Shri Sanjay Amratlal Modi, Gandhinagar V. The Income tax Officer, Ward-4, Gandhinagar

ITA 832/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7787 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-07-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 16-03-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Assessee Lawyers: M K PATEL
• Keywords: Unexplained cash credit; Peak credit; Set aside
• Section: 143(3); 68; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH (BEFORE S/SHRI R.V.EASWAR, VICE-PRESIDENT AND N.S. SAINI, ACCOUNTANT MEMBER) ITA.NO.832/AHD/2005 [ASSTT.YEAR : 2001-2002] SHRI SANJAY AMRUTLAL MODI PROP: OF SUMAN TYRE SUMAN TOWER, SECTOR 11 GANDHINAGAR. VS. ITO, WARD-4 GANDHINAGAR. ASSESSEE BY : SHRI M.K.PATEL REVENUE BY : SHRI GOVIND SINGHAL O R D E R PER R.V.EASWAR, VICE-PRESIDENT : THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSMENT YEAR 2001-2002 AND IS DIR ECTED AGAINST THE ADDITION OF RS.3,25,030/- MADE UNDER SECTION 68 OF THE INCOME T AX ACT AS UNEXPLAINED CASH CREDITS. 2. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE RET AIL BUSINESS IN TYRES AND TUBES. WHILE COMPLETING THE ASSESSMENT UNDER SECTI ON 143(3) THE AO ESTIMATED THE NET PROFIT OF THE BUSINESS AT 10% OF THE TOTAL TURNOVER OF RS.14,65,792/- WHICH CAME TO RS.1,46,579/-. THE AS SESSEE HAD SHOWN INCOME OF RS.71,245/- FROM THE BUSINESS AT THE RATE OF 5% OF THE TURNOVER. THE ADDITION THUS AMOUNTED TO RS.75,334/-. 3. THE AO ALSO ADDED THE CREDIT ENTRIES IN THE ACCO UNTS OF SHRI SAVANTILAL MODI, GOPIBEN GUNVANTILAL MODI AND BHARATIBEN PARES HKUMAR. THE AGGREGATE CREDITS AMOUNTED TO RS.3,25,030/-. THE ADDITION WA S MADE ON THE GROUND THAT THE ASSESSEE WAS NOT ABLE TO PROVE THE IDENTITY OF THE CREDITORS AND THEIR CREDIT- WORTHINESS AND THE GENUINENESS OF THE TRANSACTIONS. 4. ON APPEAL THE CIT(A) DIRECTED THE AO TO DETERMIN E THE PROFIT FROM THE BUSINESS AT RS.73,290/- AS AGAINST RS.71,245/- IN V IEW OF SECTION 44AF OF THE PAGE - 2 ITA.NO.832/AHD/2005 -2- ACT. AS REGARDS THE CASH CREDITS HE HELD THAT THE ASSESSEE FAILED TO ADDUCE ANY EVIDENCE BEFORE THE AO DESPITE OPPORTUNITY, IN SUPP ORT OF THE CREDITS AND ACCORDINGLY CONFIRMED THE ADDITION OF RS.3,25,030/- . 5. THE ASSESSEE IS IN FURTHER APPEAL BEFORE US CHAL LENGING THE ADDITION OF THE CASH CREDITS. THE LEARNED COUNSEL FOR THE ASS ESSEE PUT FORWARD TWO CONTENTIONS IN THE ALTERNATIVE. THE MAIN CONTENTIO N WAS THAT THE ONCE THE NET PROFIT OF THE BUSINESS IS ESTIMATED AT A PERCENTAGE OF THE TURNOVER, THEN THERE IS NO QUESTION OF SEPARATELY ADDING THE CASH CREDITS. THE ALTERNATIVE CONTENTION IS THAT AT BEST IT IS ONLY THE PEAK CREDIT THAT CAN BE ADDED AND NOT THE AGGREGATE OF THE CREDIT ENTRIES IN THE ACCOUNTS AND IN THIS CONN ECTION IT IS POINTED OUT THAT THERE WERE SEVERAL DEBIT ENTRIES IN THE ACCOUNTS OF THE CREDITORS WHICH WOULD SUPPORT THE PEAK CREDIT THEORY. OUR ATTENTION WAS ALSO DRAWN TO THE ORDER OF THE CIT(A) IN THE PENALTY PROCEEDINGS TAKEN FOR CONCEAL MENT OF THE INCOME WHERE THERE ARE OBSERVATIONS TO THE EFFECT THAT IT WOULD HAVE BEEN APPROPRIATE TO RESTRICT THE ADDITION TO THE PEAK. 6. ON BEHALF OF THE DEPARTMENT THE MAIN CONTENTION IS VEHEMENTLY OPPOSED ON THE GROUND THAT IT WOULD BE LEAD TO MISUSE AND I T WOULD BE OPEN TO THE ASSESSEES IN GENERAL TO COURT AN ESTIMATED ASSESSME NT OF THE PROFITS OF THE BUSINESS SO THAT THEY CAN ESCAPE FROM BEING ASSESSE D ON UNEXPLAINED CASH CREDITS. AS REGARDS THE ALTERNATIVE ARGUMENT, IT I S SUBMITTED THAT IT IS A NEW PLEA TAKEN BEFORE THE TRIBUNAL FOR THE FIRST TIME AND HE NCE CANNOT BE ENTERTAINED. IT IS FURTHER CONTENDED THAT THE PENALTY PROCEEDINGS A ND THE ORDERS PASSED THEREIN ARE SUBSEQUENT TO THE ASSESSMENT PROCEEDINGS AND TH EREFORE ANY OBSERVATIONS MADE THEREIN CANNOT BE TAKEN ADVANTAGE OF BY THE AS SESSEE. 7. ON A CAREFUL CONSIDERATION OF THE MATTER, WE ARE INCLINED TO ACCEPT THE ALTERNATIVE PLEA PUT FORTH ON BEHALF OF THE ASSESSE E. WE ARE NOT SURE AS TO THE CORRECTNESS OF THE MAIN ARGUMENT TO THE EFFECT THAT WHEN THE PROFITS OF THE BUSINESS ARE ESTIMATED AT A PERCENTAGE OF THE TURNO VER, NO SEPARATE ADDITION CAN PAGE - 3 ITA.NO.832/AHD/2005 -3- BE MADE OF THE CASH CREDITS. APART FROM THE FACT T HAT, AS POINTED OUT BY THE LEARNED DR, IT MAY POSSIBLY GIVE RISE TO MISUSE, TH ERE IS ONE MORE REASON FOR OUR RELUCTANCE TO ACCEPT THE ARGUMENT AND THAT IS T HAT THERE MUST BE CLEAR EVIDENCE ADDUCED BY THE ASSESSEE TO SHOW THAT THE C ASH CREDITS REPRESENTED INCOME FROM THE BUSINESS, THE PROFITS FROM WHICH WE RE ESTIMATED BY THE AO. IN OTHER WORDS IT IS FOR THE ASSESSEE TO PROVE THAT A PART OF THE PROFITS OF THE BUSINESS, WHICH WAS KEPT AWAY FROM THE BOOKS, WERE INTRODUCED INTO THE BOOKS BY WAY OF CASH CREDITS. SUCH AN ATTEMPT WAS NOT MAD E EITHER BEFORE THE DEPARTMENTAL AUTHORITIES OR BEFORE US. SO FAR AS THE ALTERNATIVE PLEA IS CONCERNED, WE FIND FORCE IN THE SAME. IN PARA-2 AT PAGE 2 OF THE ASSESSMENT ORDER, IT HAS BEEN RECORDED THAT THE BOOKS OF ACCOU NTS WERE PRODUCED FOR VERIFICATION. EVEN OTHERWISE, IT APPEARS TO US THA T THE AO COULD HAVE TAKEN THE DETAILS OF THE CREDITS IN THE THREE ACCOUNTS ONLY F ROM THE BOOKS OF ACCOUNTS PRODUCED BEFORE US; IN FACT THE AO HIMSELF SAYS THA T HE NOTICED THE CREDITS ON VERIFICATION OF THE BOOKS OF ACCOUNTS AND RELEVANT MATERIAL SUBMITTED BY THE ASSESSEE. THE OBSERVATIONS OF THE CIT(A) IN HIS OR DER DATED 21-1-2006 PASSED IN THE PENALTY PROCEEDINGS AND CONTAINING OBSERVATI ONS THAT THE PEAK CREDIT THEORY WOULD HAVE BEEN MORE APPROPRIATE TO BE APPLI ED TO THE PRESENT CASE AND CANCELING THE PENALTY FOR CONCEALMENT ON THAT GROUN D, MERELY SUPPORT THE ENTRIES MADE IN THE BOOKS OF ACCOUNTS WHICH WERE PR ODUCED BEFORE THE AO IN THE COURSE OF THE ASSESSMENT PROCEEDINGS. THE LEDG ER ACCOUNT OF THE CREDITORS HAVE BEEN FILED BEFORE US IN PAGES 13 TO 15 OF THE PAPER BOOK AND WE FIND THEREFROM THAT THERE ARE BOTH RECEIPTS AND PAYMENTS IN THE ACCOUNTS, PERMITTING THE ASSESSEE TO RAISE THE PLEA BASED ON THE PEAK CR EDIT THEORY. IT WOULD BE FOR THE ASSESSEE TO PROVE BEFORE THE AO THAT IT IS ONLY THE PEAK THAT CAN BE ADDED UNDER SECTION 68 OF THE ACT. WE THEREFORE ADMIT TH E ALTERNATIVE PLEA RAISED BY THE ASSESSEE AND SET ASIDE THE ORDERS OF THE DEPART MENTAL AUTHORITIES IN SO FAR AS THEY RELATE TO THE CASH CREDITS AND RESTORE THE ISS UE TO THE FILE OF THE AO WHO SHALL EXAMINE THE ASSESSEES ALTERNATIVE PLEA AND T AKE A DECISION IN ACCORDANCE WITH LAW. NEEDLESS TO ADD THAT THE ASSESSEE SHALL BE GIVEN ADEQUATE OPPORTUNITY PAGE - 4 ITA.NO.832/AHD/2005 -4- OF ESTABLISHING THE NEXUS BETWEEN THE DEBIT AND CRE DIT ENTRIES IN THE ACCOUNTS IN ORDER TO SUPPORT THE PEAK CREDIT THEORY. WE DIRECT ACCORDINGLY. 8. IN THE RESULT, THE APPEAL IS DEEMED TO BE ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT THIS 31 ST OF JULY, 2009. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (R.V.EASWAR) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 31-07-2009 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD