Shri Vallabhdas M. Hirani ( L/R. Ravi V. Hirani ), Morbi V. The A.C. I.T, Central Circlre-1, Rajkot

ITSSA 96/RJT/2018

AI Insights

The case involves Shri Vallabhdas M. Hirani, who was subjected to a search under section 132 of the Income Tax Act, 1961, leading to proceedings under section 153A. The Assessing Officer (AO) made additions to the assessee's income based on unexplained cash deposits in his bank accounts, which were treated as undisclosed income. The CIT(A) upheld a 30% addition to these deposits as income. The assessee contested this, arguing that he was engaged in a commission business with tile manufacturers, and the additions were excessive. The ITAT found the CIT(A)'s estimation excessive and reduced the addition to 7% of the deposits, aligning with the nature of the assessee's business.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124040 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 16-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 08-02-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 12-06-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Peak credit
• Section: 132; 153A; 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [CONDUCTED THROUGH VIRTUAL COURT ] Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Shri Vallabhdas M. Hirani (L/H Ravi V. Hirani), 21, Shriram S ociety , Block No. 5, Ravapar Ro ad, Morbi PAN: AATPH17 73N (Appellant) Vs The ACIT, Central Circle-1, Rajkot (Resp ondent) Asses see by : Shri Sa mir Bhuptani, A.R. Revenue by : Shri S hramdeep Sinha , Sr. D. R. Date of hearing : 09-02 -2023 Date of pronouncement : 17-02 -2023 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- These are the three appeals filed by the assessee against the common order passed by the ld. CIT(A) for assessment years 2007-08, 2008-09 & 2009-10 vide order dated 22-03-2018 in proceedings under section 153A r.w.s. 144 of the Income Tax Act, 1961; in short “the Act”. IT(SS)A No. 94 to 96/Rjt/2018 Assessment Year 2007-08 to 2009-10 I.T(SS).A Nos. 94 to 96/Rjt/2018 A.Y. 2007-08 to 2009-10 Page No Shri Vallabhdas M. Hirani vs. ACIT 2 2. The assessee has taken the following grounds of appeal:- A.Y. 2007-08 “Ld. CIT(A) erred in law as well as on facts in – 1. Confirming addition to the extent of Rs. 68,700/- 2. Contending that the appellant is partner in ceramic business, without appreciation the facts and evidences available on the records. 3. Not considering the finding of Directorate General of Central Excise Intelligence, Ahmedabad (DGCEI), which has been considered and upheld by the Commissioner of Central Excise & Custom in appellate matters under the relevant act. Moreover, the finding of the DGCEI has made basis for the purpose of initiating search proceeding/ reopening of assessment proceedings against the Tiles Manufacturers and the appellant like shroffs. Further, Hon'ble Gujarat High Court has held re-opening of assessment on the basis of the finding of DGCEI as legal and valid one. 4. Not adopting peak balance in the bank account, without assigning any reason thereof, 5. Not giving credit/ benefit of telescopic of intangible additions made. 6. All the grounds of appeal raised hereunder are without prejudice to one another” A.Y. 2008-09 “Ld. CIT(A) erred in law as well as on facts in – 1. Confirming addition to the extent of Rs. 2,71,290/- 2. Contending that the appellant is partner in ceramic business, without appreciation the facts and evidences available on the records. I.T(SS).A Nos. 94 to 96/Rjt/2018 A.Y. 2007-08 to 2009-10 Page No Shri Vallabhdas M. Hirani vs. ACIT 3 3. Not considering the finding of Directorate General of Central Excise Intelligence, Ahmedabad (DGCEI), which has been considered and upheld by the Commissioner of Central Excise & Custom in appellate matters under the relevant act. Moreover, the finding of the DGCEI has made basis for the purpose of initiating search proceeding/ reopening of assessment proceedings against the Tiles Manufacturers and the appellant like shroffs. Further, Hon'ble Gujarat High Court has held re-opening of assessment on the basis of the finding of DGCEI as legal and valid one. 4. Not adopting peak balance in the bank account, without assigning any reason thereof. (Not adjudicating) 5. Not giving credit/ benefit of telescopic of intangible additions made. 6. All the grounds of appeal raised hereunder are without prejudice to one another A.Y. 2009-10 “Ld. CIT(A) erred in law as well as on facts in – 1. Confirming addition to the extent of Rs. 3,01,500/- 2. Contending that the appellant is partner in ceramic business, without appreciation the facts and evidences available on the records. 3. Not considering the finding of Directorate General of Central Excise Intelligence, Ahmedabad (DGCEI), which has been considered and upheld by the Commissioner of Central Excise & Custom in appellate matters under the relevant act. Moreover, the finding of the DGCEI has made basis for the purpose of initiating search proceeding/ reopening of assessment proceedings against the Tiles Manufacturers and the appellant like shroffs. Further, Hon'ble Gujarat High Court has held re-opening of assessment on the basis of the finding of DGCEI as legal and valid one. I.T(SS).A Nos. 94 to 96/Rjt/2018 A.Y. 2007-08 to 2009-10 Page No Shri Vallabhdas M. Hirani vs. ACIT 4 4. Not adopting peak balance in the bank account, without assigning any reason thereof. 5. Not giving credit/ benefit of telescopic of intangible additions made. 6. All the grounds of appeal raised hereunder are without prejudice to one another” 3. Since common issues and facts are involved in all the three years, all the three appeals are being taken up together. ASSESSMENT YEAR 2007-08 4. The brief facts of the case are that search action u/s. 132 of the Act was carried out at the premises of the assessee on 17-01-2013. Consequent to search, proceedings u/s. 153A of the Act were initiated in response to which the assessee filed return of income u/s. 139(1) at Rs. 1,03,698/-. During the course of assessment, none appeared on behalf of the assessee and the Assessing Officer observed that there is a cash deposit of Rs. 2,29,000/- in the assessee’s bank account for which no source is available on record and no explanation is forthcoming from the assessee. Accordingly, the Assessing Officer treated the entire cash deposits of Rs. 2,29,000/- as income of the assessee. 5. The assessee filed appeal before ld. CIT(A) and submitted that assessee is engaged in the business of transfer of money on commission basis. He is mainly providing the above services to tile manufacturers. The I.T(SS).A Nos. 94 to 96/Rjt/2018 A.Y. 2007-08 to 2009-10 Page No Shri Vallabhdas M. Hirani vs. ACIT 5 rate of commission earned by the assessee is Rs. 50 to 300 per lakh. The investigation wing had conducted searches on tiles manufacturers simultaneously and contended that suppressed sales value of tile manufacturers have been deposited in the bank accounts of the assessee and other such persons, who in turn withdraw the same from their accounts and after deducting their commission paid the same to the tiles manufacturers. The assessee submitted that in the instant case, the assessee had expired on 23-12-2014 and the assessment was finalized ex-parte and the Assessing Officer made addition of Rs. 2,29,000/- which represents the entire deposits made in bank accounts by ignoring the withdrawal side of the said bank account. Accordingly, the ld. Assessing Officer erred in facts and in law by treating the entire deposits as income of the assessee. 6. In appeal, the ld. CIT(A) relied upon another decision passed by him on identical facts in the case of another assessee wherein an addition of 30% of the total deposits was held to be income of the assessee and the remaining 70% additions were deleted. Accordingly, ld. CIT(A) confirmed 30% of the deposits in the bank account of the assessee as his undisclosed income. The year-wise relief granted by ld. CIT(A) is below:- A.Y. Total addition made (Rs.) 30% of the addition confirmed Rs, 70% of the additions deleted Rs. 2007-08 2,29,000/- 68,700/- 1,60,300/- 2008-09 9,04,300/- 2,71,290 6,33,010/- 2009-10 10,05,000/- 3,01,500/- 7,03,500/- I.T(SS).A Nos. 94 to 96/Rjt/2018 A.Y. 2007-08 to 2009-10 Page No Shri Vallabhdas M. Hirani vs. ACIT 6 2010-11 90,000/- 27,000/- 63,000/- 7. The assessee is in appeal before us against the aforesaid additions confirmed by ld. CIT(A). The contention of the counsel for the assessee is two-fold. Firstly, the assessee is engaged in wholesale business of trading of roof material for the year under consideration i.e. assessment years 2007- 08 to 2009-10 and he is governed by the provisions of section 44AF of the Act and therefore the addition is required to be restricted to 5% of the turnover. Secondly, the estimation of profit of the assessee @ 30% by ld. CIT(A) is highly excessive and on pure estimation basis. The assessee is a small trader and the estimation of 30% rate of profit in the hands of the assessee is baseless and unrealistic in the assessee’s line of business. The assessee placed reliance on several judicial precedents in support of the contention that once a assessee is governed by the provisions of section 44AF of the Act, the profits are required to be restricted to the rate of tax mentioned in such provisions and addition cannot be made on a purely estimation basis. In response, the ld. Departmental Representative relied upon observations made by the ld. CIT(A) in the appellate order. 8. We have heard the rival contentions and perused the material on record. We observe that the assessee has made totally contradictory submissions before ld. CIT(A) and before us. While before ld. CIT(A), the assessee submitted that he has been acting as commission agent for tile manufacturers and earning commission @ Rs. 50 to 300 per lakh whereas before us, the assessee has submitted that he is engaged in the business of I.T(SS).A Nos. 94 to 96/Rjt/2018 A.Y. 2007-08 to 2009-10 Page No Shri Vallabhdas M. Hirani vs. ACIT 7 wholesale trading of roof material and is governed by provisions of section 44AF of the Act. Clearly, the assessee has been taking the contradictory position with respect to his own business and therefore the submission of the assessee that the assessee is engaged in the wholesale business of trading in roof materials cannot be accepted. Both in the statement of facts before ld. CIT(A) as well as in the written submission filed before ld. CIT(A) during the course of appellate proceedings, the assessee has submitted that he is engaged in the business of earning commission income. Accordingly, the argument of the assessee that he is engaged in the business of wholesale trading of roof material and is governed by the provisions of section 44AF of the Act is not acceptable and is hereby rejected. 8.1 However, we also observe that the ld. Assessing Officer has taken the entire deposits in the bank account of the assessee as his income without taking into account the withdrawals made by the assessee from its bank account during the years under consideration. Further, we observe that even in the appellate proceedings, the ld. CIT(A) has confirmed 30% of the deposits as the net income of the assessee on a purely estimation basis and without giving any reason as to why such a high percentage of receipts be taken as the net profit of the assessee. We are of the view that ld. CIT(A) has erred in confirming 30% of the total deposits as income of the assessee, firstly, for the reason that this addition is on an entirely notional/estimation basis and secondly, in our view taking 30% of the deposits as the income of the assessee is on the excessive side. Looking into the totality of the facts and circumstances of the instant case, in the interest of justice, we are hereby restricting addition to 7% of the total deposits as income of the assessee I.T(SS).A Nos. 94 to 96/Rjt/2018 A.Y. 2007-08 to 2009-10 Page No Shri Vallabhdas M. Hirani vs. ACIT 8 from commission business. In the result, the appeal of the assessee is partly allowed. ASSESSMENT YEARS 2008-09 & 2009-10 9. Since the facts and the issues for consideration are common for all the three years and the appeals are emanating out of common order by ld. CIT(A), we are directing that in view of above observations made by us, the additions may be restricted to 7% of the deposits for the years under consideration before us. 10. In the result, the appeals of assessee are partly allowed for assessment years 2007-08, 2008-9 & 2009-10. Order pronounced in the open court on 17-02-2023 Sd/- Sd/- (WASEEM AHMED) (SIDHHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 17/02/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order, Assistant Registrar, Income Tax Appellate Tribunal, Rajkot