R K Patel & Company, Navsari V. Asstt. Commissioner of Income Tax, Navsari Circle, Navsari

ITA 867/SRT/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0573 (ITAT-SURAT)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-06-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 12-12-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 69A; 44AB; 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH (SMC), SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 867/Srt/2023 (Assessment Year 2017-18) (Physical hearing) R K Patel and Company, 22, Laxmi Nagar Society, Lunsikui Gandevi Road, Navsari-396445 (Gujarat) PAN No. AALFM 5265 C Vs. A.C.I.T., Navsari Circle Navsari. Appellant/ assessee Respondent/ revenue Assessee represented by Ms. Chaitali Shah, C.A. Department represented by Shri Vinod Kumar, Sr. DR Appeal instituted on 13/12/2023 Date of hearing 10/06/2024 Date of pronouncement 31/07/2024 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of National Faceless Appeal Centre, Delhi (NFAC/learned Commissioner of Income Tax (Appeals) [in short, the ld. CIT(A)] dated 10/11/2023 for the Assessment Year (AY) 2017-18, wherein the assessee has raised following grounds of appeal: “1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in making an addition of Rs. 36,50,000/- on account of alleged unexplained money u/s 69A of Income Tax Act 1961. 2. On the facts and circumstances of the case as well as law on the subject, the learned assessing officer has erred in taking the addition by taking the rate @ 77.25% by attracting S. 115BBE instead of taxing as per normal tax slab. 3. Even otherwise on the facts and circumstances of the case as well as law on the subject, the assessing officer has erred in taxing the income u/s 115BBE @ 77.25% in a retroactive manner by applying the duly substituted S. 115BBE inserted retrospectively instead of taxing it at 35.54% as per the old provisions of S. 115BBE. 4. It is, therefore prayed that above addition made by the assessing officer and confirmed by CIT(A) may please be deleted. ITA No. 867/Srt/2023 R K Patel & Co. Vs. ACIT 2 5. The appellant craves leave to add or alter or delete any of the ground or grounds of appeal at the time of the hearing before your Honour.” 2. Brief facts of the case are that the assessee is a firm engaged in the business of civil contracts of construction of roads, filed its return of income for A.Y. 2017-18 on 04/11/2017 declaring income at Rs. 12,26,710/-. The case was selected for scrutiny. During the assessment, the Assessing Officer noted that on verification of details furnished by the assesse, it was notices that during demonetization period, the assessee has deposited Rs. 36.50 lacs in the form of Specified Bank Notes (SBN) in its bank account maintained in Kotak Mahindra Bank. The assessee was asked to furnish the details of cash deposit and source of such deposit. In response to such show cause notice, the assessee submitted that the cash was deposited out of cash withdrawals from bank account during April, 2016 to October, 2016. The assessee also furnished month wise details of cash withdrawals and opening as well as closing cash in hand and submitted that up to 08/11/2016 Rs. 47,74,782/- was available with assessee. The assessee deposited Rs. 36.50 lacs from 9 th November, 2016 to 30 th November, 2016 and closing cash balance left at Rs. 9,72,482/-. The assessee also furnished details of cash deposit, cash withdrawals and cash expenses during earlier financial year. The aforesaid details are recorded in para 3.1 and 3.2 of assessment order. The assessee further submitted that they are engaged in the business of road contractor and their sites are located at different highways and villages which are far from their main place of business. Their main place of business is at Navsari. The assessee is required to keep good amount of cash in hand. Due to festive season of Diwali, sufficient amount of cash was required for payment to ITA No. 867/Srt/2023 R K Patel & Co. Vs. ACIT 3 labour expenses. Surplus was deposited in bank account from time to time. Submission of assessee was not accepted by Assessing Officer. The Assessing Officer held that the assessee has reported cash balance of Rs. 16,03,619/- against the cash expenses of Rs. 38,49,628/- claimed in the last year. There is no change in the business activities. The cash expenses pattern should be on similar line. Cash is generally withdrawn as per requirement of cash expenses. The cash withdrawal shown by the assessee in F.Y. 2015-16 has been incurred in the same month or in the next month. In cash withdrawal and cash expenses for F.Y. 2016-17, there is no much correlation between the cash withdrawal and cash deposit. The assessee artificially reported lower cash expenses comparative to previous years. The practice shown by the assessee is nothing but only to show higher cash in hand so that it may be explained to be a source of cash deposit during demonetization period. The Assessing Officer on the basis of aforesaid observation, treated the entire cash deposit of Rs. 36.50 lacs as unaccounted income of assessee under Section 69A of the Income Tax Act, 1961 (in short, the Act) and taxed the same under Section 115BBE of the Act while passing the assessment order on 25/12/2019. 3. Aggrieved by the additions in the assessment order and taxing the addition under the enhanced rate, the assesse filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed written submission. Submission of assessee are recorded on page no. 5 to 17 of order of ld. CIT(A). The assessee in its submission submitted that the assessee is a firm engaged in civil contractor and undertook road construction of State ITA No. 867/Srt/2023 R K Patel & Co. Vs. ACIT 4 Government, Municipality and Panchayat. The firm consist of two partners, both the working partners. The assessee firm is maintaining books of account and accounts are audited under Section 44AB of the Act, from so many years. During the assessment, the assessee furnished complete details of cash withdrawal, cash expenses and deposits and explained from time to time by furnishing audited financial statement, bank account, bank book narrating the entries of deposits and withdrawals. Month-wise purchases and sales and cash deposit during the previous year, copy of VAT return and cash expenses was also furnished. The assessee also given details of six construction sites/work executed during relevant period. The assessee submitted that the assessee firm was required to pay cash payment to different types of expenses like wage to labourers and other site related expenses, so the assessee was always required to keep substantial amount of cash in hand. The assessee furnished complete details of cash withdrawals from 01/04/2016 to 28/10/2016. Total cash withdrawals from April, 2016 to 28/10/2016 was Rs. 57.75 lacs. The assessee furnished cash book with recorded entries in the books of account. The Assessing Officer failed to bring any evidence on record that cash withdrawal was not lying with the assessee firm and was utilized for any other purpose. During demonetization period, the assessee has no alternative but to deposit in the bank account due to high denomination currency as per directives of Reserve Bank of India. The assessee again furnished month wise cash deposit, withdrawal and expenses as has been recorded on page 7 and 8 of order of ld. CIT(A). The assessee reiterated its contention about the cash balance and the details of expenses ITA No. 867/Srt/2023 R K Patel & Co. Vs. ACIT 5 incurred. The assessee also explained the total turnover of assessee in F.Y. 2015-16 of Rs. 4.50 crores and in F.Y. 2016-17 at Rs. 3.34 crores and explained that when total turnover was reduced, the expenditure was also on lower side, such explanation was given against the conclusion drawn by the Assessing Officer, about the lower expenses during this financial year. The assessee also furnished comparative turnover from A.Y. 2014-15 to A.Y. 2017-18, gross profit (GP) ratio and net profit (NP) ratio for all assessment years. The assessee submitted that the Assessing Officer acted on presumption and guess work in making addition. To support its contention, the assessee relied upon various case laws. Against taxing the addition at the enhanced rate of tax, the assessee submitted that taxation law (second amendment) at 2016 received the assent of Hon'ble President of India on 15/12/2016 as published in Gazette. It is settled law that the Income Tax Act as it stands as on 1 st day of April of any financial year must be applied for assessment of that year. To support such view, the assessee relied on various case laws. 4. The ld. CIT(A) after considering the submissions of assessee and the assessment order, noted that as on April, 2016, the assessee was having cash in hand of Rs. 9,25,837/-. The assessee made withdrawal of Rs. 7.00 lacs out of which expenditure of Rs. 2,63,156/- was made and having closing balance in hand of Rs. 13,62,682/-. The assessee again made withdrawals of Rs. 7.00 lacs in May, 2016. When the assessee was having cash balance of Rs. 13,62,682/- as on 01/05/2016, the assessee withdrawn Rs. 7.00 lacs. Similarly when the assessee was having cash balance at the beginning of ITA No. 867/Srt/2023 R K Patel & Co. Vs. ACIT 6 month, cash was withdrawn from bank every month. The ld. CIT(A) doubted that when the assessee was having cash in hand why withdrew such huge cash. Any prudent person was never withdraw huge cash without any need just to keep it. The ld. CIT(A) thus adopted same view as adopted by Assessing Officer by referring the decision of Hon'ble Supreme Court in the case of CIT Vs Durga Prasad More 82 ITR 540 (SC) and Sumati Dayal Vs CIT 214 ITR 801 and confirmed the action of Assessing Officer. Further aggrieved, the assessee has filed present appeal before the Tribunal. 5. I have heard the submissions of learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue. The ld. AR of the assessee made her submission on the same line as per the written submission filed before the ld. CIT(A). The ld. AR of the assessee invited my attention on the submission recorded by the ld. CIT(A) in his order about various work undertaken by assessee during the subject assessment year and submits that the assessee was undertaken these projects during the relevant period and the assessee was required to pay cash amount on different type of expenses, which is normal in the business of assessee. The assessee has withdrawn about Rs. 58.00 lacs from April to November, 2016 and only deposited Rs. 36.50 lacs which was in the form of SBN. The withdrawal of assessee was not disputed by the lower authorities. The assessee explained all the cash expenses. Cash expenses of assessee are not doubted by Assessing Officer. The Assessing Officer doubted the low cash expenses during the year. The ld. AR of the assessee explained that the Assessing Officer and the ld. CIT(A) failed to appreciate ITA No. 867/Srt/2023 R K Patel & Co. Vs. ACIT 7 that during the impugned assessment year, the turnover of assessee was lower than the turnover of earlier year. The book result of assessee was not rejected. Opening cash balance and closing balance of assessee is not disputed by the lower authorities. The Assessing Officer made addition and the ld. CIT(A) confirmed the addition merely on suspicion and guess work. The assessee furnished complete evidence showing month wise cash withdrawal, cash deposit and the expenses. None of the item of expenses is doubted or disputed except making presumption by referring decision of Hon'ble Supreme Court. The ratio of such case law are not at all applicable on the facts of the assessee’s case. The ld. AR of the assessee submits that the Assessing Officer taxed the addition at the enhanced rate. The cash deposit is a part and parcel of business receipt and cannot be taxed at the enhanced rate. The ld. AR of the assessee relied on various case laws on her contention that the addition cannot be made on the basis of surmises, conjectures and presumption, as follows:  Umacharan Shaw & Bros Vs CIT 37 ITR 271 (SC)  Lalchand Bhagat Ambica Ram Vs CIT 37 ITR 288 (SC)  Dhakeswari Cotton Mills Ltd. Vs CIT 26 ITR 775 (SC)  Smt. Sreelekha Banerjee & others Vs CIT 49 ITR 112 (SC) 6. The ld. AR of the assessee further submits that the Assessing Officer has wrongly invoked the provisions of Section 115BBE of the Act relied on following case laws:  J.K. Choksi Vs ACIT Tax Appeal 149 of 2003 (Guj)  Green Associates Vs PCIT Tax Appeal No. 1199 of 2018 (Guj)  DCIT Vs Radhe Developers India Ltd. 329 ITR 1 (Guj)  CIT Vs Mhaskar General Hospital Tax Appeal No. 1474 of 2009 (Guj)  Karimtharuvi Tea Estate Ltd. Vs State of Kerela 60 ITR 262 (SC)  CIT Vs Vatika Township (P) Ltd. 367 ITR 466 (SC) ITA No. 867/Srt/2023 R K Patel & Co. Vs. ACIT 8  Sedco Forex International Drill Inc. Vs CIT 279 ITR 310/149 Taxman 352 (SC)  Avani Exports Vs CIT 23 taxmann.com 62 (Guj)  CIT Vs S.A. Wahab 48 Taxman 362 (Ker)  Samir Shantilal Mehta Vs ACIT ITA No. 42/Srt/2022  CBDT Press Release dated 16/12/2016  Notification by Ministry of Law & Justice dated 15/12/2016. Finally in alternative and without prejudice submission, the ld. AR of the assessee submits that the entire cash deposit is from the known source. Even to buy peace, a token disallowance may be made to avoid any possibility of revenue leakage. To support such view, the ld. AR of the assessee relied on following case laws:  Amrita Gem Pvt. Ltd. Vs ITO ITA No. 181/Srt/2023 (Srt)  Kediam Gems Pvt. Ltd. Vs ITO ITA No. 756/Srt/2023 (Srt) 7. On the other hand, the ld. Sr. DR for the revenue supported the orders of lower authorities. The ld. Sr. DR for the revenue submits that the issue in the present appeal is very simple. The Assessing Officer in para 3.1 to 3.6 of assessment order has clearly held that when the assessee was having sufficient cash balance, there was no need to make withdrawal of huge cash on each and every month. Such fact clearly suggest that the assessee was not having any cash balance and cash was withdrawn for day to day need of business. The ld. CIT(A) while confirming the action of Assessing Officer has given the same reasoning as recorded in para 5.2 of his order. 8. I have considered the submissions of both the parties and perused the orders of the lower authorities carefully. I have also deliberated on various case laws relied on by the ld. AR of the assessee. I find that the Assessing Officer has not disputed various withdrawals from bank account. On careful perusal of figure of cash withdrawal, I find that the assessee withdrew cash of Rs. ITA No. 867/Srt/2023 R K Patel & Co. Vs. ACIT 9 7.00 lacs in April, 2016, Rs. 7.00 lacs in May, 2016, Rs. 13.00 lacs in June, 2016, Rs. 13.25 lacs in July, 2016, Rs. 6.00 lacs in August & October, 2016 each and Rs. 5.50 lacs in September, 2016 and Rs. 2.50 lacs in November, 2016 itself, from its bank account. Thus, the assessee has made withdrawals of about Rs. 58.00 lacs. Such huge amount of withdrawals are generally paid in high value of currency notes. The assesse deposited SBN in the form of Rs. 500 and 1000 notes during demonetization period. The assessee has also shown opening cash in hand, such cash in hand is not disputed either by the Assessing Officer or by the ld. CIT(A). Rather the ld. CIT(A) accepted that as on April, 2016, the assessee was having opening cash in hand of Rs. 9,25,837/-. The withdrawals of each and every month is not at all in dispute. I also find that the assessee has given details of cash expenses, none of the figures of cash expenses are disputed by the lower authorities. Once, neither the withdrawal is disputed nor opening cash balance is disputed nor expenses is disputed, thus, disputing the availability of cash in hand is not justified. I find that even after deposit of Rs. 36.50 lacs, the assessee has shown Rs. 9,72,482/- as cash in hand, which is also not disputed by the Assessing Officer as well as by the ld. CIT(A). I find that action of Assessing Officer is based on mere suspicion and guess work, therefore, when the assessee has proved the source of cash withdrawals, no addition on account of deposit during demonetization period is justified when the assessee has no option except to deposit the high denomination notes in bank. Considering the aforesaid peculiar facts and circumstances of case, I direct ITA No. 867/Srt/2023 R K Patel & Co. Vs. ACIT 10 to delete the entire addition on account of unexplained money under section 69A. In the result, ground No. 1 of the appeal is allowed. 9. Considering the fact that ground No. 1 of appeal is allowed, therefore, adjudication of other grounds of appeal has become infructuous. 10. In the result, this appeal of assessee is allowed. Order announced in open court on 31 st July, 2024. Sd/- (PAWAN SINGH) JUDICIAL MEMBER Surat, Dated: 31/07/2024 *Ranjan Copy to: 1. Assessee 2. Revenue 3. CIT 4. DR 5. Guard File By order Sr. Private Secretary, ITAT, Surat