Shri Akshay Mukund Pathak, Surat V. The Income Tax Officer, Ward-3(4) Now Ward-1(3)(6), Surat

ITA 714/AHD/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1720 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 27-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 22-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KALASH RATNOO
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Unexplained investment; Principle of natural justice; Peak credit
• Section: 142(1); 133(6); 148; 144

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL CAMP AT SURAT BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO.714/AHD/2016 / ASSTT. YEAR: 2006-2007 AKSHAY MUKUND PATHAK 9A, MADAV PARK ROW HOUSE OPP: RANCHOD PARK NR. SAHAJDHAM ROW HOUSE HONEY PARK ROAD ADAJAN SRUAT 395 009. PAN : AKTPP 1796 M VS. ITO, WARD-1(3)(6) SURAT. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI SAPNESH SHETH REVENUE BY : SHRI KALASH RATNOO, SR.DR ! / DATE OF HEARING : 24/04/2017 '#$ ! / DATE OF PRONOUNCEMENT: 02 /05/2017 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-II, SURAT DATED 28.1.2016 PASSED FOR THE ASSTT.YEAR 2006-07. 2. ASSESSEE HAS RAISED FIVE GROUNDS OF APPEAL, OUT OF WHICH GROUND NO.4 AND 5 ARE GENERAL IN NATURE AND DID NOT CALL F OR RECORDING OF ANY SPECIFIC FINDING. ITA NO.714/AHD/2016 2 3. IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED REOP ENING OF THE ASSESSMENT BY ISSUANCE OF NOTICE UNDER SECTION 148. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED PASSING OF AN EX PARTE ASSESSMENT ORDER UNDER SECTION 144 OF THE INCOME TAX ACT, AND IN GRO UND NO.3, THE ASSESSEE HAS CHALLENGED CONFIRMATION OF ADDITION OF RS.11,37,730/-. AS FAR AS GROUND NO.1 IS CONCERNED NO SERIOUS ARGUM ENTS WERE RAISED BY THE LD.COUNSEL FOR THE ASSESSEE. OTHERWI SE ALSO, WE DO NOT FIND ANY MERIT IN THE CONTENTIONS RAISED BY THE ASS ESSEE FOR THE FOLLOWING REASONS. 4. BRIEF FACTS OF THE CASE ARE THAT THE LD.AO HAS R ECEIVED AN INFORMATION FROM ANNUAL INFORMATION REPORT WING EXH IBITING FACT THAT THE ASSESSEE HAS BANK ACCOUNT WITH HDFC BANK BEARIN G NO.0067100141900. THE ASSESSEE HAD MADE DEPOSITS O F RS.11,37,730/- IN THIS ACCOUNT. THE ASSESSEE HAS N OT FILED RETURN OF INCOME. THEREFORE, THE AO HAS RECORDED REASONS AND ISSUED NOTICE UNDER SECTION 148 OF THE ACT. SINCE THE ASSESSEE W AS NOT FILING RETURN, AND HE HAS NOT DISCLOSED BANK ACCOUNT TO THE DEPART MENT, THEREFORE, THE AO HAS RIGHTLY HARBOURED A BELIEF THAT INCOME H AS ESCAPED ASSESSMENT, AND HE HAS RIGHTLY ISSUED NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE GROUND NO.1 OF THE APPEAL. IT IS REJECTED. 5. SO FAR AS GROUND NO.2 OF THE APPEAL IS CONCERNED IT IS INTER- CONNECTED WITH GROUND NO.3, THEREFORE, WE TAKE BOTH THESE GROUNDS TOGETHER. 6. ACCORDING TO THE AO, THE ASSESSEE DID NOT RESPON D TO THE NOTICE UNDER SECTION 142(1) OF THE ACT. THE AO HAD ISSUED NOTICE UNDER SECTION 133(6) OF THE ACT TO THE BANK MANAGER AND C ALLED FOR BANK STATEMENT. ON THE BASIS OF BANK STATEMENT, HE HAS WORKED OUT DEPOSITS ITA NO.714/AHD/2016 3 OF RS.11,37,730/-. HE MADE ADDITION OF THIS AMOUNT ON ACCOUNT OF UNEXPLAINED INVESTMENT. 7. ON APPEAL, THE ASSESSEE HAS FILED WRITTEN SUBMIS SIONS. IT READS AS UNDER: 5. IN PARA 3 OF THE ASSESSMENT ORDER, ASSESSING O FFICER OBSERVED THAT ASSESSEE DID NOT SUBMIT ANY REPLY IN RESPECT O F DEPOSITS MADE IN ABOVE BANK ACCOUNT AND ON THIS BASIS THE AS SESSING OFFICER HAS MADE AN ADDITION OF RS.11,37,730/- ON A CCOUNT OF ENTIRE DEPOSITS MADE IN ABOVE REFERRED BANK ACCOUNT . ON PERUSAL OF BANK STATEMENT IT IS CLEARLY EVIDENT THAT AGAINS T CASH DEPOSIT IN BANK ACCOUNT THERE ARE SUBSEQUENT PAYMENTS THROUGH CHEQUES ON VARIOUS DATES WHICH CLEARLY JUSTIFY THE BUSINESS AC TIVITY CARRIED ON BY ASSESSEE IN FACT IT IS VERY MUCH EVIDENT THAT SU BSTANTIAL PAYMENT HAS BEEN TRANSFERRED TO ACCOUNT NO. '247100 0022949'. THE ABOVE ACCOUNT BELONGS TO PARTY VIZ. P. K. PODDA R FROM WHOM ASSESSEE MADE PURCHASE OF STATIONERY ITEMS - STICKE R ROLLS. THE ASSESSEE WAS UNABLE TO GIVE ANY EXPLANATION DURING ASSESSMENT PROCEEDINGS ONLY DUE TO NON-RECEIPT OF NOTICES. HOW EVER, THE ACTUAL FACT IS THAT ASSESSEE HAS DONE BUSINESS ACTI VITY OF TRADING IN STICKER ROLLS ON RETAIL TRADE BASIS. ASSESSEE PU RCHASED STICKER ROLLS FROM ABOVE PARTY WHO IS BASED IN DELHI & AFTE R SELLING THE ROLLS LOCALLY ON RETAIL BASIS, ASSESSEE DEPOSITED C ASH PROCEEDS IN HIS ABOVE BANK ACCOUNT & THEREAFTER REMITTED PAYMEN T TO ABOVE PARTY IN HIS ABOVE REFERRED BANK ACCOUNT. THE VERY FACT THAT SUBSTANTIAL AMOUNT IS TRANSFERRED TO ABOVE BANK ACC OUNT CLEARLY SUBSTANTIATES ASSESSEE'S EXPLANATION THAT BUSINESS ACTIVITY HAS BEEN CARRIED OUT. TRANSFER OF FUNDS IN ABOVE BANK A CCOUNT DOES NOT REPRESENT ANY UNACCOUNTED INVESTMENT AS THIS AC COUNT BELONGS TO OUTSIDER. THE INQUIRY WITH ABOVE SUPPLIE R ITSELF WILL CLEARLY REVEAL THE BUSINESS ACTIVITY OF ASSESSEE. 6. ASSESSING OFFICER HIMSELF COULD HAVE OBTAINED DETAILS RELATING TO ABOVE REMITTANCE FROM BANKING AUTHORITY. AS SUBS TANTIAL PAYMENT IS APPEARING UNDER THE HEAD OF 'FUND TRA NS' & ABOVE BANK ACCOUNT NO. IS ALSO STATED SEVERAL TIMES IN TH E BANK STATEMENT, ASSESSING OFFICER SHOULD HAVE OBTAINED S UCH DETAILS IN ORDER TO VERIFY THE CORRECT FACTS &.TO MAKE THE BES T JUDGEMENT ASSESSMENT. 7. AT PRESENT ASSESSEE DOES NOT HAVE DETAILS WITH H IM AS THE MATTER IS MORE THAN 9 YEARS OLD. IN FACT THE BUSINE SS ACTIVITY WAS ITA NO.714/AHD/2016 4 DONE AT A VERY SMALL SCALE FROM ASSESSEE'S RESIDENC E & DUE TO FLOOD IN AUGUST 2006, THE RECORDS RELATING TO BUSIN ESS WERE COMPLETELY DESTROYED. HOWEVER, ASSESSEE HAS APPROAC HED HDFC BANK & HAS REQUESTED THEM TO PROVIDE COMPLETE DETAI LS RELATING TO THE NAME & ADDRESS OF THE PARTY IN WHOSE ACCOUNT SU BSTANTIAL PAYMENT HAS BEEN TRANSFERRED AS STATED ABOVE. IT IS FURTHER REQUESTED THAT IN THE INTEREST OF NATURAL JUSTICE, THE ASSESSING OFFICER MAY ALSO KINDLY BE DIRECTED TO OBTAIN ABOVE DETAILS FROM BANKING AUTHORITY AS LETTER FROM ASSESSING OFFICER TO BANK WILL BE MORE EFFECTIVE COMPARED TO ASSESSEE'S REQUEST TO BA NK TO PROVIDE SUCH DETAILS. 8. THE TOTAL DEPOSITS IN THE BANK ACCOUNT COMES T O ONLY RS. 11,37,730/- AND ON ABOVE AMOUNT THE ASSESSING OFFIC ER OUGHT TO HAVE MADE ADDITION ONLY BY WAY OF ESTIMATING PROFIT AND HIS ACTION IN MAKING ADDITION OF ENTIRE DEPOSIT IS ABSO LUTELY AGAINST THE PRINCIPLE OF NATURAL JUSTICE, EQUITY AND FAIR P LAY. THE TOTAL CASH DEPOSIT IS MUCH BELOW THE MONETARY LIMIT OF TURNOVE R LAID DOWN U/S 44AF OF THE ACT & CONSEQUENTLY, IT IS PRAYED TH AT ESTIMATION OF PROFIT SHOULD BE MADE ON ABOVE RECEIPTS AS PER THE PROVISIONS OF SECTION 44AF OF THE ACT. 9. MOREOVER, IT SHOULD BE NOTED THAT EVEN ASSESSI NG OFFICER HAS FAILED TO BRING ANY EVIDENCE ON RECORD IN SUPPORT O F HIS CONTENTION THAT ENTIRE CASH DEPOSIT REPRESENT INCOME OF ASSESS EE. FURTHER HE HAS FAILED TO BRING ON RECORD ANY CORRESPONDING UNA CCOUNTED ASSETS IN WHICH INVESTMENT HAS BEEN MADE BY ASSESSE E OUT OF SUCH CASH DEPOSITS. THIS VERY FACT AGAIN CLEARLY MA NIFESTS THAT THERE IS NO JUSTIFICATION IN THE ACTION OF ASSESSIN G OFFICER IN MAKING ADDITION OF ENTIRE CASH DEPOSIT IN THE BANK ACCOUNT . 10. THE PATTERN OF CASH DEPOSITS AND CASH WITHDRAWA LS APPEARING IN BANK ACCOUNT |OF ASSESSEE ALSO INDICATES THAT AS SESSEE HAS DONE BUSINESS ACTIVITY. IN OTHER WORDS, THE PATTERN SHOWS THAT CASH DEPOSITS ARE ON ACCOUNT OF SALE TRANSACTION WH EREAS THE WITHDRAWALS MADE ON VARIOUS DATES ARE FOR PAYMENT O F PURCHASES AS UPON REALIZATION OF SALES PRICE FUNDS HAVE BEEN TRANSFERRED TO THE ACCOUNT OF SUPPLIERS AS STATED ABOVE. IN SUCH C ASE ADDITION CAN BE MADE ONLY ON ACCOUNT OF DIFFERENCE I.E. OF P ROFIT ELEMENT. HERE RELIANCE IS PLACED ON THE DECISION OF JURISDIC TIONAL GUJARAT HIGH COURT IN CASE OF CIT V. PRESIDENT INDUSTRIES-1 58 CTR 372(GUJ). HENCE, ASSESSING OFFICER OUGHT TO HAVE MA DE ADDITION ONLY BY ESTIMATING COMMISSION INCOME OF ASSESSEE. ITA NO.714/AHD/2016 5 11. WITHOUT PREJUDICE TO THE ABOVE SUBMISSION, IT I S FURTHER SUBMITTED THAT ADDITION ON ACCOUNT OF ENTIRE CASH D EPOSIT CAN NEVER BE MADE. THE ADDITION, IF ANY, CAN BE MADE ON LY TO THE EXTENT OF PEAK CREDIT BALANCE. RELIANCE IS PLACED O N HONOURABLE GUJARAT HIGH COURT DECISION IN CASE OF CIT V. TIRUP ATI CONSTRUCTION CO. - TAX APPEAL NO. 1010 TO 1012 OF 2014 WHEREIN A DDITION MADE ON THE BASIS OF PEAK THEORY AND PROFIT ESTIMATION H AS BEEN UPHELD. IN SUPPORT OF THE CONTENTION THAT ADDITION CAN BE MADE ONLY IN RESPECT OF PEAK CREDIT BALANCE, RELIANCE IS PLACED ON ITAT AHMEDABAD BENCH DECISIONS IN FOLLOWING CASES:- (I) SMT. MANJULABEN CHAMPAKLAL V. ITO - ITA NO. 1155/AHD/2011 (II) ITO V. RAJPAL SINGH SEKHAWAT - ITA NO. 1399/AHD/11 (III) SAURIN NANDKUMAR SHODHAN V.LTO - ITA NO.2075/AHD/12 (IV) PATEL PRAHIADBHAI HARJIVANBHAI V. ITO - ITA NO. 2347/AHD/12 (V) (V) SMT. JULLY BAJARANGLAL NAHAR -ITA NO. 829/AH D/2013 12. IN THE ABOVE CASES, HON'BLE ITAT, AHMEDABAD BEN CH HAS CLEARLY HELD THAT ADDITION ON ACCOUNT OF UNACCOUNTE D INCOME DEPOSITED IN UNDISCLOSED ACCOUNT CAN BE MADE ONLY T O THE EXTENT OF PEAK CREDIT BALANCE & PROFIT ELEMENT. RELIANCE C AN ALSO BE PLACED ON ITAT MUMBAI BENCH DECISION IN CASE OF HOT EL DERBY, MUMBAI - ITA NO. 3413/MUM/11 & ITAT DELHI BENCH DEC ISION IN CASE OF ACIT V. BALDEV RAJ CHARLA & ORS. - 121 TTJ (DEL) 366. 13. IN VIEW OF THE ABOVE DECISIONS OF JURISDICTIONA L GUJARAT HIGH COURT & AHMEDABAD ITAT & OTHER BENCHES, IT IS PRAYE D THAT NECESSARY RELIEF MAY KINDLY BE ALLOWED TO ASSESSEE. 8. THE LD.CIT(A) DID NOT ACCEPT CONTENTIONS OF THE ASSESSEE AND UPHELD THE ORDER OF THE AO. 9. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE REITE RATED HIS SUBMISSIONS AS WERE RAISED BEFORE THE LD.CIT(A). H E TOOK US THROUGH THE BANK STATEMENT AVAILABLE ON THE PAPER BOOK, AND POINTED OUT THAT THE ASSESSEE MADE PAYMENTS ON 16.5.2005, 30.6.2005 AND 3.6.2005, OUT OF THIS BANK ACCOUNT TO SHRI P.K. PODDAR. THIS SHOWS THAT THIS BANK ACCOUNT WAS USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ITA NO.714/AHD/2016 6 LD.CIT(A) OUGHT TO HAVE TAKEN COGNIZANCE OF THE ASS ESSEES SUBMISSIONS. 10. ON THE OTHER HAND, THE LD.DR RELIED UPON THE OR DERS OF THE REVENUE AUTHORITIES. HE CONTENDED THAT THE BANK AC COUNT WAS NOT DISCLOSED BY THE ASSESSEE TO THE DEPARTMENT. INFOR MATION WAS COLLECTED UNDER AIR, THEREFORE, IT IS FOR THE ASSESSEE TO EXP LAIN THE SOURCE OF DEPOSITS IN THIS BANK ACCOUNT AND IN CASE THE ASSES SEE FAILS, ADDITION DESERVES TO BE MADE TO THE INCOME OF THE ASSESSEE. 11. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. NO DOUBT THE ASSESSEE FAILED TO APPEAR BEFORE THE AO, BUT BEFORE THE LD.CIT(A), HE HAS NOT SUBMITTED FRES H EVIDENCE. HE HAS SUBMITTED A CONTENTION ON THE BASIS OF BANK STATEME NT ALREADY POSSESSED BY THE AO THAT THIS BANK ACCOUNT WAS USED FOR THE PURPOSE OF BUSINESS, AND THEREFORE, ONLY PEAK CREDIT AVAILABLE IN THIS BANK ACCOUNT OUGHT TO BE CONSIDERED AS UNEXPLAINED INVESTMENT OF THE ASSESSEE. IT IS PERTINENT TO OBSERVE THAT IN ORDER TO FIND OUT WHET HER THE ADDITION ON ACCOUNT OF PEAK CREDIT AVAILABLE IN BANK ACCOUNT IS TO BE MADE, IT IS TO BE ASCERTAINED WHETHER THIS BANK ACCOUNT WAS USED F OR CIRCULATING THESE VERY AMOUNT VIZ. SALE PROCEEDS ARE BEING DEPOSITED IN THE BANK ACCOUNT AND WITHDRAWALS WERE MADE FOR THE PURPOSE OF PURCHA SING RAW-MATERIAL. IN OTHER WORDS, THE ASSESSEE SHOULD BE IN A POSITIO N TO DEMONSTRATE THAT BANK ACCOUNT WAS USED FOR THE PURPOSE OF BUSIN ESS, WHEREIN WITHDRAWALS AND DEPOSITS WERE MADE. IN THE PRESENT CASE, THE ASSESSEE HAS MADE REFERENCE WITH REGARD TO HIS BUSI NESS OF TRADING IN STICKER ROLE. HE MADE PAYMENTS TO SHRI P.K. PODDAR FROM WHOM PURCHASES WERE MADE. IT IS DISCERNIBLE FROM THE BA NK ACCOUNT. THEREFORE, IN THE INTEREST OF JUSTICE, WE DEEM IT A PPROPRIATE TO SET ASIDE THE ISSUE TO THE FILE OF AO. THE LD.AO SHALL INVES TIGATE WHETHER THE ASSESSEE WAS DOING BUSINESS IN TRADING/MANUFACTURIN G OF STICKER ROLES ITA NO.714/AHD/2016 7 AND HE HAS USED THIS ACCOUNT FOR DEPOSITS OF SALES AS WELL AS MADE WITHDRAWALS FOR THE PURCHASE. IF THAT BE SO, THEN ONLY PEAK CREDIT AVAILABLE AT ANY GIVEN TIME BE CONSIDERED AS AN UNE XPLAINED INVESTMENT. WITH THE ABOVE OBSERVATION, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 2 ND MAY, 2017 AT AHMEDABAD. SD- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER