Income Tax Officer Ward-2,Katni, Katni V. Shri Dassu Patel, Katni

ITA 95/JAB/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3257 (ITAT-JABALPUR)
• Duration Of Justice: 3 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 07-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Search and seizure; Peak credit; Accommodation entries; Assessment record
• Section: 147; 148; 132; 144; 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR (through web-based video conferencing platform) BEFORE SHRI SANJAY ARORA, HON‟BLE ACCOUNTANT MEMBER & SHRI MANOMOHAN DAS, HON'BLE JUDICIAL MEMBER I.T.A. No. 95/JAB/2018 (Asst. Year: 2009-10) C.O. No. 08/JAB/2018 (Arising out of I.T.A. No. 95/JAB/2018) (Asst. Year : 2009-10) Appellant by : Shri S.K. Halder, Sr. DR Respondent by : Shri Dhiraj Ghai, FCA Date of hearing : 09/03/2022 Date of pronouncement : 29/04/2022 O R D E R Per Bench: This is an Appeal by the Revenue and the Cross Objection (CO) by the Assessee in respect of the assessee‟s assessment under section 147 read with section 144 of the Income Tax Act, 1961 („the Act‟ hereinafter) dated 22/12/2016 for Assessment Year (AY) 2009-10, since partly allowed in first appeal vide order dated 12/02/2018. ITO, Ward-2, Katni vs. Dassu Patel, Lala Mohalla, Lal Bahadur Shastri Ward, Kuthla, Distt-Katni (MP) (Appellant) [PAN: ASXPP 9578 P] (Respondent) Dassu Patel, Lala Mohalla, Lal Bahadur Shastri Ward, Kuthla, Distt. Katni (MP) vs. ITO, Ward-2, Katni [PAN: ASXPP 9578P] (Respondent) (Appellant) ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 2 2.1 The brief facts of the case are that a search and seizure action u/s. 132 of the Act was carried out in respect of three Katni (MP) based individuals on 21/03/2016, leading to the unearthing of a racket of provision of accommodation entries to, and routing of unaccounted cash of, different persons. Their modus operandi, as explained and admitted in the statement/s recorded u/s. 131A/132(4) of the Act by the Investigating Wing, was that they were issuing cheques to persons located in different parts of the country against deposit of cash in their accounts as well as acceptance of local cheques, and for which they were charging commission @ Rs. 150 – 200 per lakh. Investigation of accounts found and seized during the said search resulted in discovery of transactions by the assessee with the persons searched through his two bank accounts (with Axis Bank), one each in his two propriety concerns which, similarly, bore high value transactions, including cash deposits, details of which for the relevant year (f.y. 2008-09) are as follows: (page 3 of the assessment order) a) cash deposit of Rs. 1,52,19,400/- in bank A/c No. xxxx1088. b) cash deposit of Rs. 600,000/- in bank A/c No. xxxx3970. c) regular credits & debits in A/c No. xxxx1088. d) total credits in the Bank A/c No. xxxx1088 at Rs. 14,31,96,700/-. e) total debits in the Bank A/c No. xxxx1088 at Rs. 14,31,51,500/-. 2.2 The assessee, in assessment proceedings initiated by the issue of notice u/s. 148(1) on 30/03/2016, followed by notice u/s. 142(1) on 15/06/2016, explained the credits in his two bank accounts aforesaid as received cash (or cheque) from his customers towards issue of cheque (or outstation cheque) and for which commission is charged @ Rs. 150 – 200 per lakh, i.e., at an average of Rs. 175 per lakh, and which also explained the admitted income of Rs. 1,51,000, i.e., after deducting expenditure on gross income of Rs. 2,51,662 (on a total cheque issue of Rs. 1438.067 lacs). This, however, was found not acceptable by the Assessing Officer (AO) in the absence of any substantiation of his claim/s by the assessee, who also failed to produce the books of account despite being called upon to by ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 3 the AO, who, accordingly, made three additions, assessing the assessee‟s total income at Rs.2,62,08,584, as under: (a) for Rs. 1,52,19,400, toward unexplained cash deposits in the bank account # xxxx1088 (Bank A/c 1); (b) for Rs. 1,02,38,184, at 8% of the credit entries in bank account # xxxx1088 (at Rs. 1279.773 lakhs), being the estimated business income on these receipts; and (c) for Rs.6,00,000, toward unexplained cash deposits in bank account # xxxx3970 (Bank A/c 2). 2.3 In appeal, the ld. CIT(A) deleted the addition on account of cash deposit, at a total of Rs. 158.194 lacs (i.e., Rs. 152.19 lacs and Rs. 6 lacs in the two bank accounts), in view of the decision by the Tribunal in Raaga Finvest Ltd., holding that the amount received from the customers could not be added u/s. 68. As regards the business income of Rs. 102.38 lacs, he found the same unsustainable in law as the assessee could not be considered as engaged in some other business, as inferred by the AO, i.e., except the cheque issue business, returned income of which (at Rs. 1.51 lacs) stands „accepted‟ by him. Aggrieved, the Revenue is in appeal, raising the following grounds:- “1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in facts and in law : (i) The Ld. CIT(A) has erred in law and on fact in deleting the addition of Rs.1,58,19,400/- made by the Assessing Officer in respect of unexplained deposit in Bank account. (ii) The Ld. CIT(A) has erred in deleting the income of Rs.1,02,38,184/- estimated @8% on the transactions reported in the Bank account amounting to Rs. 12,79,77,300/-. 2. That the appellant reserves the right to amend/alter any of the grounds of appeal/add other grounds of appeal at the time of hearing.” 3. We have heard the parties, and perused the material on record. ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 4 3.1 We shall begin with the assessee‟s CO which, though principally supportive (of the impugned order) in nature, raises a legal issue per its ambiguously worded Ground No.1, as under: “1. On the facts and in the circumstances of the case the ld. CIT(A) should have held that the initiation of reassessment proceeding in the case of the assessee does not meet the requirement of law and accordingly the initiation of reassessment proceeding as well as reassessment order dated 22/12/2016 is bad in law.” The same was argued before us in terms of non-obtaining of approval by the AO from the Pr. CIT-1, Jabalpur, or of it being not in accordance with law, which was so inferred in view of non-supply thereof despite the AO being requested for a copy thereof vide the assessee‟s letter dated 11/01/2016. The ld. CIT(A), rather than calling for the said Approval, i.e., as requested, chose to ignore the said plea in his order. We were accordingly urged by Shri Ghai, the ld. counsel for the assessee, to call for the assessment record, or otherwise direct the AO to produce the approval u/s. 151. 3.2 We are unable to appreciate the assessee‟s case. True, the ld. CIT(A) has failed to consider the assessee‟s plea and issue a finding thereon, so that the assessee‟s grievance in the matter is understandable. However, the fact of the matter is that there is nothing on record to exhibit that the assessee did indeed request the AO to provide a copy of the said approval. Then, again, what, one wonders, prevented the assessee to seek an inspection of his assessment record (either directly or even under the RTI Act) to ascertain if the same had indeed been obtained, or, as inferred, not. In its absence, this remains no more than a bald allegation, i.e., without any basis, even as the presumption in law (section 114(e) of the Indian Evidence Act) is that all judicial and official acts are regularly performed, so that the said presumption would have to be, for us to entertain the assessee‟s claim, rebutted. This is particularly so as the AO categorically states (at para 1 of his order) that notice u/s. 148 was issued on ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 5 30/03/2016 „after taking approval from the appropriate authority‟. No wonder that the assessee‟s claim before the ld. CIT(A) is ambivalent, stating that the proceedings had been initiated without obtaining of Approval or the Approval is not in accordance with law, clearly indicating of the assessee being not aware of or, in the least, not sure of the actual facts of the case. Rather, the assessee‟s request dated 11/11/2016 to the AO cannot be regarded as a valid request in law as the assessee had till then admittedly not furnished any return in response to the notice u/s. 148(1), which was filed only on 18/11/2016. There is no claim and nothing on record to exhibit that a request was made after the filing of the return. Further still, even though this aspect is stated to form part of the assessee‟s objection (to the issue of notice u/s. 148(1)) to the AO dated 29/11/2016, submitted on 30/11/2016, the same stands disposed of by the AO vide his communication dated 01/12/2016. Neither the said objection nor the disposal thereof is made part of the Tribunal‟s record, for us to be informed of the actual state of affairs or the legal consequences flowing therefrom. Besides, a non- satisfactory disposal of the objections by the AO ought to have prompted the assesse to challenge the same, which is the sole purpose of the prescription by the Apex Court (in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC)) to the AO to meet the tax payer‟s objection/s (to the issue of notice u/s. 148(1)) per a speaking order, and only whereupon he could proceed to make the assessment. Why, the assessee‟s Ground, even before us, continues to be vague and non- specific. We are, in view of the aforesaid reasons, not persuaded to call for the assessment record, or otherwise direct the AO to produce the approval u/s. 151. 3.3 We may next take up the two additions being agitated by the Revenue, both of which have their genesis in the transactions reflected in the assessee‟s two bank accounts aforesaid (not on record). The additions by the AO are on the premise that the assessee has abysmally failed to substantiate his claim of being engaged in the cheque issuing business, i.e., on receipt of cash or local cheque, ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 6 issuing outstation cheque in the case of the latter. The first is clearly laundering of money, a criminal offence under law. The second would also require a licence from the Reserve Bank of India (RBI), or at least being registered with it as a non-banking financial institution, so that the same is, again, illegal. Our purview in the instant proceedings, however, is to determine factually the income arising from these transactions, i.e., as per the provisions of the Act, as it is only the real income, subject to the provisions of the Act, that is liable to be assessed as income (Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC)). The first question that therefore emerges is if the assessee is indeed engaged in the said two business or, put differently, the two limbs of the same business, broadly described as and claimed to be „cheque issue business‟, even if illegal or constituting an offence under law. No evidence stands brought on record by the assessee toward the same, either at the assessment or at the first appellate stage, even as confirmed by the parties during hearing. The ld. CIT(A) stating (at para 7.3.3 of his order) of his decision being based on the material evidences brought on record is, thus, a false statement. There is in fact no reference in his order to any material or even a mention of what those material evidences are, much less exhibit consideration thereof and, as the law and the principle of natural justice require him to, allow an opportunity to the assessing authority to examine the same as well as to bring any material in rebuttal on record (rule 46A). In fact, the said material, where so, i.e., existent, would have impelled us to remit the matter back for following the procedure laid down under the law; r.46A being mandatory in nature. This, however, was only to take the argument to its logical end; we having already found as a fact, duly admitted by the assessee‟s counsel, Shri Ghai, during hearing, to no such material having been furnished before the first appellate authority. Rather, Shri Ghai would justify the said non-furnishing on the basis of a time gap of eight years between the end of the relevant year and the assessment proceedings. It does not, however, lie in the mouth of the assessee, who has failed to even maintain the books of account, which the law ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 7 requires him to, to state that he was unable to do so in view of the lapse of time; the reopening of assessment being even otherwise within the time limitation provided therefor under the Act. That is, the said plea is not maintainable, both on facts and in law. In fact, the AO correctly observes that even in a „no accounts‟ case, the assessee is supposed to furnish evidences in support of his claim/s. A finding of fact by the assessing or an appellate authority could, after all, only be on the basis of material on record (refer, inter alia, CIT v. Radha Kishan Nandlal [1975] 99 ITR 143 (SC)). Further, as observed by the Bench during hearing, all that the assessee was required to do, in substantiating his claim/s, was to produce some customers to whom the cheques had been issued, borne out by the bank statements inasmuch as, as per the assessee, it is they who had deposited cash (or cheque) in his bank account in lieu of a cheque (or, as the case may be, an outstation cheque). Even if the party depositing the cheque, and the outstation party to whom the corresponding cheque is issued, are, as would appear, different, as it is only that which would provide a basis or a rationale to the transaction, both the parties are known and, thus, available for confirmation. A one-to-one correlation between the debits and credits, with the two parties having trade relations, would at once establish that the assessee is not the beneficiary of the sums deposited in his bank accounts. The same would also exhibit if the commission stands paid in his bank accounts, or outside it. For example, a cash deposit of Rs. 1,00,200, as against a remittance of Rs. 1,00,000, would clearly exhibit both, the extent of commission as well as prove the transaction to be a financial accommodation transaction. No such attempt has been made by the assessee at any stage, whose case remains, thus, wholly unsubstantiated, accepted by the ld. CIT(A) without any evidence whatsoever; rather, claiming that the AO had „accepted‟ the assessee‟s claim as to „cheque issue business‟, as well as income therefrom. He has, in fact, clubbed two separate additions of Rs. 152.19 lacs and Rs. 6 lacs, qua cash deposits in bank account xxxx1088 (# 1) and bank account xxxx3970 (# 2) respectively, even as observed by the Bench during ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 8 hearing, without appreciating that while there are debit and credit entries and, further, in nearly the same sum, in bank account # 1 (so that apparently the commission amount is received in cash and not in account), indicating payment in respect of all receipts, cash or cheque, therein, while no such payment is stated in respect of deposits in bank account # 2, nor has any been brought on record or even claimed before us. Couple this with the absence of any material evidence produced before the ld. CIT(A), stated by him to have been, without specifying those materials or, assuming so, consideration thereof, and it is, to our mind, a classical case of non-application of mind by the first appellate authority. 3.4 Continuing further, the question that still survives is if the assessment as made can be upheld? In our clear view, the answer is „No‟. The reason is simple. The starting point of the investigation process is the search on 21/03/2016 on three individuals who had admitted running a racket of providing financial accommodation entries at a commission @ 0.15% to 0.2%. The assessee is a part of this racket. If that be true, how can the sum deposited in the bank accounts be regarded as that of the account holders, i.e., the persons doing the said business? Yes, we are conscious that the investigation report clearly states of this being done through „layering‟. But, then, there has been no further investigation by the Revenue in the matter. Sure, we say so only on the basis of the material on record, and it may well be that there has been an omission in bringing it on record, but there is even no whisper of any further investigation. This perhaps also explains as to why the assessee did not provide the names and addresses of his customers, who are stated to be the beneficiaries of the amounts received in the assessee‟s bank accounts, explaining thus the nature and source of the credits (receipts or deposits) in his bank accounts, as he is obliged to under law (s. 69A). Further, why should, in that case, the assessee have transactions with the persons searched, as the investigation of these accounts disclosed, and which in fact led to the issue of notice u/s. 148(1) in his case? Surely, there are gaps in the factual ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 9 framework, as suggested by the explanation furnished and the material found and analysed by the Revenue (through the Investigation Wing), and which remain unaddressed. Neither the assessee has stated the truth nor has the Revenue made any further investigation in the matter. Following the money trail would have surely led to a better clarity on facts. However, the very fact of it being a part of such racket implies it to be an organized business. As such, it caters to some persons, even if unidentified, outside the assessee. A business implies an exchange. The two facts, i.e., the money laundering and financial accommodation business, on one hand, and the money in his bank account/s belonging entirely to the assessee, on the other, are inconsistent with each other, so that the latter, an inferential fact, which is under dispute, cannot hold. Even if therefore the assessee is unable to establish the source of the moneys deposited in his bank accounts, given the fact of such business being undertaken, only the peak balance in his bank accounts could be added as unexplained money u/s. 69/69A. The second aspect of the matter would be the income earned through such business, which the assessee admits at Rs. 1.51 lacs, albeit, sans any evidence. 3.5 The only material on record in this respect, i.e., income arising from business, is the stated consideration of 0.15% - 0.2% on turnover, also admitted by the assessee. It is inconceivable though that such a meagre commission is charged for assuming such a high risk; the illegality factor alone (i.e., even ignoring the service component of the activity undertaken, which involves transmission of liquid cash, which itself involves high risk) scaling up the risk factor inordinately, while, as simple economic theory and plain common sense advocate, there is a positive correlation between the risk & return. Further, it also doesn‟t explain cash deposit of Rs. 6 lacs in Bank Account # 2, against which there are, as afore-stated, no corresponding debits, i.e., on the basis of the material on record, including the explanation furnished. The peak balance of the two bank accounts for the relevant year is not on record. Also, we are conscious ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 10 that it may be that there are business transactions subsequent to the date of the peak balance/s, so that the income attributable to those transactions, though not manifesting in the form of bank balance/s (or, more aptly, a higher bank balance/s), would warrant being assessed as income, i.e., in addition to the peak balance/s. We are also, in view of the unsatisfactory factual determination (for which it is the assessee, being in the know of his financial affairs and obliged by law to explain the same, who, having failed to, is principally responsible), and the long period that has since lapsed, disinclined to restore the matter back, and consider it proper to, under the given facts and circumstances, adjudicate the matter on the basis of the material on record. In our considered view, the assessee‟s income for the relevant year shall comprise following: a) the excess of the aggregate credits over aggregate debits for the year in bank account # 1, i.e., Rs. 45,200; and b) the unexplained cash deposit of Rs. 6 lacs in bank account # 2. The assessee shall thus stand to be assessed for a total income of Rs. 6,45,200, as business income, as against the returned income of Rs.1,51,000. This is as there is nothing on record to suggest the assessee, who did not file any return u/s. 139, but only (on 18/11/2016) after being served the notice u/s. 148(1) on 02/04/2016, carrying on any other business or vocation during the year. 3.6 The decision by the Tribunal in Raaga Finvest Ltd. (for AYs. 2007-08 to 2011-12) stands relied upon by the ld. CIT(A) (at para 7.2.3 of his order) without as much as mentioning, leave alone discussing, its‟ facts, or showing as to how the same are applicable in the facts and circumstances of the instant case, so that the said reliance is to no moment. An unverified copy of the said order (in ITA Nos. 256-259/Jab/2013 & 218/Jab/2015, dated 31/8/2016) stands submitted after hearing – without being asked to by the Bench, with the Registry of the Tribunal. This is wholly unwarranted, in complete disregard of the process of hearing, and the rights of the opposing side. The same being not on record could not be relied ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 11 upon and, consequently, responded to by the other side. We thoroughly discountenance, and express our extreme displeasure in the surreptitious manner in which material is sought to be placed on record by the assessee. The said Order was, nevertheless, read, to find it as wholly inapplicable. The same is a case of a NBFC, duly maintaining books of account disclosing commission income, charged separately on each cheque issued, and on which (commission) is charged, which is subject to service tax, duly deposited. In fact, the amount added as income in that case (Rs. 354.07 lacs) was that reflected in its‟ balance-sheet as cheques pending clearance as at the year-end, which were confirmed by the AO (per his remand report called for by the first appellate authority) to have been cleared subsequently. A mere browse of paras 3 & 4 of the said Order would reveal the facts of the case to be materially, if not wholly, different. Why, no business transactions are observed in one bank account (# 2) in the instant case, deposit wherein is accordingly added in full as unexplained u/s. 69A, and which also explains the differential treatment by the AO to the transactions in the two bank accounts. If anything, reliance thereon by the ld. CIT(A), shows, once again, a clear lack of application of mind in the instant case. We have, on the contrary, in the conspectus of the case, accepted the financial accommodation entries as a business, stating our reasons for the same. And, further, allowed the assessee the benefit of doubt in not directing addition for the peak balance, i.e., in addition to the normative profit earned since, in computing his income, even as, as it appears, the gross income of Rs. 2,51,662 (against which no evidence of expenditure stands produced) stands collected in addition to that deposited in bank for the purpose of issuing cheques. The assessee has, accordingly, without showing, been allowed the telescoping benefit. The decision in Raaga Finvest Ltd. (supra) is thus rather supportive of adjudication made by us without reference thereto; the matter being principally factual, so that even one fact could make a material difference. ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 12 3.7 Finally, we may, before parting with this order, also discuss the assessee‟s argument, advanced by Shri Ghai, to the effect that no addition has been made in the case of Rakesh Yadav despite the facts being the same, so that no addition could be made in the instant case as well. The said order is not on record. The said argument, also referred to in the impugned order, is without as much as mention of the facts of the said case, much less discussing the same as well as the decision arrived at therein, including its basis and its consideration by the first appellate authority, followed by the issue of a finding/s as to the facts being the same. The argument is thus de hors anything on record. How can, one wonders, the same be relied upon, as we are urged to. How, again, one wonders, the AO‟s order (in case of Rakesh Yadav) be binding on the ld. CIT(A) in his case, much less in the assessee‟s case. We are, therefore, constrained to regard the argument as without basis, and is in fact referred to only due to the specific insistence of Shri Ghai during hearing to take the same on record. We may though, for the sake of completeness of our order, clarify that the principle of res judicata is not applicable to the proceedings under the Act (viz. New Jehangir Vakil Mills Co. Ltd. v. CIT [1963] 49 ITR 137 (SC); M.M. Ipoh v. CIT [1968] 67 ITR 106 (SC)). The AO is, therefore, at liberty to adopt a different view even in an assessee‟s own case, stating though the reasons therefor. Judicial propriety would also demand of him to make a mention of the earlier assessment and state the reasons for taking a different view. One additional fact could make a world of difference, as explained in Padamasundra Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC). Then, there could be some development in law, or a decision may have come to his knowledge, and so on. That the Revenue is bound to adopt the view taken by the AO in a particular case, or on non-appeal by it against an appellate order, is a proposition not supported by law or any legal principle. On the contrary, that it is not so stands clarified by the Apex Court as and when this issue came up before it, as in CIT v. Goodwill Theatres [2017] 160 DTR 371 (SC) (reversing the decision by the Hon‟ble Bombay HC, reported at ITA No. 95/JAB/2018 & C.O.No.08/JAB/2018 Dassu Patel (AY 2009-10) 13 [2016] 386 ITR 294, relied upon by the ld. CIT(A)); C.K. Gangadharan v. CIT [2008] 304 ITR 61 (SC). 3.8 The CO by the assesse is, as afore-stated, apart from the legal ground raised thereby, discussed at paras 3.1 & 3.2 of this order, only supportive of the impugned order, not warranting any separate adjudication. 4. In the result, both the Revenue‟s appeal and the assessee‟s CO are partly allowed. Order pronounced in open Court on April 29, 2022 sd/- sd/- (Manomohan Das) (Sanjay Arora) Judicial Member Accountant Member Dated: April 29, 2022 vr/- Copy to: 1. The Appellant - ITO, Ward-2, Katni. 2. The Respondent – Dassu Patel, Lala Mohalla, Lal Bahadur Shastri Ward, Kuthla, Distt-Katni (MP) 3. The Pr .CI T-2, Jabalpur (MP) 4. The CI T( A)-1, Jabalpur (MP) 5. The Sr . D.R., I TAT, Jabalpur. 6. Guard file. By order (VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Jabalpur