ITO 24(3)(1), MUMBAI V. JITENDRA G. SHAH, MUMBAI

ITA 827/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6309 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2006-2007
• Appeal Filed On: 03-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: BEHARILAL
• Keywords: Unexplained cash credit; Opportunity of being heard; Peak credit
• Section: 142(1); 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI A.L. GEHLOT (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 827/MUM/2010 ASSESSMENT YEAR- 2006-07 THE ITO-24(3)(1), B.K.C., BANDRA (E), MUMBAI-400 051 SHRI JITENDRA G. SHAH, PROP. OF M/S. YASH COLLECTION, ROAD NO.1, JAWAHAR NAGAR, OPP. MEHTA SWEET6, GOREGAON (W), MUMBAI-400 0-62 PAN-ABAPS 7449E (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI S.K. SINGH RESPONDENT BY: SHRI BEHARILAL O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 19/11/2009 PASSED BY THE LD. CIT(A)-34 FOR TH E ASSESSMENT YEAR 20065-07. 2. THE GROUND RAISED BY THE REVENUE AGAINST THE ORD ER OF THE CIT(A)DIRECTING THE ASSESSING OFFICER TO MAKE ADDIT IONS AS UNDISCLOSED INCOME, PEAK AMOUNTS OF CREDITS APPEARING IN THE BA NK ACCOUNTS RATHER THAN AGGREGATING ALL DEPOSITS. 3. THE AO ON THE BASIS OF THE AIR INFORMATION RECEI VED THROUGH COMPUTER FOUND THAT THAT THE ASSESSEE HAS DEPOSITED CASH OF RS. 12,91,070/- IN THE INDUSIND BANK AT ANDERI (E) BRAN CH AND RS. ITA NO. 827/M/10 2 10,03,865/- IN VASANTDADA SHERTARI SAHAKARI BANK LT D GOREGOAN (W) BRANCH. DURING THE COURSE OF ASSESSMENT PROCEEDING THE ASSESSEE WAS ASKED TO SUBMIT THE BANK STATEMENT FOR THE PERIOD 1 .4.2005 TO 31.30.3006. THE ASSESSEE HAS NOT FURNISHED THE SAME . ACCORDINGLY, SUMMONS U/S 131 OF THE ACT, WAS ISSUED THE ABOVE ME NTIONED BRANCHES OF BANKS TO PROVIDE THE COPY OF BANK ACCOUNTS OF TH E ASSESSEE. IN RESPONSE TO THE SUMMONS THE BANKS HAVE SUBMITTED BA NK STATEMENTS OF THE ASSESSEE. 4. IT WAS SEEN FROM THE ACCOUNT STATEMENT SUBMI TTED BY THE BANKS THAT THE ASSESSEE HAS OPERATED BANK ACCOUNT NO. 845 9 UP TO 16.11.2005 WITH VASANTDADA SHETKARI SAHAKARI BANK LTD GOREGOAN (W) BRANCH. THEREAFTER, THE ASSESSEE HAD OPENED ANOTHER ACCOUNT IN THE SAME BANK BEARING ACCOUNT NO. 8997. THIS ACCOUNT WAS OPENED I N THE JOINT NAME OF MR. JITENDRA G. SHAH & V. J. SHAH. IN THIS ACCOUNT THE ASSESSEE HAS DEPOSITS CASH OF RS. 5,07,931/. 5. AS THE ASSESSMENT PROCEEDINGS WERE GETTING TI ME BARRED AND THE ASSESSEE HAS BEEN PROVIDED WITH SUFFICIENT OPPORTUN ITY, THE AO FELT THAT HE WAS LEFT WITH NO OPTION BUT TO COMPLETE THE ASS ESSMENT AS PER MATERIAL AVAILABLE ON RECORD. AN AMOUNT OF RS. 28,0 2,866/- REPRESENTING CASH DEPOSITS INTO THE ASSESSEES BANK ACCOUNT, WAS ADDED BACK TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED CASH CREDIT U /S 68 OF THE ACT, 1961 . 6. IN THEIR APPEAL BEFORE THE CIT(A), THE ASSESSEE STRONGLY AGITATED AGAINST THE ACTION OF THE ASSESSING OFFICER AND FIL ED WRITTEN SUBMISSION AND PAPER BOOK. IN THE WRITTEN REPLY THE APPELLANT HAS SUBMITTED AS UNDER: ADDITION OF CASH DEPOSITS IN BANK ITA NO. 827/M/10 3 ON THE BASIS OF AIR INFORMATION RECEIVED THROUGH CO MPUTER THE ASSESSING OFFICER CAME TO KNOW THAT THE APPELLANT H AD DEPOSITED CASH IN THE FOLLOWING BANK ACCOUNTS. SR, NO. NAME OF BANK A CCOUNT NO. AMOUNT --------------------------------------------------- --------------------------------------------------- ---------- 1. INDUSIND BANK LTD 033-566058-00 1 12,91,070 2. VASANTDADA SHETKARI 845 9 10,03,865 SAHAKARI BANK LTD VASANTDADA SHETKARI SAHAKARI BANK LTD 8 997 5,07,931 --------------------------------------------------- --------------------------------------------------- ---------- TOTAL 28,02,866 THE LD. ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE U/S 142(1) ON 19.12.2008 FIXING THE DATE OF HEARING ON 26.12.2008 WHEREIN HE ASKED APPELLANT TO FURNISH THE EXPLANATION WITH REGARD TO THE SOURCE OF CASH DEPOSITED IN THE ABOVE BANK ACCOUNTS. THE ABOVE NOTICE SENT THROUGH POSTAL AUTHORITIES CO ULD NOT BE SERVED. THE POSTAL AUTHORITIES MENTIONED REMARK ON THE ENVE LOPE REFUSED ON 23.12.2008 AND 24.12.2008. UNDER SUCH CIRCUMSTANCE S AS THE CASE WAS GETTING TIME BARRED THE LD ASSESSING OFFICER CO MPLETED THE ASSESSMENT ON 26.12.2008 BY MAKING THE ADDITION OF ENTIRE CASH DEPOSIT. IN THIS CONTEXT, IT IS SUBMITTED THAT THE SHOW CAUS E NOTICE U/S 142(1) DATED 19.12.2008 ASKING FOR DETAILS REGARDING CASH DEPOSITS COULD NOT BE SERVED BECAUSE WHEN THE SAME WAS BROUGHT BY POST AL AUTHORITIES AT THE SHOP NEITHER APPELLANT NOR ANY OTHER RESPONSIBL E PERSON WERE PRESENT IN THE SHOP AND SALESMAN PRESENT THEY REFUS ED TO ACCEPT THE SAID NOTICE. HE ALSO DID NOT INFORM THE SAID FACT TO THE APPELLANT. UNDER SUCH CIRCUMSTANCES SHOW CAUSE NOTICE REMAINED TO BE COMPLIED WITH. IT MAY BE NOTED THAT APPELLANTS REPRESENTATI VE HAD ALWAYS ATTENDED BEFORE THE ASSESSING OFFICER FROM TIME TO TIME AND FILED THE VARIOUS DETAILS CALLED FOR WHICH WAS ALSO ACCEPTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, HOWEVER THE SHOW CAUSE NOTICE WHICH WAS ISSUED AT THE FAG END OF THE TIME BARRING PERIO D COULD NOT BE ATTENDED DUE CIRCUMSTANCES NARRATE ABOVE. THUS IT I S SUBMITTED THAT APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE BY NOT PRODUCING THE DETAILS OF CASH DEPOSITS TO THE ASSESSING OFFICER D URING THE COURSE OF ASSESSMENT PROCEEDING AND AS THE CASE WAS GETTING T IME BARRED THE ITA NO. 827/M/10 4 ASSESSING OFFICER COMPLETED THE ASSESSMENT HURRIEDL Y BY MAKING ADDITION OF ENTIRE CASH DEPOSITS. IN THIS CONTEXT AT THE OUTSET IT IS SUBMITTED THAT ADDITION OF ENTIRE CASH DEPOSIT IN THE BANK ACCOUNTS BY APPLYING PROVISIONS OF SEC 68 OF THE I.T. ACT, 1961 AS UNEXPLAINED CASH CREDIT AND THAT TOO W ITHOUT GIVING SUFFICIENT OPPORTUNITY OF BEING HEARD IS TOTALLY IL LEGAL AND UNJUSTIFIED. WE WOULD LIKE TO SUBMIT THAT SOME TIMES THE OUTSTAT ION PARTIES COME TO MUMBAI FOR PURCHASE OF GOODS FROM THE MARKET BUT SE LLER INSISTS ON CHEQUE PAYMENTS BUT THE BUYER DOES NOT HAVE CHEQUES IN THEIR HAND FOR THE PURPOSE OF MAKING PAYMENT TO THE SELLER OF GOO DS. UNDER THIS SITUATION THEY APPROACH THE APPELLANT WHO USE TO IS SUE THEM BEARER/ CROSSED CHEQUES AFTER ACCEPTING THE CASH FROM THEM INCLUDING HIS COMMISSION CHARGES. WHEN THE SAID CHEQUES IS PRESEN TED IN HIS BANK HE USED TO DEPOSIT THE REQUISITE AMOUNT OF CASH TO CLEAR THE CHEQUES. SOME TIMES WHEN THE CHEQUES IS NOT PRESENTED HE USE TO WITHDRAW THE CASH FROM BANK AND REDEPOSIT IN THE OTHER BANK ACCO UNT WHERE ANOTHER CHEQUES CAME FOR PAYMENT. THUS IT IS SUBMITTED THAT THE APPELLANT INDULGE IN BUSINESS OF DISCOUNTING AND EARN ONLY CO MMISSION INCOME AROUND 2% TO 3% OUT OF THE VARIOUS TRANSACTIONS AND THEREFORE ACCORDINGLY ADDITION SHOULD HAVE BEEN RESTRICTED ON LY TO THE EXTENT OF PERCENTAGE OF COMMISSION ON THE TOTAL TURNOVER OF D EPOSITS IN THE BANK ACCOUNT. WITHOUT PREJUDICE TO ANYTHING STATED ABOVE IT IS SU BMITTED THAT THE LD. ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING THE AD DITION OF ENTIRE CASH DEPOSITS IN THE ABOVE BANK ACCOUNTS THE ASSESSING O FFICER HAD CALLED THE BANK STATEMENTS DIRECTLY FROM THE BANK. ON GOIN G THROUGH THE SAID STATEMENT HE FAILED TO APPRECIATE THAT AGAINST DEPO SITS THERE ARE ALSO WITHDRAWALS FROM THE SAID BANK ACCOUNTS AND HENCE I F AT ALL ADDITION WAS TO BE MADE THEN THE SAME SHOULD HAVE BEEN CALCU LATED BY COMBINING THE TRANSACTIONS OF ALL THE BANK TOGETHER AND THEN WORKING OUT THE PEAK I.E. THE HIGHEST BALANCE IN ALL THE BA NK ACCOUNTS TOGETHER. WE HAVE PREPARED COMBINED DATE WISE DEPOSITS AND WI THDRAWALS STATEMENT IN RESPECT OF ALL THE ABOVE THREE BANK AC COUNTS. ON GOING THROUGH THE SAME YOUR HONOUR WOULD APPRECIATE THAT THE PEAK BALANCE OF ALL THE BANK ACCOUNTS IS COMING TO RS 5,34,842/- IN VIEW OF THE ABOVE IT IS SUBMITTED THAT IF YOUR HONOUR IS NOT INCLINED TO ACCEPT THE APPELLANTS CONTENTION THAT CONSIDERING THE FACTS A ND CIRCUMSTANCES OF THE CASE AND NATURE OF TRANSACTION THE ADDITION COU LD BE MADE ONLY BY ADOPTING REASONABLE PERCENTAGE OF COMMISSION INCOM E ON THE TOTAL DEPOSITS THE ADDITION CAN BE MADE ONLY IN RESPECT O F PEAK BALANCE AND NOT THE ENTIRE CASH DEPOSITS AS MADE BY THE LD. ASS ESSING OFFICER IN ASSESSMENT ORDER. ITA NO. 827/M/10 5 7. THE LD. CIT(A) CONCLUDED AS UNDER: I HAVE CAREFULLY CONSIDERED THE FINDINGS OF THE AS SESSING OFFICER AND SUBMISSIONS OF THE APPELLANT. THE APPELLANT HA S STATED THAT OUT STATION PARTIES COME TO MUMBAI FOR PURCHASING GOODS FROM THE MARKET BUT SELLERS INSIST ON CHEQUE PAYMENT. SO TH EY APPROACH THE APPELLANT WHO USED TO ISSUE THEM CHEQUE AFTER ACCE PTING CASH FROM THEM INCLUDING HIS COMMISSION. WHEN THE SAID CHEQUE IS PRESENTED IN THE BANK HE USED TO DEPOSIT THE REQUISITE CASH A MOUNT TO CLEAR THE CHEQUE. IT IS ARGUED THAT HE HAS EARNED ONLY 2 TO 3 PERCENT AS COMMISSION IN THE ENTIRE PROCESS. WITHOUT PREJUDIC E TO THE ABOVE THE ALTERNATE ARGUMENT OF THE APPELLANT IS THAT THE ASS ESSING OFFICER WAS NOT JUSTIFIED IN MAKING ADDITION OF THE ENTIRE CASH DEPOSIT IN THE BANK ACCOUNT HE SHOULD HAVE APPRECIATED THE WITHDRA WALS FROM THE SAME ACCOUNT AND ONLY PEAK ADDITION SHOULD HAVE BEE N MADE AFTER COMBINING TRANSACTIONS OF ALL BANK ACCOUNTS TOGETHE R. THE APPELLANT HAS RELIED ON DECISION OF RAJKOT ITAT IN THE CASE O F ITO V/S MAHESH KUMAR JAYANTILAL VOHRA 3 SOT 96 (RAJ) AND M.V. MATH EW V/S. ITO 54 TTJ 353(COCHIN) IT IS ALSO ARGUED THAT COMBINED PEAK OF ALL THE BANK ACCOUNTS WORKS OUT TO RS 5,34,842/- THE ASSESS ING OFFICER SHOULD HAVE ADDED AT THE MOST THIS AMOUNT AS UNEXPL AINED CASH. THE FIRST ARGUMENT OF THE APPELLANT THAT HE HAS EAR NED ONLY COMMISSION INCOME IS NOT ACCEPTABLE RATHER THE APPE LLANT HAS EARNED COMMISSION WHICH IS REQUIRED TO BE ADDED AT THE RATE OF 3% AND ADDITION OF SEED CAPITAL IS ALSO REQUIRED TO BE MADE. THERE ARE DEPOSITS AND WITHDRAWALS FROM THE SAME BANK ACCOUNT S. THEREFORE, THE ASSESSING OFFICER SHOULD MAKE ONLY ADDITION OF PEAK AMOUNT AFTER VERIFYING THE CORRECTNESS OF THE PEAK. THIS DECISION IS FULLY SUPPORTED BY THE AFORESAID CASE LAWS RELIED UPON BY THE APPELLANT. THUS THIS GROUND OF APPEAL IS PARTLY ALLOWED BUT TH E UNDISCLOSED COMMISSION INCOME WILL BE ADDED AND INCOME SHOULD B E ENHANCED BY 3% COMMISSION RATE ON THE TURNOVER FROM BANK ACC OUNTS. 8. AGGRIEVED THE REVENUE IS ON APPEAL. 9. WE HEARD BOTH THE PARTIES. REVENUES GRIEVANCE A GAINST THE ORDER OF THE CIT(A) IS THAT HE HAS DIRECTED THE AO TO ADD ONLY THE PEAK CREDITS WITHOUT EXAMINING THE SOURCE OF EACH DEPOSITS. UNLE SS THE ASSESSEE CAN PROVE THAT THE DEPOSITS WERE MADE FROM THE CASH WIT HDRAWN EARLIER, EACH DEPOSIT SHOULD BE CONSIDERED AS FRESH UNDISCLOSED I NCOME AND ALL THE ITA NO. 827/M/10 6 DEPOSITS IN THE BANK ACCOUNTS SHOULD BE ADDED AS UN DISCLOSED INCOME AS HAS BEEN RIGHTLY DONE BY THE AO. 10. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS BEEN REGULARLY DEPOSITING AND WITHDRAWING CASH FROM HIS BANK ACCOU NTS. HIS EXPLANATION IS THAT HE DEPOSITS CASH INTO BANK ACCO UNTS SO THAT THE CHEQUES ISSUED BY THEM MAY BE CLEARED. THIS CASH H AS BEEN RECEIVED FROM THE CLIENTS TO WHOM THE ASSESSEE ISSUES CHEQUE S. THUS ACCORDING TO THE ASSESSEE THE DEPOSIT OF CASH INTO BANKS IS ONLY OUT OF MONIES RECEIVED FROM THE CLIENT, AGAINST WHICH THE ASSESSE E HAS ISSUED CHEQUES AND HENCE WOULD NOT CONSTITUTE INCOME. HOWEVER IT W AS FOUND THAT THERE WAS A PEAK CREDIT OF RS 5,34,842/- WHICH CANNOT BE EXPLAINED. HENCE THE CIT(A) DIRECTED THAT THE ADDITION AS UNDISCLOSED IN COME SHOULD BE RESTRICTED TO THE PEAK CREDIT OF RS 5,34,842/-. 11. THE CONTENTION OF THE REVENUE IS THAT UNLESS TH E ASSESSEE PROVES THAT THE CASH DEPOSITS WERE FROM OUT OF THE WITHDRA WALS FROM THE BANK, THE WITHDRAWALS CANNOT BE CONSIDERED AS SOURCE FOR THE SUBSEQUENT DEPOSITS AND HENCE THE ADDITION OF ONLY THE PEAK CR EDIT CANNOT BE SUSTAINED. BU THE FACT IS THAT THE ASSESSEE HAS WIT HDRAWN CASH FROM THE BANK. THERE IS NOTHING ON RECORD TO SHOW THAT THE A SSESSEE HAS UTILISED THE CASH WITHDRAWN WAS UTILISED FOR ANY OTHER PURPO SE. THEREFORE, THE NATURAL CONCLUSION IS THAT THE CASH WITHDRAWN FROM THE BANK IS RETAINED BY THE ASSESSEE. THEREFORE THE CONTENTION OF THE AS SESSEE THAT SUBSEQUENT DEPOSITS INTO BANK ACCOUNT WERE FROM THE EARLIER WITHDRAWALS FROM THE BANK ACCOUNT APPEARS REASONABLE AND IS LIA BLE TO BE ACCEPTED. UNLESS THE CIRCUMSTANCES REQUIRE A DIFFERENT CONCLU SION, NORMALLY ALL THE CREDITS ARE TELESCOPED AND ONLY THE PEAK CREDIT IS ADDED. THEREFORE WE CONCUR WITH THE DECISION OF THE CIT(A) THAT ONLY TH E PEAK CREDITS, THAT IS CREDITS WHICH CANNOT BE EXPLAINED BY EARLIER WITHDR AWALS SHOULD BE ITA NO. 827/M/10 7 ADDED AS UNDISCLOSED INCOME. THE CIT(A) HAS DIRECTE D THE AO TO VERIFY THE WORKING GIVEN BY THE ASSESSEE IN THIS REGARD. 12. IN THE CIRCUMSTANCES THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF NOVEMBER, 2010 SD/- SD/- ( A.L. GEHLOT ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 24 TH NOVEMBER, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 827/M/10 8 DATE INITIALS 1 DRAFT DICTATED ON: 20.10.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 21.10.2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______