SAI BUILDERS,GANDHIDHAM V. ITO WARD - 2, GANDHIDHAM, GANDHIDHAM

ITA 442/RJT/2023

AI Insights

The case involves Sai Builders, a partnership firm engaged in real estate, which did not file its income tax return for the assessment year 2017-18. The Assessing Officer reopened the case under section 147 of the Income Tax Act, 1961, due to substantial cash transactions in the firm's bank account. The Tribunal examined whether the cash deposits were from unexplained sources or were business-related transactions. The Tribunal concluded that the cash deposits were from business operations and not unexplained income, thus allowing the appeal and deleting the addition made by the Assessing Officer.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 473084 (ITAT-RAJKOT)
• Duration Of Justice: 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-09-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 20-12-2023
• Other Referred Cases: CIT v. Ramchandra Muralidhar, Kachwala Gems v. Jt. CIT, Goetze (India) Ltd. v. CIT, CIT v. MR. P. Firm, CITD v. Abdul Haseeb, Prop. M.S.J.B. Silk
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIMANYU SINGH YADAV
• Assessee Lawyers: SUNIL MALOO
• Keywords: Business income; Additional evidence; Revised return
• Section: 147; 148; 144; 201; 69A

Judgement Text

" Page | 1 ITA No.442/RJT/2023 – A.Y. - 2017-18 Sai Builders vs. ITO IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER AND SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER आयकरअपीलसं./ITA No.442/RJT/2023 (\u000bनधा\u000fरणवष\u000f / Assessment Year: (2017-18) (Hybrid Hearing) Sai Builders BBZ-N-39 Gandhidham, Kutch, Gujarat 370201. Vs. Income Tax Officer Ward-2, Gandhidham, Plot No.32, Sector-3, Near IFFCO Colony, Gandhidham-370 201 \u0013थायीलेखासं./जीआइआरसं./PAN/GIR No.: ABVFS9841D (अपीलाथ\u0007/Appellant) (\b\tयथ\u0007/Respondent) \u000bनधा\u000e\u000fरतीक\u0013ओरसे/Assesseeby :Shri Sunil Maloo, AR राज\u0018वक\u0013ओरसे/Respondent by :Shri Abhimanyu Singh Yadav, Sr.DR सुनवाईक\u0013तार\u001cख/Date of Hearing : 30/09/2024 घोषणाक\u0013तार\u001cख/Date of Pronouncement : 18/10/2024 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2017-18, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘Ld. CIT(A)/NFAC’], dated 26.10.2023, which in turn arises out of an assessment order passed by the Assessing Officer, dated 28.03.2022. 2. The grounds of appeal raised by the assessee are as follows: “1. The Ld CIT(A) grossly erred in law and facts in confirming the assessment of the Assessee u/s 148 of the Act. Page | 2 ITA No.442/RJT/2023 – A.Y. - 2017-18 Sai Builders vs. ITO 2. The Ld CIT(A) grossly erred in law and facts in confirming the addition of Rs.1,04,50,900/- without appreciating the bank statement of the Assessee in its entirety. 3. The appellant reserves the right to add, alter, amend, or modify any of the grounds of appeal during the course of the appellate proceedings.” 3. The facts of the case which can be stated quite shortly are as follows:The assessee is a firm and it has not filed its return of income for the Financial Year(F.Y.) 2016-17 relevant to assessment year(A.Y.) 2017- 18. As per the details available on records, it was noticed by the assessing officer that the assessee had entered into banking transactions in cash amounting to Rs.2,30,10,910/- (cash deposit of Rs.1,04,50,900/- and cash withdrawals of Rs.1,25,60,010/- from current account). Accordingly, after, analyzing the details available on records, the assessing officer recorded the reasons and reopened the case of the assessee u/s 147 of the Act and notice u/s 148 of the Act was issued on 31.03.2021. The assessing officer observed that as per the details available on records, it was seen that the assessee had entered into banking transactions in cash amounting to Rs.2,30,10,910/- (cash deposit of Rs.1,04,50,000/- and cash withdrawals of Rs.1,25,00,010/- from current account). The assessing officer, held that in absence of return of income and any explanation from the assessee, the source of cash deposits to the tune of Rs.1,04,50,900/- remains unexplained/unverified. Hence cash deposits of Rs.1,04,50,900/- ,was treated as assessee's income asunexplained money and the same is added to the total income of the assessee u/s 69A of the Act. 4. Aggrieved by the order of assessing officer,the assessee carried the matter in appeal before the Ld. CIT(A) who has reiterated the findings of the assessing officer and disallowed the appeal of the assessee. Therefore, the assessee is in appeal before us. Page | 3 ITA No.442/RJT/2023 – A.Y. - 2017-18 Sai Builders vs. ITO 5. The Ld. Counsel for the assessee submitted that the assessee maintained current account in which the assessee has deposited the cash and such cash was out of the business receipts. Moreover, there is withdrawal also which is also in cash for business activity. The cash deposited in current bank account out of business activity and cash withdraw from current bank account for business purpose, is not income of the assessee.The assessee, filed detailed written submission before the ld. CIT(A) appeal during the appellate proceedings, however, learned CIT did not consider in right perspective and confirmed the addition made by the assessing officer. 7. On the other hand, Ld. DR for the Revenue submittedthat the assessee has neither filed original return of income, nor filed return in response to notice u/s.148 of the Act. Therefore, there is no meaning to restore the issue back to the file of the AO because AO has already given the findings on the facts that the assessee has deposited the cash in the current bank account and withdraw cash from current bank account, which may not be for the purpose of business. In addition to this, the Ld. DR for the Revenue also submitted written submission which are reproduced below: “2. Legal Requirement under Section 139(1)(a): Section 139(1)(a) of the Income Tax Act mandates every company or firm to file an Income Tax Return (ITR), irrespective of whether it has any income or transactions during the financial year. This provision ensures transparency and accountability, as companies and firms are artificial juridical persons capable of holding and transferring assets, which can be misused if left unchecked. 3. Judicial Precedent Supporting Mandatory Filing: In CIT v. Ramchandra Muralidhar (1977) 110 ITR 807 (SC): This case discusses the obligations of companies to file returns even when no income is generated. The Supreme Court held that statutory compliance is necessary for regulatory purposes, and non-compliance can lead to penal consequences, which supports the argument about mandatory ITR filing. The court held that the filing of an ITR is a statutory obligation and non-compliance can lead to adverse consequences. The court emphasized that even in the absence of income, the Page | 4 ITA No.442/RJT/2023 – A.Y. - 2017-18 Sai Builders vs. ITO requirement to file an ITR is essential to maintain financial discipline and prevent misuse. 4. Best Judgment Assessment under Section 144: If a firm does not file its ITR and there are substantial cash transactions in its bank account, the Assessing Officer is justified in making a best judgment assessment under Section 144 of the Income Tax Act. In Kachwala Gems v. Jt. CIT (2007) 288 ITR 10 (SC), the Supreme Court upheld the best judgment assessment where the taxpayer failed to provide complete records, validating the Assessing Officer's approach in estimating income based on available data. 5. Rejection of Appeals Based on Malafide Inaction: If the firm subsequently tries to justify these cash transactions during an appeal without even filing of an initial ITR, it reflects malafide inaction and non- compliance. The judgment of Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC), comes to support of revenue, The Supreme Court held that an Assessing Officer has no power to entertain a claim made by the assessee otherwise than by filing a revised return. This reinforces the idea that claims or justifications not made during the initial proceedings are not valid and should not be entertained in appeals. In this immediate case even the original ITR had not been filled despite being a partnership firm and later in response to notice U/s 147 also the same was not filed hence the explanations provided post-assessment through submission made in appellate proceedings without initial compliance, are liable to be rejected as they contradict the taxpayer's earlier conduct, if such conduct is allowed then the same will lead to legal anarchy and wide scale non-compliance of taxation law. 6. Why appeal should not be restored to authority below or to the assessing officer: The assessment belongs to AY 2017-18 and now no meaningful purpose will get solved to restoring it to assessing officer because after a gap of 7 years now no assessing officer can examine any claim of expenses, this will give opportunity of manipulation and fraud to appellant assessee. 7. Conclusion: The mandatory filing requirement under Section 139(1)(a) ensures that companies and firms do not escape scrutiny. Non-compliance followed by unsubstantiated explanations during appeals should not be entertained, as it undermines the very purpose of regulatory oversight, leading to potential misuse of artificial juridical persons. Therefore the revenue raised this argument that appeal is not maintainable and liable for rejection.” Page | 5 ITA No.442/RJT/2023 – A.Y. - 2017-18 Sai Builders vs. ITO 11. We have heard both the parties. We note that during the appellate proceedings, the assessee has submitted written submission before the ld. CIT(A), which are reproduced below: “1.1 The assessee is a partnership firm and engaged in the business of real estate. The assessee has been issued a notice u//s 148 of Act dated 31/03/2021. 1.2 The case was reopened with a reasonof verifying the alleged cash transactionof Rs.2,30,10,910/-, comprising of cash deposit of Rs.1,04,50,900/- and cash withdrawals of Rs.1,25,60,010/- from current account. 1.3 The assessee submits that cash deposits were made from previous cash withdrawal from the same bank account. The same is evident from the bank statement of the assessee. 1.4 It is further submitted that multiple deposits and withdrawals have been made in order to have sufficient balance to make payments for business operations. 1.5 The cash deposit and cash withdrawals are nothing but rotation of same cash in bank account. 1.6 These facts clearly show and establishes the overall approach of the AO while making the assessment and ultimately resulting into high pitched assessment against the assessee. 1.7 Aggrieved by the capricious and arbitrarily assessment order as passed by the AO. The appellant is left with no other alternative but to knock on your doors with this appeal praying for justice, on the grounds of appeals attached herewith. 2. Grounds of appeals: 2.1 The Ld.AO grossly erred in law and facts in reopening the assessment of the assessee u/s 148. 2.2 The Ld.AO grossly erred in law and facts in making the addition of Rs.1,04,50,900/- without appreciating the bank statement of the assessee in its entirety. 2.3 The appellant craves liberty to add/alter any ground of appeal, if required. 3. Detailed submissions 3.1 Challenging the reopening proceedings u/s 148 which is not based on entirety of bank statement. 3.2 The assessee submits that the Assessing Officer has not considered both the sides of the bank statement of the assessee and allegedly passed the order by making addition of income under section 69A of the Act. 3.2.1 Assessee submits that cash deposits were made from available cash balance in the hands of the PartnershipFirm. The fact which is apparent from the bank records is that the cash depositof Rs.1,04,50,900/- has direct nexus with cash withdrawals of Rs.1,25,60,010/-. 3.2.2 Further, on perusal of bank records, it is evident that the assessee had a practice of keeping very low balance in bank account. Therefore, the multiple deposits and withdrawal have been made in order to have sufficient balance to make payments for business operation. 3.2.3 The assessee used to withdraw in cash any sum received in bank in order to keep low bank balance, and the same cash were again deposited at the time of making any payment through bank. Therefore, the cash deposits and cash, withdrawals are nothing but rotation of same cash in bank account. The assessee states that the Ld AO must see both sides of the story before concluding the allegation so made. Page | 6 ITA No.442/RJT/2023 – A.Y. - 2017-18 Sai Builders vs. ITO 3.2.4 On perusal of above, it is evident that the bank records itself provides for a source of the cash deposited. However, the Ld AO failed to appreciate the bank records and made an addition u/s 69A of the Act. 3.2.5 Any document has to be taken as a whole and the Assessing Officer should not pick and choose those parts of the impounded material which suits him and totally rejected those parts of the same document which are in support of the assessee. Therefore, either the Assessing Officer should not rely on such impounded material at all or if he uses these documents as evidence against the assessee then he should read it as a whole and also accept those parts of the documents which support the assessee. 3.2.6 One Cannot be permitted to blow hot and cold in the same steam. ‘Head I win’ and ‘tail you lose’, approach is alien to the principles of justice. The doctrine of ‘approbate and reprobate’ as borrowed in our jurisprudence from the Scotch law gives strength, to this basic rule. There cannot be approval and rejection in the same steam. To attempt to take advantage of one part and to reject the rest is against the fine norms of jurisprudence. If the AO places reliance on the part of bank statement and ignores another part, then there would be certain breach in regard to this tenet of law. Hon’ble Supreme Court in the case of CIT v. MR. P. Firm (1965) 56 ITR 67, wherein it was held that the principle of estoppels will not against the Income-tax Act. The relevant observations are extracted below: The contention is that the assessee having opted to accept the scheme, derived benefit thereunder, and agreed to have their discharged debts excluded from the assets side in the balance-sheet subject to the condition that subsequent recoveries by them would be taxable income, they are now precluded, on the principle of “approbate and reprobate”, from pleading that the income they derived subsequently by realization of the revived debts is not taxable income. The doctrine of “approbate and reprobate” is only a species of estoppels; it applies only to the conduct of parties. As in the case of estoppels, it cannot operate against the provisions of a statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppels or any other equitable doctrine. Equity is out of place in tax law; a particular income is either eligible to tax under the taxing statute or it is not. If it is not, the Income-tax Officer has no power to impose tax on the said income. 3.2.7. The Ld AO grossly erred in law by not considering both the sides of the bank statement and made an addition under section 69A of the Act which is not lawfully correct as the same is observed by Hon’ble Bombay High Court in case of CITD v. Abdul Haseeb, Prop. M.S.J.B. Silk [2014]. The relevant extract of the same is attached here below for your reference. Any sum is found credited in books of account’, connotation of – Expression ‘any sum is found credited in books of assessee’ not only means all entries on credit side but also entries on debit side in books of account – CIT v. Abdul Haseeb, Prop. M.S.J.B. Silk [2014] 3.2.8 Therefore, your honour would understand that addition of entries appearing on credit side of bank statement would not be justified until and unless the entries appearing on debit side of the same bank statement is verified. On verification, you would easily identify that cash deposit have been made from previously cash withdrawals and therefore source of cash deposit is self-explanatory from the bank statement itself. 3.2.9 In the light of above submission, your honour is requested to quash the reassessment proceedings concluded by the AO without considering the documentary evidence placed on record in its entirety. Conclusion and prayer It is evident that the assessee has not escaped any income on cash deposits made in the bank statement of assessee of Rs.1,04,50,900/- it is mere the amount of previous cash withdrawals. The contention of the assessee is well supported by the documentary evidences furnished on record. Therefore, your honour is requested to quash the re-assessment proceedings concluded by the Ld AO and delete the addition of Rs.1,04,50,900/- Page | 7 ITA No.442/RJT/2023 – A.Y. - 2017-18 Sai Builders vs. ITO In view of the foregoing submissions and the grounds of appeal, we most respectfully pray before the hon’ble CIT(A) that: \u0001 The reopening of the assessment u/s 148 of the Act be quashed \u0001 The documentary evidence as furnished by the appellant may consider in its true spirit. The action made u/s 69A of the Actof Rs.1,04,50,900/- be deleted.” 12. First of all, we note that assessee did not submit any additional evidences and documents before the learned CIT(A), during the appellate proceedings. The assessing officer, during the assessment proceedings, has adjudicated the issue, based on the bank statement, which was on the record of the assessing officer. On appeal, by the assessee, the ld. CIT(A) has also adjudicated the issue based on the bank statement, which are on the record of the assessing officer, hence, no additional evidences were submitted by the assessee, during the appellate proceedings. The adjudication was done by the ld. CIT(A), on merit, based on the bank statement. 13. We find that assessee is having current account with the bank. The said current account, is used by the assessee, for business purpose, to deposit and withdraw the money, for the purpose of business. There is no prohibition that he cannot deposit the cash in the current bank account and cannot withdraw the cash from the current account for the business purpose. The nature of the business of the assessee is such that it needs cash, to be paid to labourers against their wages, therefore, assessee, withdraw the cash from the bank account, in order to make payment to the workers. This is a general business phenomenal, which has been ignored by the assessing officer and the ld CIT(A). Under the Indian Income Tax Act, depositing money into a current bank account and withdrawing money from it, is permitted. These transactions themselves are not taxable; however, it is essential to maintain proper records of the source of funds and the nature of transactions, which the assessee has done and Page | 8 ITA No.442/RJT/2023 – A.Y. - 2017-18 Sai Builders vs. ITO neither the assessing officer nor the ld. CIT(A) find any mistake.These cash transactions will typically relate to business of the assessee. If the deposits are significant and not from business activities, then in that circumstances, assessee may need to justify the source of those funds, which the assessee, has done in his case. 14. We find that one sided approach adopted by the assessing officer and ld. CIT(A) is not justified and not valid in the eye of law. We note that assessee`scase was reopened with a reason of verifying the alleged cash transaction of Rs.2,30,10,910/-,comprising of cash deposit of Rs.1,04,50,900/- and cash withdrawals of Rs.1,25,60,010/- from current bank account. It is also to be noted that cash withdrawal are more than cash deposit and these cash withdrawal and deposits were for the purpose of the business to run the business activities. We find that assessing officer made addition in respect of cash deposit of Rs.1,04,50,900/-, in the current bank account, however, the assessing officer is silent about cash withdrawal of Rs.1,25,60,010/-, which is not acceptable.These facts clearly show and establishes the overall approach of the assessing officer, to make high pitched assessment.The Assessing Officer has not considered both the sides of the bank statement of the assessee and allegedly passed the order by making addition of income u/s 69A of the Act. The assesseestated before the lower authorities that cash deposits were made from available cash balance in the hands of the partnership- firm. Before ld. CIT(A), the assessee submitted that any document has to be taken as a whole and the Assessing Officer should not pick and choose those parts of the impounded material which suits him and totally rejected those parts of the same document which are in support of the assessee. Therefore, either the Assessing Officer should not rely on such impounded material at all or if he uses these documents as evidence Page | 9 ITA No.442/RJT/2023 – A.Y. - 2017-18 Sai Builders vs. ITO against the assessee then he should read it as a whole and also accept those parts of the documents which support the assessee.One Cannot be permitted to blow hot and cold in the same steam. ‘Head I win’ and ‘tail you lose’, approach is alien to the principles of justice. The doctrine of ‘approbate and reprobate’ as borrowed in our jurisprudence from the Scotch law gives strength, to this basic rule. There cannot be approval and rejection in the same steam. To attempt to take advantage of one part and to reject the rest is against the fine norms of jurisprudence. If the AO places reliance on the part of bank statement and ignores another part, then there would be certain breach in regard to this tenet of law. Hon’ble Supreme Court in the case of CIT v. MR. P. Firm (1965) 56 ITR 67, wherein it was held that the principle of estoppels will not against the Income-tax Act. The relevant observations are extracted below: “The contention is that the assessee having opted to accept the scheme, derived benefit thereunder, and agreed to have their discharged debts excluded from the assets side in the balance-sheet subject to the condition that subsequent recoveries by them would be taxable income, they are now precluded, on the principle of “approbate and reprobate”,from pleading that the income they derived subsequently by realization of the revived debts is not taxable income. The doctrine of “approbate and reprobate” is only a species of estoppels; it applies only to the conduct of parties. As in the case of estoppels, it cannot operate against the provisions of a statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppels or any other equitable doctrine. Equity is out of place in tax law; a particular income is either eligible to tax under the taxing statute or it is not. If it is not, the Income-tax Officer has no power to impose tax on the said income.” Page | 10 ITA No.442/RJT/2023 – A.Y. - 2017-18 Sai Builders vs. ITO Thus, assessee has rightly pointed out that Ld. AO grossly erred in law by not considering both the sides of the bank statement and made an addition under section 69A of the Act which is not lawfully correct as the same is observed by Hon’ble Bombay High Court in case of CITD v. Abdul Haseeb, Prop. M.S.J.B. Silk [2014](supra). We find that the contention of the assessee is well supported by the documentary evidences furnished on record, therefore, we delete the addition. 15. In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 18/10/2024 Sd/- Sd/- (DINESH MOHAN SINHA) (Dr. A.L. SAINI) \u0001याियक सद\bय/JUDICIAL MEMBER लेखासद\u0007य/ACCOUNTANT MEMBER राजकोट/Rajkot िदनांक/ Date: 18/10/2024 DKP Outsourcing Sr.P.S आदेश क\f \rितिलिप अ\u0012ेिषत/ Copy of the order forwarded to : • अपीलाथ\u0016/ The Appellant • \r\u0017यथ\u0016/ The Respondent • आयकरआयु\u001a/ CIT • आयकरआयु\u001a(अपील)/ The CIT(A) • िवभागीय\rितिनिध, आयकरअपीलीयआिधकरण, राजकोट/ DR, ITAT, RAJKOT • गाड%फाईल/ Guard File By order/आदेशसे, सहायकपंजीकार आयकरअपीलीयअिधकरण ,राजकोट "