Shri Jagdishbhai Savjibhai Patel, Surat V. ITO, Ward-3(3)(2), Surat

ITA 67/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1807 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 01-06-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 04-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Peak credit; Deemed to accrue or arise in india; Set aside
• Section: 147; 68; 148; 271(1)(c); 144; 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 67 & 68/Srt/2019 (Assessment Year: 2008-09) (Hearing in Physical Court) Jagdishbhai Savjibhai Patel, 224, Laxmi Nagar Society, Near Ishwar Krupa, L.H. Road, Surat. PAN No. AHXPP 9323 K Vs. I.T.O., Ward-3(3)(2), Room No. 421, 4 th Floor, Aayakar Bhavan, Majura Gate, Surat-395001. Appellant/ assessee Respondent/ revenue Appellant represented by Shri P M Jagasheth, AR Respondent represented by Shri Abhishek Gautam, Sr. DR Date of hearing 02/06/2022 Date of pronouncement 27/07/2022 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. These two appeals by the assessee are directed against the separate orders of learned Commissioner of Income Tax (Appeals)-3, Surat [in short, the ld. CIT(A)] dated 03/12/2018 and 04/12/2018, one of the appeal is with regard to quantum addition and another one is against the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 (in short the Act) for the Assessment year (AY) 2008-09. 2. Facts in both the appeals are common, therefore, both the appeals are clubbed and heard together and for the sake of convenience, a common ITA No.67 and 68/Srt/2019 Jagdishbhai Savjibhai Patel Vs ITO 2 order is being passed. The grounds taken by the assessee in both these appeals i.e. in quantum assessment and the penalty are as under: Grounds of appeal in quantum assessment: “1. On the facts and in the circumstances of the case as well as on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in re-opening the assessment u/s 147 of the Income Tax Act, 1961 and issuing notice u/s 148 of the Income Tax Act, 1961. 2. On the facts and in the circumstances of the case as well as on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in making addition of Rs. 27,98,735/- on account of credit entries through cash deposit or clearing in Bank account treated as alleged unexplained cash credit u/s 68 of the Income Tax Act, 1961. 3. On the facts and in the circumstances of the case as well as on the subject, the learned Commissioner of Income Tax (Appeals) has not provided the ample opportunities to hear the case, hence the case may please be allowed and set aside to the CIT(A), Surat. 4. It is therefore prayed that the above addition may please be deleted as learned members of the tribunal may deem it proper. 5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.” Grounds of appeal in ITA No. 68/Srt/2019 in the matter of penalty : “1. On the facts and in the circumstances of the case as well as on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer levying penalty of Rs. 8,93,509/- u/s 271(1)(c) of the Income Tax Act, 1961. ITA No.67 and 68/Srt/2019 Jagdishbhai Savjibhai Patel Vs ITO 3 2. On the facts and in the circumstances of the case as well as on the subject, the learned Commissioner of Income Tax (Appeals) has not provided the ample opportunities to hear the case, hence the case may please be allowed and set aside to the CIT(A), Surat. 3. It is therefore prayed that the above addition may please be deleted as learned members of the tribunal may deem it proper. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.” 3. Brief facts of the case are that the case of assessee was reopened on the basis of AIR data available with the Assessing Officer that the assessee had deposited cash of Rs. 19,97,000/- in his bank account maintained with Varachha Co-Operative Bank, Surat. On further investigation, it was revealed that the assessee has not filed return of his income for the A.Y. 2008-09. Accordingly, the case of assessee was reopened as the income of this assessment year has escaped assessment to the extent of deposit in the bank account. Notice under Section 148 of the Act dated 30/03/2015 was served upon the assessee. The Assessing Officer recorded that despite serving of number of notices as recorded in para 4 and 5 of assessment order, the assessee has not furnished any detail nor filed return of income. Accordingly, the Assessing Officer completed the assessment under Section 144 of the Act on the basis of information available with him and gathered from the Varachha Co-Operative Bank, Surat. On perusal of ITA No.67 and 68/Srt/2019 Jagdishbhai Savjibhai Patel Vs ITO 4 details with the assessing officer, he noted that there was credit entry of Rs. 27,98,735/- in bank account No. 100010066460. The Assessing Officer has made addition of Rs. 27,98,735/- in assessment order dated 15/02/2016 passed under Section 144 r.w.s. 147 of the Act. 4. Aggrieved by the order of assessment, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee challenged the validity of reopening as well as addition on merit. On merit of addition, the assessee in his written submissions has submitted that the assessee has not received various notices issued by the assessing officer. All the notices were sent by the Assessing Officer at the old address mentioned in his bank account. Actually at that time, the assesse was residing at 87, Rivera Bungalow, Mota Varachha, Surat. The assessee has not received any notice as the said house was lying locked/closed. The Assessing officer issued only final show cause notice at new address as well as old address dated 04/02/2016. Before, the assessee could furnish any detail, the Assessing Officer passed the assessment order on 15/02/2016 by making huge additions. The assessee further stated that this account was used for his business of retail and wholesale trade in Sarees and dress material. Cash deposited in cash to retail customers and cheques were out of wholesale business. The assessee deposited some of the amount in bank against the requirement of fund for clearing against the purchases. During ITA No.67 and 68/Srt/2019 Jagdishbhai Savjibhai Patel Vs ITO 5 the relevant period under consideration, the net income of assessee was below the taxable limit, hence he has not filed any return of income. The assesse has taxable income from A.Y. 2011-12 and duly filed return of income showing business income under Section 44AD of the Act on presumptive basis on trading business. The assessee submitted that entries in the bank account were related to the business of the assessee. The Assessing Officer considered the part of credit entry and not looking at the debit parts. The cash deposited as well as cheque in the bank account and the same were withdrew some amount in cash and also paid by cheque against the purchases and expenses. The transactions spread over the year which proved the business motive of the assessee. There is continuous debit and credit of cheques as well as cash. The assessee in his alternative submissions prayed that either peaked credit balance or deemed income @ 8% considering the credit entries and turnover of the assessee, may be added to the income. 5. The ld. CIT(A) after considering the submission of assessee held that the Assessing Officer has information that the assessee had deposited cash of Rs. 19.97 lacs in his bank account. The Assessing Officer made addition for want of compliance. In absence of any detail, the Assessing Officer added Rs. 27,98,735/- in his savings bank account as no return of income was filed. The ld. CIT(A) noted that on perusal of deposits and withdrawal ITA No.67 and 68/Srt/2019 Jagdishbhai Savjibhai Patel Vs ITO 6 during the appellate proceedings, the assessee was asked to produce he evidence about his business of Sarees and dress material and the evidence like registration with various agencies like VAT registration under Shop and Establishment Act or confirmation from seller and purchaser. The assessee could not produce any evidence. The assessee is filing return from the A.Y. 2011-12. The Assessing Officer noted that no books of account or vouchers and bills were maintained by the assesse regarding the retail business. The ld. CIT(A) accordingly upheld the order of Assessing officer by referring that Rules and Regulations of Reserve Bank of India about savings bank account that savings bank account should be used only for non-business or for non-commercial transaction. Further aggrieved, the assessee has filed the present appeal before this Tribunal. 6. We have heard the submissions of ld. authorised representative (AR) of the assessee and the ld. Senior Departmental representative (Sr. DR) for the revenue and have gone through the orders of the authorities below carefully. 7. At the time of hearing, the ld. AR of the assessee stated that the assessee does not want to press ground No. 1 of the appeal with regard to quantum assessment, on which the ld. Sr. DR for revenue has raised no objection, therefore, considering the submissions of the Ld. A.R of the assessee, we dismiss the ground No. 1 of appeal as not pressed. ITA No.67 and 68/Srt/2019 Jagdishbhai Savjibhai Patel Vs ITO 7 8. Ground No. 2 relates to addition on account of credit in the bank account. The ld. AR of the assessee submits that the assessee was doing a small business of Sarees and dress material. The assessee was not having sufficient income and the income earned by assessee was not taxable income, thus the assessee has not filed any return of income in A.Y. 2008- 09. The assessee expanded his business in subsequent years and started filing return of income. The case of assessee was reopened on the basis of AIR information. During the assessment, no notice of Assessing officer was received. Only one notice of Assessing Office dated 04/02/2016 was received. Before assessee could reply, the Assessing Officer passed assessment order on 15/02/2016. Though, there was sufficient time with the Assessing Officer to pass the assessment order till 31/3/2016. Before the ld. CIT(A), the assessee contended similar submission and urged that only profit embedded on such transaction or peak credit may be added. The assessee was dong a small business thus was not having registration or other statutory requirement. The Assessing officer considered the entry on credits side and has not consider the entries on debit side. The continuous transactions in the bank account show the business activities of the assessee. The ld. AR for the assessee submitted that the assessee’s business receipts were below the threshold limit for auditing books of account. In the subsequent year, when the business of assessee was ITA No.67 and 68/Srt/2019 Jagdishbhai Savjibhai Patel Vs ITO 8 picked up, the assessee started making payment of tax by filing regular return of income. The ld. AR for the assessee submits that on similar set of facts, various Benches of the Tribunal held that when regular debit and credit is seen in the bank account, only either peak credit or the profit element embedded in unreported business transaction can be added and not the entire transaction. The ld. AR of the assessee has relied on the following decisions:  Smt. Krushangi Keyur Bhagat Vs ITO, Ward 3(3), Surat ITA No. 1434/Ahd/2013 (ITAT, Surat),  Shri Mukesh Gamanlal Patel Vs ITO, Ward 6(3), Surat ITA No. 1636/Ahd/2013 (ITAT Surat),  Shashikant Tansukhlal Mandlesara Vs ITO, Ward 5(4), Surat ITA No. 571 & 572/Ahd/2015 (ITAT, Surat),  Pravinchandra Ishwarlal Rana vs. ITO, Ward 2(3), Surat ITA No. 133/Ahd/2016 (ITAT, Surat),  Pr.CIT-3 Vs Shri Indrajeet Zandusing Tomar Tax appeal No. 908 of 2015 (Gujarat HC),  Semadri Bhagvan Pradhan Vs ITO, Ward 9(4), Surat ITA No. 3133/Ahd/2014 and 307/Ahd/2015 (ITAT, Surat),  Shri Arvindbhai D. Bhandari Vs ITO, Ward 2(3), Surat ITA No. 1577/Ahd/2013 and ITA No. 2454/Ahd/2015 (ITAT, Surat). 9. On the other hand, the ld. Sr. DR for the revenue has vehemently supported the orders of the authorities below. The ld. Sr. DR for the revenue submits that despite granting number of opportunities, before the assessing officer, the assessee failed to respond various notices and to produce any evidence to substantiate the cash credit. Before ld. CIT(A), the assessee claimed that he was engaged in small business of sarees and ITA No.67 and 68/Srt/2019 Jagdishbhai Savjibhai Patel Vs ITO 9 dress material, however, no evidence was furnished to substantiate such claim. The savings bank account cannot be used for non-business purposes. The ld. CIT(A) in para 6.2.3 of his order has given a finding that the assessee was maintaining savings bank account. 10. We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities carefully. We find that the Assessing Officer made addition of entire credit entries reflected in the savings bank account with Varachha Co-Operative Bank, Surat. The Assessing Officer added the aggregate of entire entries of Rs. 27,38,735/-. Before the ld. CIT(A), the assessee stated that no notice issued by the Assessing Officer was served upon the assessee except notice dated 04/02/2016 and that before the assessee could file reply, assessment order was passed on 15/02/2016. The assessee also stated that he is engaged in the business of Sarees and dress material and was not having sufficient income which is taxable as per the provisions of Income Tax Act. The assessee also stated that the Assessing Officer has added the entire credit without considering the debit entries. The assessee prayed that either peak credit or deemed income under section 44AD may be added. 11. We find that the ld. CIT(A) instead of considering the alternative contention of the assessee that either the peak credit or presumptive income under Section 44AD @ 8% may be added. The ld. CIT(A) upheld ITA No.67 and 68/Srt/2019 Jagdishbhai Savjibhai Patel Vs ITO 10 the action of Assessing Officer by holding that “Axis Bank account are savings bank account” and that as per the Rules and Regulations of R.B.I., the savings bank account cannot be opened for business purpose. No doubt that the assessee has not filed any evidence or compliance before the Assessing Officer. Further the assessee has not filed any evidence before the ld. CIT(A) to substantiate his claim that the assessee was doing any business of Sarees and dress material. 12. The ld. AR of the assessee during the hearing of this appeal, vehemently relied on the decision of Coordinate Bench of this Tribunal in case of Smt. Krushangi Keyur Bhagat Vs ITO (supra) wherein on similar cash credit in bank account, the addition was restricted to 5% of total deposit by taking a view that the pattern of deposit in bank account shows that there are some transactions in which cheque has been issued. Further there are debit entries in the books, ongoing through such statement and frequent transactions in cash as well as cheque, the entire deposit in the bank account cannot be considered for addition. It was further held that such frequent deposit and withdrawal shows that there is every likely that account had been used for unrecorded business transaction and thereby restricted the addition to the extent of 5%. 13. Further in Shahshikant Tansukhlal Mandlesara Vs ITO (supra), on similar addition, cash credit in the bank account, addition was restricted to 10%. ITA No.67 and 68/Srt/2019 Jagdishbhai Savjibhai Patel Vs ITO 11 In Pravinchandra Ishwarlal Rana Vs ITO (supra), similar unexplained cash deposit in savings bank account was restricted to 10% of the turnover. 14. Considering the aforesaid factual and legal discussion and on perusal of details in the bank account, we find that there are frequent debit and credit entries by way of cheque as well as cash, thus the entire credit entry cannot be considered as income of assessee. Considering the various decisions of Tribunal including the Hon’ble Jurisdictional High Court either peak credit or presumption income from unaccounted business can be added. Considering the overall facts and circumstances of the case, we are of the view that 8% of credit entry would meet the possibility of revenue leakage. Accordingly, the Assessing Officer is directed to restrict the addition to the extent of 8% of credit entries in the savings bank account maintained by the assessee. In the result, ground No.2 of the appeal is partly allowed. 15. In the result, this appeal of the assessee is partly allowed. 16. Now we deal with the assessee’s appeal with regard to levy of penalty under Section 271(1)(c) of the Act. Since we have restricted the addition to the extent of 8% of credit entries thereby granting substantial relief to the assessee in quantum assessment. It is a matter of fact that we have restricted the addition on ad hoc basis, therefore, the penalty levied on entire credit entry addition would not survive. Further, it is settled position ITA No.67 and 68/Srt/2019 Jagdishbhai Savjibhai Patel Vs ITO 12 of law that no penalty is leviable on the addition made on ad hoc basis, therefore, we direct the Assessing Officer to delete the entire addition. 17. In the final result, the appeal of assessee against the quantum assessment is partly allowed and the appeal with regard to levy of penalty is allowed. Order pronounced in the open court on 27 th July, 2022 and the result was also placed on the notice board. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 27/07/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By order Sr.Private Secretary, ITAT, Surat