Shri Ajay H.Desai, Baroda V. The Income tax Officer,Ward-2(3), Baroda

ITA 716/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80439 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Unexplained investment; Peak credit

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO. 716/AHD/2011 ASSESSMENT YEAR: 2007-08 SHRI AJAY H. DESAI, GF-1, SAI VILLA COMPLEX, OPP. PITAMBER SOCIETY, O.P. ROAD, BARODA. PAN: ABGPD2903E VS. THE INCOME TAX OFFICER, WARD-2(3), BARODA. / APPELLANT / RESPONDENT REVENUE BY : SHRI B.L. YADAV, SR. DR ASSESSEE(S) BY : SHRI SUNIL TALATI, AR !'/ // / DATE OF HEARING : 07/10/2014 $%& !' / // / DATE OF PRONOUNCEMENT: 17/10/2014 '( '( '( '(/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 1 6.11.2010. 2. THE SOLE GROUND OF APPEAL TAKEN BY THE ASSESSEE IN THIS APPEAL READS AS UNDER: THE HONBLE CIT(A) HAS ERRED IN CONFIRMING ADDITIO N AMOUNTING TO RS 453324/- BEING UNEXPLAINED INVESTMENT IN BUSINESS OF THE APPELLANT OF SALES & PURCHASES OF SECOND HAND CARS WITHOUT CONSIDERING T HE FACT THAT THE SAID INVESTMENT IN THIS TYPE OF BUSIN ESS IS TRADE PRACTICE AND SAID INVESTMENT IS MADE OUT OF ITA NO7168/AHD/2011 SHRI AJAY H. DESAI FOR AY 2007- 08 - 2 - DISCLOSED INCOME. IT BE HELD SO NOW AND THE DISALLOWANCE MADE BE DELETED. 3. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A COMMISSION AGENT O F SECOND HAND CARS. DURING THE YEAR UNDER APPEAL, THE ASSESSEE F ILED HIS RETURN OF INCOME SHOWING NET INCOME OF RS 1,04,110/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT SHOWN ONE OF THE BANK ACCOUNT WITH ABN AMRO BANK ACCOUNT NO. 854849. ALL THE TRANSACTIONS OF T HE BANK ACCOUNT WERE NOT CONSIDERED WHILE FILING THE RETURN OF INCO ME. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT MADE ADDITION OF RS 78,21,308/- WHICH IS THE AMOUNT DEPOSITED EITHER IN CASH OR THROUGH CHEQUE WITH THIS BANK AND NOT RECORDED IN T HE BOOKS OF ACCOUNT OF THE ASSESSEE. HE SUBMITTED THAT THE ASS ESSING OFFICER FAILED TO RECOGNIZE THE FACT THAT THE ASSESSEE IS A BUSINESSMAN AND THE AMOUNT CREDITED IS THE RECEIPT FROM THE BUSINES S AND NOT THE INCOME OF THE ASSESSEE. THE AMOUNT CREDITED WITH T HE BANK ACCOUNT IS THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE PURCHASER OF THE CARS. THE ASSESSING OFFICER FAILED TO RECOG NIZE THAT THE ASSESSEE HAS ALSO DEBITED TRANSACTIONS IN THE BANK ACCOUNT WHICH IS THE AMOUNT PAID TO THE SELLER OF THE CARS. THE ASS ESSEE FILED A STATEMENT SHOWING THE AMOUNT PAID TO THE SELLER OF THE CARS AND THE AMOUNT PAID TO THE PURCHASERS OF THE CARS. THUS, F ROM THE STATEMENT, IT WAS CLEAR THAT THE TOTAL AMOUNT DEPOS ITED WAS NOT THE INCOME OF THE ASSESSEE. THE ASSESSEES INCOME WAS ONLY THE COMMISSION INCOME GENERATED OUT OF THESE TRANSACTIO NS AND NOT THE TOTAL TRANSACTIONS ITSELF. FURTHER, THE ASSESSEE P LACED RELIANCE ON THE DECISION OF THE HONBLE MADHYA PRADESH HIGH COU RT IN THE CASE OF CIT VS. BALCHAND AJIT KUMAR (2004) 186 CTR 419 ( MP) WHEREIN IT ITA NO7168/AHD/2011 SHRI AJAY H. DESAI FOR AY 2007- 08 - 3 - WAS HELD THAT TOTAL UNRECORDED SALES CANNOT BE RECO RDED AS THE PROFITS OF THE ASSESSEE. THE NET PROFIT RATE HAS T O BE DEBITED; ONCE THE NET PROFIT RATE IS ADOPTED IN MAKING ADDITION, IT CANNOT BE SAID THAT THERE IS PERVERSITY OF APPROACH. FURTHER, THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT I N THE CASE OF CIT VS. PRESIDENT INDUSTRIES (2001) 158 CTR 372 (GUJ.) WHERE IT WAS HELD THAT IT CANNOT BE A MATTER OF ARGUMENT THAT TH E AMOUNT OF SALES BY ITSELF CANNOT REPRESENT THE NAME OF THE AS SESSEE WHO HAS NOT DISCLOSED THE SALES. THE SALE ONLY REPRESENTS THE PROFITS RECEIVED BY THE SELLER OF THE GOODS FOR THE ACQUISI TION FOR WHICH HE HAS ALREADY INCURRED THE COST. IT IS THE REALIZATI ON OF THE EXCESS OVER THE COST INCURRED THAT ONLY FORMS PART OF THE PROFIT INCLUDED IN THE CONSIDERATION OF SALES. THEREFORE, IT WAS THE ARGUMENT THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN IGNORING THE FACT THAT ONLY SMALL PORTION OUT OF THE TOTAL DEPOSITS COULD BE TH E INCOME OF THE ASSESSEE AND NOT THE TOTAL RECEIPTS AS ABOVE. 4. HE FURTHER SUBMITTED THAT ON APPEAL FILED BY TH E ASSESSEE, THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE TOTAL SALE PROCEEDS IN THE UNDISCLOSED BANK ACC OUNT ADMITTED BY THE ASSESSEE WAS AS UNDER: THROUGH CHEQUES RS 66,36,608/- THROUGH CASH RS 11,87,700/- RS 78,21,308/- TOTAL UNDISCLOSED INVESTMENT IN PURCHASE RS 65,75, 968/- WAS DECLARED AT RS 65,75,968/-. UNDISCLOSED INCOME BY ADOPTING ASSESSEES OWN FIGURE RS 12,45,348/-. THE COMMISSIONER OF INCOME TAX (APPEALS) THEREAFTER OBSERVED THAT ALL PAYMENTS FOR PURCHASES ARE NOT ACCOUNTED T HROUGH THE ITA NO7168/AHD/2011 SHRI AJAY H. DESAI FOR AY 2007- 08 - 4 - BANK ACCOUNT AND MADE BY YET ANOTHER UNDISCLOSED SO URCE. THIS UNEXPLAINED INVESTMENT HAS TO BE ESTIMATED. THE CO MMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ANALYSIS OF THE BANK ACCOUNT SHOWS THAT ROUGHLY 50% OF THE PURCHASE EXPE NSES HAVE BEEN MADE BY THIS ACCOUNT AND THEREFORE 50% OF THE EXPENSES ARE STILL UNEXPLAINED AND HAVE TO BE ADDED SEPARATELY A ND ADDED 50% OF RS 65,75,968/- WHICH COMES TO RS 39,45,580/- AND THEREBY HE SUSTAINED TOTAL ADDITION OF RS 45,33,300/- OUT OF T HE TOTAL ADDITION OF RS 78,21,308/- MADE BY THE ASSESSING OFFICER. 5. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE A RGUED THAT THE ASSESSEE FILED A STATEMENT OF PURCHASE AND SALE OF SECOND HAND CARS AND WORKED OUT THE UNDISCLOSED INCOME AT RS 1,42,468.15 BEFORE THE COMMISSIONER OF INCOME TAX ( APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED T HAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS 68,49,431/- O N SALES OF VEHICLES AND PAID AN AMOUNT OF RS 65,75,968/- AND T HE DIFFERENCE COMES TO RS 2,73,463/-. THE ASSESSEE HAS CLAIMED E XPENDITURE OF RS 1,31,100/- AND NO EVIDENCE IS PRODUCED AND THERE FORE NO CREDIBILITY IS ATTACHED TO THIS CLAIM. THE COMMISS IONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT THE ASSESSEE HA S CLAIMED OFFICE EXPENSES AND EXPENDITURE LIKE TELEPHONE AND PROCESS ING CHARGES AND PAYMENT IN RESPECT OF UNSECURED LOAN WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT. THE COMMISSIONER OF INCOME T AX (APPEALS) FURTHER OBSERVED THAT THE ANALYSIS OF SALE AND PURC HASE DETAILS FILED BY THE ASSESSEE IN RESPECT OF AMOUNT DEPOSITED IN A BN AMRO BANK IT IS SEEN THAT IN MOST CASES, THE SELLERS AND PURC HASERS ARE IDENTICAL, LIKE SHRI ANIL JAIN, SHRI ASHISH A. PATE L, SHRI ASHWIN B. SHAH AND SHRI SUNIL SONI FROM WHOM THE ASSESSEE HAS SHOWN BOTH SALES AND PURCHASES. THE ASSESSEE HAS FILED COPY O F AGREEMENT IN ITA NO7168/AHD/2011 SHRI AJAY H. DESAI FOR AY 2007- 08 - 5 - RESPECT OF SALE/PURCHASE. HOWEVER, THE ASSESSEE HA S NOT FILED ANY OTHER DOCUMENT LIKE DOCUMENTS FILED WITH RTO TO EST ABLISH THE GENUINENESS OF THESE TRANSACTIONS. THE AGREEMENTS ARE SELF- GENERATED AND NOT SUPPORTED BY ANY THIRD PARTY DOCU MENTS. FURTHER, PAYMENTS FOR THE PURCHASE OF THE VEHICLES ARE NOT RECONCILABLE WITH THE ENTRIES IN THE ABN AMRO BANK ACCOUNT. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT FOR EXAMPLE, THE ASSESSEE HAS SHOWN PURCHASE OF FOUR VEHICLES FR OM SHRI ASHWIN B. SHAH AS FOLLOWS: DATE CAR NO. NAME OF SELLER PURCHASE AMT. 24.08.2006 GJ 6 AB 5794 ASHWIN B. SHAH 1,60,000 09.09.2006 GJ 23 A 201 ASHWIN B. SHAH 2,45,000 28.01.2007 GJ 6 AH 1420 ASHWIN B. SHAH 1,91,000 18.03.2007 GJ 6 JJ 7380 ASHWIN B. SHAH 90,000 TOTAL 6,86,000 HOWEVER, FROM THE COPY OF BANK ACCOUNT, IT SEEN TH AT ONLY AN AMOUNT OF RS 1,10,000/- IS SHOWN AS PAID ON 11.09.2 006 WHICH WOULD MEAN THAT THE PAYMENT HAS BEEN MADE IN CASH W HICH CANNOT BE CO-RELATED WITH WITHDRAWALS FROM THE SAID BANK A CCOUNT. SIMILAR SITUATION ENTAILS IN RESPECT OF SOME OTHER PURCHASE S/SALES WHERE PAYMENTS HAVE BEEN MADE IN CASH AT LEAST IN PART. THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO NOTED THA T THE ASSESSEE HAD MADE PAYMENT OF RS 2,15,000/- TO VIJAY PATEL ON 02.05.2006 FOR PURCHASE OF A CORSE CAR GJ 6 AB 7500 . NO CHEQUE PAYMENT IS RECORDED IN ABN AMRO BANK ACCOUNT, NEITH ER THERE IS ANY CASH WITHDRAWAL UP TO THE DATE TO ACCOUNT SUCH PAYMENT. FURTHER, HE OBSERVED THAT RS 1,50,000/- HAS BEEN PA ID TO DEPARTMENTAL REPRESENTATIVE. SMILESH ON 05.10.2006 VIDE CHEQUE ITA NO7168/AHD/2011 SHRI AJAY H. DESAI FOR AY 2007- 08 - 6 - NO. 238538 BUT NO PURCHASE OF CAR HAS BEEN SHOWN FR OM HIM. FURTHER, LARGE NUMBERS OF PAYMENT ARE TOWARDS CREDI T CARD EXPENSES, ATM WITHDRAWALS OF SMALL DENOMINATIONS AP PARENTLY PERSONAL WITHDRAWALS OR REPAYMENT OF LOANS WHICH AR E PORTION OF THE PURCHASES EARLIER HAVE BEEN MET EVEN AFTER THE EXPOSURE OF ABN AMRO BANK ACCOUNT. LOOKING INTO THE FACTS AS A VAILABLE ON RECORD, IT IS APPARENT THAT THE ASSESSEES CONTENTI ON THAT THE ONLY INCOME GENERATED OUT OF THIS TRANSACTION IS RS 1,42 ,460.15 HAS NO BASIS WHATSOEVER. 6. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE FILED RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 ON 29.10.2007, DISCLOSING TOTAL INCOME OF RS 1,04,010/-. IN THE SAID RETURN OF INCOME, THE ASSE SSEE HAS NOT DISCLOSED BANK ACCOUNT MAINTAINED BY HIM WITH ABN A MRO BANK ACCOUNT NO. 854849. THE ASSESSING OFFICER OBSERVED THAT TOTAL DEPOSIT IN THE SAID BANK ACCOUNT DURING THE YEAR UN DER CONSIDERATION WAS RS 78,21,308/-. THE ASSESSING OF FICER ADDED ENTIRE AMOUNT OF DEPOSIT AS THE INCOME OF THE ASSES SEE. 8. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) OBSERVED THAT THE ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF PURCHASE AND SALE OF SECOND HAND CARS AND EARNED BR OKERAGE INCOME THEREON. HE FOUND THAT THE TOTAL PAYMENT MA DE TO THE SELLER OF CARS WAS RS 65,75,968/-. HE, THEREFORE O N REDUCING RS 65,75,968/- FROM TOTAL DEPOSIT OF RS 78,21,308/- CA LCULATED THE ITA NO7168/AHD/2011 SHRI AJAY H. DESAI FOR AY 2007- 08 - 7 - PROFIT OF THE ASSESSEE FROM THE SAID BUSINESS AT RS 12,45,340/-. THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ES TIMATED RS 39,45,580/- BEING 50% OF RS 65,75,968/- AS INVESTME NT MADE BY THE ASSESSEE IN THE AFORESAID BUSINESS. THUS, THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ADDITION TO THE EXTENT OF RS 45,33,324/- AND DELETED THE BALANCE AMOUNT OF RS 32 ,87,984. 9. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFO RE US. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE POINT ED OUT FROM THE BANK STATEMENT THAT THERE WERE REGULAR DEPOSITS AND WITHDRAWALS FROM THE SAID BANK ACCOUNT. THE PEAK BALANCE IN TH E SAID BANK ACCOUNT WAS RS 6,60,045/- ON 31.01.2007. THE ASSES SEE ALSO POINTED OUT THAT OUT OF DEPOSIT OF RS 78,21,308/-, RS 9,43,000/- WAS PERSONAL LOAN TAKEN BY THE ASSESSEE FROM THE BA NK. THUS, THE REMAINING DEPOSIT WAS RS 68,78,308/- AND ON REDUCIN G RS 65,75,968/- FROM THE SAME, THE GROSS INCOME OF THE ASSESSEE COMES TO RS 3,02,340/-. THE ASSESSEE INCURRED EXPE NSES FOR EARNING AFORESAID INCOME OF RS 1,68,944/- AND THE A SSESSEE EARNED OTHER INCOME OF RS 8089/-. THEREFORE, ACCORDING TO THE ASSESSEE, THE MAXIMUM ADDITION WHICH COULD HAVE BEEN MADE ON THE BASIS OF THE AFORESAID BANK ACCOUNT WAS OF RS 1,42,468/-. 10. WE FIND THAT NO MATERIAL HAS BEEN BROUGHT ON R ECORD BY THE REVENUE TO SHOW THAT RS 39,45,580/- WAS INVESTE D BY THE ASSESSEE IN THE AFORESAID BUSINESS AT ANY GIVEN POI NT OF TIME. THUS, THE ADDITION OF RS 39,45,580/- MADE BY THE CO MMISSIONER OF INCOME TAX (APPEALS) IS WITHOUT ANY BASIS. FURTHER , THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED IN HI S ORDER THAT DEPOSIT OF RS 78,21,308/- INCLUDES RS 9,43,000/- WH ICH WAS PERSONAL LOAN RECEIVED BY THE ASSESSEE FROM THE BAN K. HOWEVER, ITA NO7168/AHD/2011 SHRI AJAY H. DESAI FOR AY 2007- 08 - 8 - WHILE CALCULATING THE PROFIT OF BUSINESS, THE COMMI SSIONER OF INCOME TAX (APPEALS) TOOK THE ENTIRE DEPOSIT OF RS 78,21,308/- AS SALE PROCEEDS OF THE BUSINESS. IN OUR CONSIDERED V IEW, THE COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIF IED IN TAKING RS 9,43,000/- AS SALE PROCEEDS OF THE BUSINESS OF T HE ASSESSEE. THUS, ON REDUCING THE ABOVE AMOUNT OF RS 9,43,000/- FROM THE PROFIT OF RS 12,45,340/- CONSIDERED BY THE COMMISSI ONER OF INCOME TAX (APPEALS), THE AMOUNT OF PROFIT COMES TO RS 3,0 2,340/-. KEEPING IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT IN THE AFORESAID BANK ACCOUNT, THE PEAK C REDIT WAS RS 6,60,045/- WAS ON 31.01.2007. THEREFORE, IT WILL B E FAIR AND REASONABLE TO ADD RS 6,60,045/- AND PROFIT EARNED B Y THE ASSESSEE AFTER THAT DATE WHICH HAS BEEN ESTIMATED AT RS 75,0 00/- TO THE INCOME OF THE ASSESSEE IN RESPECT OF AFORESAID BANK ACCOUNT. WE, THEREFORE, CONFIRM THE ADDITION TO THE EXTENT OF RS 7,35,045/- OUT OF THE ADDITION OF RS 45,33,324/- CONFIRMED BY THE COM MISSIONER OF INCOME TAX (APPEALS) AND DELETE THE BALANCE AMOUNT OF RS 37,98,279/-. THUS, THE GROUND OF APPEAL OF THE ASS ESSEE IS PARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLYALLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 17TH O F OCTOBER, 2014 AT AHMEDABAD. SD/- SD/- (G.C. GUPTA) VICE PRESIDENT (N. S. SAINI) ACCOUNTANT MEMBER V AHMEDABAD; DATED 17/10/2014 GHANSHYAM MAURYA, SR. P.S. ITA NO7168/AHD/2011 SHRI AJAY H. DESAI FOR AY 2007- 08 - 9 - TRUE COPY '( ) *')& '( ) *')& '( ) *')& '( ) *')& / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ++ , / CONCERNED CIT 4. ,() / THE CIT(A)-III, AHMEDABAD 5. )/0 , , / DR, ITAT, AHMEDABAD 6. 012 3 / GUARD FILE. '( '( '( '( / BY ORDER, 4 44 4/ // / +5 +5 +5 +5 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD