT, HE HAS INDULGED IN SOME OTHER TRA NSACTIONS AS WELL. SINCE THE PERIODICITY OF THE DEPOSITS AND WITHDRAWA L LEAD TO FORM AN 5 ITA NO. 668/H/17 OBUL REDDY JAGANMOHAN REDDY, SIDDIPET. OPINION THAT IT INVOLVES SOME BUSINESS TRANSACTIONS CARRIED ON PERIODICALLY, WE ARE IN AGREEMENT WITH THE AO THAT IT IS BUSINESS TRANSACTION AND HE HAS RIGHTLY ESTIMATED THE PROFIT . IT IS IN THE INTEREST OF ASSESSEE THAT AO HAS AGREED TO ESTIMATE DECLARE D PROFIT IN THE COTTON TRADE AS IN THE COTTON TRADING. 9.1 COMING TO THE NEXT GROUND RELATING TO ADDITION ON ACCOUNT OF PEAK CREDIT, AO HAS TREATED THE DEPOSITS/WITHDRAWAL S AS BUSINESS TRANSACTIONS AND MADE FURTHER ADDITION U/S 68 TO B RING ON RECORD THAT DEPOSIT ITSELF AS CASH CREDITS. FURTHER, CIT(A) TRE ATED THIS TRANSACTION AS UNEXPLAINED MONEY. WE ARE NOT IN AGREEMENT WITH THE ABOVE TREATMENT. AO HAD THE OPTION TO TREAT THE DEPOSITS AS UNDISCLOSED INCOME OR BUSINESS TRANSACTIONS. IN HIS WISDOM, HE CONSIDERED THESE TRANSACTIONS AS BUSINESS TRANSACTIONS AND ESTIMATED THE INCOME. AS REGARDS DEPOSITS, HE CANNOT AGAIN DISALLOW THE SAME U/S 68/69A. IN OUR CONSIDERED VIEW, THE ACTION OF THE AO IS NOT PR OPER. ACCORDINGLY, ADDITION MADE ON ACCOUNT OF PEAK CREDIT IS HEREBY DELETED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 27 TH SEPTEMBER, 2017. KV 6 ITA NO. 668/H/17 OBUL REDDY JAGANMOHAN REDDY, SIDDIPET. COPY TO:- 1). OBUL REDDY JAGANMOHAN REDDY, C/O S/SHRI K. VASA NTKUMAR, AV RAGHURAM, P. VINOD & M. NEELIMA DEVI, ADVOC ATES, 610 BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD 5 00 001. 2) ITO, WARD 1, SIDDIPET 3) CIT(A) 11, HYDERABAD 4 PR. CIT - 7, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE