Padam Singh, Amroha V. ITO WARD - 1(4), Amroha

ITA 919/DEL/2020

AI Insights

The case involves Padam Singh, the appellant, who contested the additions made to his income by the Income Tax Officer (ITO) under various sections of the Income Tax Act, 1961, for the assessment year 2016-17. The additions included presumptive profits on estimated extra turnover and unexplained deposits in bank accounts. The appellant argued that the additions were based on miscalculations and lacked proper justification. The Tribunal found that the lower authorities had not adequately considered the appellant's explanations and documentation regarding the bank deposits and turnover, leading to the decision to remand the case back to the AO for a thorough re-assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122270 (ITAT-DELHI)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 21-02-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 26-02-2020
• Other Referred Cases: Baladin Ram v. CIT [1969] 71 ITR 427, Rameshbhat Somabhai Patel v. ITO, S. Venkat Reddy v. Income-tax Officer, Ward-8 (2), Hyderabad [2016] 76 taxmann.com 128 (Hyderabad - Trib.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Income from undisclosed sources; Set aside
• Section: 68; 144; 44AD; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “SMC” BENCH: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.919/Del/2020 [Assessment Year : 2016-17] Padam Singh, Village-Karondi, Amroha, State-Uttar Pradesh-244221 PAN-BDWPS0357L vs ITO, Ward-1(4), Amroha. APPELLANT RESPONDENT Appellant by S/Shri K.Sampath and V.Rajakumar, Advocates Respondent by Shri Om Parkash, Sr.DR Date of Hearing 22.02.2023 Date of Pronouncement 28.02.2023 ORDER PER KUL BHARAT, JM : The present appeal filed by the assessee for the assessment year 2016-17 is directed against the order of Ld. CIT(A), Moradabad dated 25.11.201. 2. The assessee has raised following grounds of appeal:- “On the facts and n the circumstances of the case and in law the Ld. CIT (Appeals) erred in confirming the following additions made to the returned income by the Assessing Officer: i. Rs.3,54,420/- being the amount of presumptive profit on estimated extra turnover allegedly not declared by the assessee; ii. Rs.27,91,000/- on account of deposits made in Kisan Credit Card Account in Punjab National Bank treating the same as un- explained by invoking Section 68 of the Act; iii. Rs.5,57,000/- being the amount of deposits made in bank treating the same as un-explained by invoking Section 68 of the Act. All the above actions being erroneous, unlawful and untenable must be quashed with directions for appropriate relief.” Page | 2 3. Facts giving rise to the present appeal are that the case of the assessee was Picked up for scrutiny assessment and the assessment was u/s 143(3) of the Income Tax Act, 1961 (“the Act”) was framed vide order dated 07.12.2018. The Assessing Officer (“AO”) noticed that the assessee had turnover of Rs.46,85,742/- from business of petrol pump. The AO while framing the assessment, made addition of Rs.3,34,420/- treating the same as the presumptive basis u/s 44AD of the Act. Further, the AO made addition of Rs.27,91,000/-. The amount credited into his Kisan Credit Card maintained with Punjab National bank and addition of Rs.5,57,000/- was made. The AO therefore, assessed the income of the assessee at Rs.41,40,841/- against the returned income of Rs.4,58,421/-. 4. Aggrieved against the order of AO, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions, sustained the addition and dismissed the appeal of the assessee. 5. Aggrieved against the order of Ld.CIT(A), the assessee preferred appeal before the Tribunal. 6. Apropos to grounds of appeal, Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. For the sake of clarity, the relevant contents of the written submissions are reproduced asunder:- Sir. Appellant is an Individual. He has been filing his return of income since last so many years. His PAN No. is BDWPS0357L. 'Return of income for AY 2016-17 was filed on 05.08.2016 showing his net taxable income of Rs. 3,08,420/- apart from agricultural income of Rs.1,50,000/-. Appellant's case was selected under CASS and assessment proceedings were completed on 07.12.2018 vide assessment order u/s 143(3) served upon appellant on Page | 3 22.07.2017. Assessment order was passed on net taxable income of Rs.41,40,480/-. Assessment had resulted into following additions: a. Additions based on cash deposit in Prathma Bank account no 4463 Rs. 3,34,420/- b. Additions based on cash deposit in PNB KCC account no 2929 Rs.27,91,000/- c. Additions based on cash deposit in PNB S8 account no 6549 Rs.5,57,000/- Brief facts about above additions are given hereunder:- a. Additions based on cash deposit in Prathma bank account no.4463 Rs.3,34,420/-. In assessment order Ld AO has observed "............cash deposit in the bank account no 89014674463 of Prathma Bank are the receipts from the petrol pump business but the total cash deposits in said account are Rs.88,66,000/- which are exceeding the total turnover being shown in ITR i.e. Rs. 46,85,742/- hence the difference of Rs. 41,80,258/- is also hereby treated as turnover of the assessee during the financial year and 8% of the same on presumptive basis u/s 44AD of the I T.Act, 1961 is added to the declared income of the assessee which comes out to Rs. 3,34,420/- (8% of Rs. 41,80,258/-). " Above figures have been miscalculated by Ld AO. A detailed working presented in summary form as follows would make it very clear that appellant had deposited Rs. 90,66,000/- in aggregate and cash withdrawals were Rs. 3,63,000/- resulting into net cash deposit of Rs.87,03,000/- out of which Rs. 46,85,742/- had been deducted as declared turnover by appellant. Balance comes to Rs. 40,17,258/- (87,03,000 - 46,85,742) on which addition @ 8% comes to Rs. 3,21,380/-. SUMMARY OF PRATHMA BANK SAVING ACCOUNT 4463 OPENING BALANCE 2,064 DEPOSITS a. Bank Interest 1,591 b. Cash deposits 9,066,000 c. Ashok Kumar 300,000 9,367,591 9,369,655 WITHDRAWALS a. Bank charges 1,407 b. Cash withdrawals 3,63,000 Page | 4 c. Transfer to Father KCC 2,00,000 d. Transferred to PNB SB 6549 25,000 e. Transferred to PNB CC 3511 7,951,000 Transferred to Indian Oil f. Corporation 6,45,006 g. Agriculture Expenses 1,75,000 h. Prabhat Samiti 7,715 9,368,128 CLOSING BALANCE 1,527 From analysis of above bank account it would be observed that almost entire cash deposited has finally resulted into transfer to PNB CC 3511 account. PNB CC 3511 account relates to running a petrol pump business by appellant. Summary of PNB CC 3511 is given hereunder: SUMMARY OF PNB CASH CREDIT ACCOUNT 3511 OPENING BALALNCE (3,052,462) DEPOSIT a. Transferred from PNB KCC 2929 3,183,000 b. Transferred from PNB SB 6549 3,75,000 c. Transferred from Prathma Bank 4463 7,951,000 d. Agricultural income 503,000 e. Received from wife 6,40,000 f. Cash deposits 7,772,500 20,424,500 17,372,038 Withdrawals a. Transferred to car loan 3171 38,700 b. Transferred to car loan 3506 22,000 c. Transferred to Indian Oil 18,767,500 d. Transferred to Prabhat Samiti 2,05,000 e. Bank Interest 3,60,702 f. Bank Charges 34,974 g. Drawings 5,363 h. Bank Transfer 9,47,000 i. Cash withdrawals 15,000 20,396,239 Closing Balance 3,024,201 In above account of appellant transfer from various bank accounts had been made and finally payment to Indian Oil Corporation was made. In such a case it can never be presumed that any unaccounted cash had been deposited in bank accounts. b. Additions based on cash deposit in PNB KCC account no 2929 Rs. 27,91,000/- : In assessment order Ld AO has observed ".............the assessee has also deposited Rs. 33,91,000/- in his KCC account no. 2986008800012929 maintained in PNB for which query was raised to the assessee during assessment proceedings but the assessee failed to submit any satisfactory Page | 5 reply hence on estimated basis RS. 6,00,000/- out of these deposits are treated as sale proceeds from agricultural products. Since the assessee has already shown agricultural income of Rs. 1,50,000/- in his ITR. Hence the difference of Rs. 33,91,000/- and Rs. 6,00,000/- added back to the income of assessee as income from undisclosed sources u/s 68 which comes to Rs. 27,91,000/-. " Above figures have also been miscalculated by Ld AO. A detailed working presented in summary form as follows would make it very clear that appellant' had deposited Rs. 33,91,000/- in aggregate and cash withdrawals were Rs. 3,00,000/- resulting into net cash deposit of Rs. 30,91,000/-. There was no basis to consider withdrawals of Rs. 6,00,000/- on estimate basis when all details and explanations were very much clear. Moreover there was no justification of applying unexplained cash credit clause to make a huge addition of Rs. 27,91,000/-. While making additions or disallowances ratio of prudence has to be followed. Appellant is not a person of so lavish means which may compel him to deposit unaccounted cash in his own bank accounts. A summary showing pattern of funds flow in PNB CC 2929 account is given hereunder: SUMMARY OF PNB KISAN CREDIT CARD ACCOUNT 2929 OPENING BALANCE (1,056,838) DEPOSITS Received from wife 691,000 Cash deposits 3,391,000 Transferred from Father Pension A/c 46,000 Interest 45 Ashok Kumar 129,000 Subsidy 8,330 Transferred from PNB 6549 980,000 5,245,375 4,188,537 WITHDRAWALS a. Drawings 160,000 b. Cash withdrawals 300,000 c. Interest 68,613 PNB 6549 1,370,000 d. PNB 3511 CC 3,183,000 e. Drawings 200 f. Ashok Kumar 129,000 5,210,813 Page | 6 CLOSING BALANCE (1,022,276) From analysis of above summary it is clear that cash deposit in aggregate had been transferred to PN8 CC 3511 from where finally funds had been remitted to Indian Oil as established in coming paragraphs. c. Additions based on cash deposit in PNB SB account no 6549 Rs.5,57,000/-: In assessment order Ld AO has observed "..........in the bank account no.2540000102156549 the assessee has made total deposits of Rs. 5,57,000/- for which also the assessee failed to give any valid explanation hence same is also added back to the income of the assessee u/s 68...... " Above figures have been miscalculated by Ld AO. A detailed working presented in summary form as follows would make it very clear that appellant had deposited Rs. 5,57,000/- in aggregate and cash withdrawals were Rs. 10,000/- resulting into net bash deposit of Rs. 5,47,000/-. Moreover there was no justification of applying unexplained cash credit clause to make a addition of Rs. 5,57,000/-. While making additions or disallowances ratio of prudence has to be followed. Appellant is not a person of so lavish means which may compel him to deposit unaccounted cash in his own bank accounts. In this account also transfer from KCC account had been made, as per requirement. But in any case no investment or any other deployment of fund was made. SUMMARY OF PNB SAVING ACCOUNT 6549 OPENING BALANCE 2,682 DEPOSITS a. Agricultural income 95,566 b. Bank Interest 568 c. Cash deposits 557,000 d. Received from wife 175,000 e.Gas Subsidy 1,365 f.Transfer from PNB KCC 2929 . 1,370,000 g.Transfer from Prathma bank h.4463 25,000 2,224,499 Page | 7 2,227,181 WITHDRAWALS a. IB 3506 loan interest 103,000 b.Bank charges 15,857 c.Transfer to PNB KCC 2929 980,000 d.Paid to Wife 175,000 e.Transferred to Car loan 130,000 f.Prabhat Kirana Sewa Kendra 320,000 g.AjayTyagi 100,000 h.Transfer to PNB CC 3511 375,000 i.Cash withdrawals 10,000 2,208,857 Closing Balance 18,324 In summary to all above details it is established that while framing assessment order Ld. AO grossly failed to appreciate following facts which are glaring and clear from perusal of all bank accounts of appellant: a. In PNB saving bank account no 4463 appellant deposited cash out of sale proceeds which was finally transferred to PN B cash credit account no 3511. b. In PNB KCC account no 2929 appellant deposited cash which was either transferred to PNB saving bank account no 6549 or PNB cash credit no 3511. c. In PNB saving bank account no 6549 cash deposited was utilized to repay vehicle loans and balance of funds were transferred to PNB cash credit account no 3511. d. In PNB cash credit account no 3511 funds were received as transfer from various above accounts and were exclusively utilized to make payment to Indian Oil Corporation Ltd. Instead of appreciating the factual position' in case of appellant Ld AO arbitrarily invoked provisions of Sec. 68, which a provision to tax the unexplained rotation of funds mainly in cash. In appellant's case each and every transaction is properly documented and explained thus rejecting the possibility of invoking the provisions of Sec. 68. Ld AO has invoked provisions Page | 8 of Sec. 68 based on cash deposits in appellant's bank accounts. Sec. 68 says as follows: "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." In the case of Baladin Ram v. CIT [1969] 71 ITR 427, it has been held by the Supreme Court "that it is now well settled that the only possible way in which income from an undisclosed source can be assessed or reassessed is to make the assessment on the basis that the previous year for such an income would be the ordinary financial year. Even under the provisions embodied ins. 68 of the said Act, it is only when any amount is found credited in the books of the amount so credited may be charged to tax as the income of that previous year, if the assessee offers no explanation or the explanation offered by him is not satisfactory. As the Tribunal has pointed out, it is fairly well settled that when moneys are/deposited in a bank, the relationship that is constituted between the banker and the customer is one of debtor and creditor and not of trustee and beneficiary. Applying this principle, the pass book supplied by the bank to its constituent is only a copy of the constituent's account in the books maintained by the bank. It is not as if the pass book is maintained by the bank as the agent of the constituent, not can it be said that the pass book is maintained by the bank under the instructions of the constituent. In view of this, the Tribunal was with respect justified in holding that the pass book supplied by the bank to the assessee in the present case could not be regarded as a book of the assessee, that is a book maintained by the assessee or under his instructions. In our view, the Tribunal was justified in the conclusions at which it arrived. " Page | 9 Learned counsel's short contention is that the impugned addition is made under section 68 by treating the bank account of the assessee as books of account but then this course of action in the light of the above judicial precedent is not sustainable in law. Further, we also note that this tribunal in the case of Rameshbhat Somabhai Patel v, ITO (Supra) has held that the bank account of the assessee is not considered as part of the books of accounts. The relevant part of this order of the Tribunal is already reproduced above. From the above order, we note that the bank statement is not considered as books of accounts. Therefore, any sum found credited in the bank passbook cannot be treated as an unexplained cash credit. However, we note that the above order was not produced before the authorities below. Therefore, in the interest of justice and fair play we are inclined to restore this matter to the file of AO for fresh adjudication in accordance with the provisions of law and after considering the ratio laid down by the tribunal in the case of Rameshbhai Somabhai Patel (supra). Thus the ground of appeal of the assessee is allowed for statistical purposes". In the case of S. Venkat Reddy v. Income-tax Officer, Ward-8 (2), Hyderabad [2016] 76 taxmann.com 128 (Hyderabad - Trib.), it was held inter- alia “We have heard the rival contentions and perused the record In the case of P. K. Noorjahan (supra), the Hon'ble Supreme Court observed that section 68 of the Act imposes burden on the part of the assessee to explain the source of cash deposits but merely because it could not be explained the amount cannot automatically be added since the expression "May" used in Section 68 of the Act imposes an obligation on the Assessing Officer to verify as to whether assessee could have earned such huge income in one year. In the instant case, it is not in dispute that the assessee's income either in the earlier year or in subsequent years has never crossed the threshold of Rs. 2 lakhs in which event the Assessing Officer could have kept the same in mind while making the addition. Even while computing the assessment to the best of his judgment, under section 144 of the Act, it is the duty of the Assessing Officer to make an addition on the basis of the available material and Page | 10 circumstances of each case. Judgement is a faculty to decide the matters with wisdom, truly and legally and it should not depend on the arbitrary caprice of all officer. In other words, though an element of guess work is involved in best judgement it should not be a wild one, as held by the Hon'ble Supreme Court in the case of State of Kerala v, Velukutti [1966) 60 ITR 239. In the instant case, the Assessing Officer ought to have taken into consideration the normal turnover of the assessee, the expected profit in each year, based on the earlier year's income declared and accepted in order to estimate the income of the current year; while holding that there was some undisclosed income assessable to tax under section 68 of the Act. The assessee having furnished the bank statement Assessing Officer could have verified and noticed that there were credits and corresponding debits which would give an indication that some amount has been recycled and it is a settled principle that in such cases ordinarily peak credit is taken into consideration for the purpose of making an addition. On a conspectus of the matter. we are of the view that an addition of peak credit would meet the ends of justice. We, therefore direct the Assessing Officer accordingly. In support of appellant's submission, following is the cash summary of appellant's all bank accounts for the year under consideration: CASH FLOW SUMMARY WITHDRAWALS PRATHMA BANK SB 4463 363,000 PNB KCC 2929 300,000 PNBSB 6549 10,000 673,000 DEPOSITS PRATHMA BANK S8 4463 . 9,066,000 PNB KCC 2929 3,391,000 PNB S8 6549 557,000 PNBCC 3511 7,772,500 20,786,500 NET CASH OUTFLOW (20,l13,500) TRANSFER TO INDIAN OIL 19,412,506 Page | 11 After analysis of all above data and bank accounts a fact is clear that whatever cash was deposited in bank accounts that entire cash belonged to sale proceeds of petrol pump being run by appellant because almost all cash deposit had finally resulted into remittance to Indian Oil Corporation. Keeping in view your goodself is most humbly requested to please: a. Direct the deletion of all additions made and quash the assessment so framed arbitrarily based on conjectures and surmises as in respect of one bank account a presumptive rate of income @ 8% had been adopted which in itself is too high for petrol and diesel. On the other hand in respect of other accounts total cash deposited had been treated as unexplained income u/s 68. These additions in itself create contradiction for which no speaking reason or ground had been incorporated in assessment order, or alternatively, b. Direct the applicability of profit margin ratio of 3% maximum on total- cash deposits in bank account of appellant. Total cash deposits in bank accounts were Rs.2,07,86,500/- on which Gross profit comes to 6,23,595/-. 3% is the highest possible income percentage in petroleum products which can be cross verified from any search engine or petroleum company, or alternatively, c. Direct the applicability of any reasonable rate of profit margin which your goodself may deem fit but it should be much below presumptive rate of taxation of 8% of total cash deposits in bank accounts of Rs. 2,07,86,500/- because petroleum products never carried higher margin. Prices of diesel and petrol are fixed by central government on which sales can be made. Purchase prices are fixed by government controlled agencies like BPCL, IPCL, IOC etc. So appellant has no say in purchase or sale prices. Hope your goodself would consider the above information and documents in order. In case any information explanation/document is required the same may please be communicated to appellant for due compliance.” 7. On the other hand, Ld. Sr. DR opposed these submissions and supported the orders of the authorities below. Page | 12 8. I have heard Ld. Authorized Representatives of the parties and perused the material available on record. Considering the submissions made by the assessee, it can be seen that the assessee had given explanation regarding the amounts deposited in the bank account. However, the authorities below have not adverted to the explanation of the assessee. Therefore, to sub-serve the principle of natural justice, the impugned order of the authorities below is hereby set aside and the assessment is restored to the file of AO to make assessment afresh after giving due opportunity of hearing to the assessee and the AO would pass a speaking order in accordance with law. Needless to say that the assessee would not seek adjournment without any reasonable cause. Thus, grounds raised by the assessee are allowed for statistical purposes. 9. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 28 th February, 2023. Sd/- (KUL BHARAT) JUDICIAL MEMBER * Amit Kumar * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI