Shri Sudhir Kumar Sharma (HUF) V. The Commissioner of Income Tax III, Aayakar Bhawan, Rishi Nagar, Ludhiana

ITA/122/2014

AI Insights

The case involves Shri Sudhir Kumar Sharma (HUF), who appealed against the order of the Income Tax Appellate Tribunal, Chandigarh, which had sustained the addition of unexplained cash credits under Section 68 of the Income Tax Act, 1961. The primary contention was whether the Tribunal and the CIT(A) acted correctly in sustaining these additions without proper findings on the legality of the reopening of the assessment under Sections 147/148. The Tribunal had dismissed the appeals of the assessee and accepted those of the revenue, reversing the application of peak credit theory and upholding the additions made by the Assessing Officer. The High Court, after reviewing the submissions and evidence, concurred with the Tribunal's decision and dismissed the appeals.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 821248 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 12-05-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: SANJAY BANSAL; RAJNI PAL
• Keywords: Accommodation entries; Peak credit theory; Reopening of assessment; Unexplained cash credits
• Section: 147; 148; 271(1)(c); 68; 133A; 260A

Judgement Text

"ITA No.122 of 2014 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.122 of 2014 (O&M) Date of decision:12.05.2014 Shri Sudhir Kumar Sharma (HUF) ……Appellant Vs. The Commissioner of Income Tax III, Aayakar Bhawan, Rishi Nagar, Ludhiana …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE JASPAL SINGH Present: Mr. Sanjay Bansal, Sr. Advocate with Ms.Rajni Pal, Advocate for the appellant. Ajay Kumar Mittal,J. 1. This order shall dispose of ITA Nos.122, 131, 81 to 89 and 128 of 2014 as according to the learned counsel for the appellant, the issues involved therein are similar. However, in ITA No.81 of 2014, an additional substantial question of law regarding reopening has been proposed which is to the following effect:- “Whether the Hon'ble Tribunal as well as the learned CIT(A) acted illegally and perversely in sustaining the addition under Section 68 of the Income Tax Act, 1961 without recording any finding (s) with regard to the action of the Assessing Officer in initiating proceedings under Section 148/147 of the Act against the assessee – company which were totally illegal, without jurisdiction and contrary to the principles of natural justice?” Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 2 2. ITA No.122 of 2014 has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 27.6.2013, Annexure A.3 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh in ITA No.964/Chd/2010 for the assessment year 2007-08, proposing to raise following substantial questions of law for determination of this Court:- “a) Whether the Tribunal misdirected itself in law as well as on facts in reversing the order of the learned CIT(A) whereby the latter had upheld the theory of peak credit on the facts of the case of the appellant emerging from the material on record? b) Whether on the facts and in the circumstances of the case, the Tribunal while affirming the order passed by the Assessing Officer acted illegally and perversely in recording its conclusions based on irrelevant findings and in ignoring uncontroverted relevant material on record? c) Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in applying the provisions of section 68 of the Income Tax Act, 1961while affirming the additions made by the Assessing Officer? d) Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in sustaining the addition made under Section 68 of the Income Tax Act, 1961 by the Assessing Officer contrary to the principles of natural justice and in undue haste? e) Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in sustaining the addition made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 on the basis of statement recorded during survey under Section 133 of the Act which has no evidentiary value? f) Whether on the facts and in the circumstances of the case, Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 3 the impugned order passed by the Tribunal is perverse and a result of total non application of mind? 3. Briefly, the facts necessary for adjudication of the controversy involved, as narrated in ITA No.122 of 2014 may be noticed. The assessee, an individual, is engaged in the business of brokerage/trading in shares and commodities. Survey under Section 133A of the Act was conducted at the business premises of the assessee on 31.10.2007 whereupon statement of the assessee was recorded by the then Assistant Director of Investigation (Income Tax). Thereafter, for the assessment year in question namely 2007- 08, the assessee herein filed his return of income declaring total income of `1,61,680/-. During assessment proceedings, the Assessing officer directed the appellant to produce certain documents like cash book, general ledger, stock register etc. The assessee submitted the requisite documents. His statement was also recorded. After examining the record, the Assessing Officer vide order dated 31.12.2009, Annexure A.1 made an addition of ` 7,81,87,362/- by invoking the provisions of Section 68 of the Act holding that the amount was in the form of unexplained cash credits. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 16.4.2010, Annexure A.2, the CIT(A) partly allowed the appeal and sustained the addition on the basis of peak deposits to the tune of ` 17,66,000/- thereby deleting the addition of ` 7,64,21,362/-. Feeling aggrieved, both the assessee and the department filed appeals before the Tribunal. Vide order dated 27.6.2013, Annexure A.3, the Tribunal dismissed the appeals of the assessees and allowed that of the revenue. Hence the present appeals by the assessees. 4. Learned counsel for the appellant submitted that the entries Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 4 were trade debts and, therefore, Section 68 of the Act was not applicable. An application bearing CM No.5693-CII of 2014 has been filed by the appellant giving the list (Annexure A.5) of persons (cash creditors), from whom cash had been received and payment had been made by cheque. Learned counsel submitted that without prejudice to the rights of the department to recover the amount under the orders of the Tribunal, the matter may be remanded back to the Assessing Officer to summon all persons as per Annexure A.5. Similar applications have also been filed in some of the connected appeals as well. 5. We have heard learned counsel for the appellant and perused the record. 6. While framing the assessment, the Assessing Officer vide order dated 31.12.2009, Annexure A.1 invoking Section 68 of the Act made additions amounting to ` 7,81,87,362/- on account of alleged cash credits. It was noticed as under:- “5. In view of the facts mentioned above, the cash deposits taken from so called customers have entered in cash book and accordingly the cash deposited in the bank account of the assessee are unexplained cash credits in the books of the assessee and fall within the purview of Section 68. The assessee is not able to prove the source of these cash deposits in his books of account. Therefore, they are held to be cash credit within the meaning of section 68 and accordingly, the total amount of ` 7,81,87,362/- deposited in cash, is added back to the taxable income of the assessee. In view of all these facts on record, it is held that the amount of ` 7,81,87,362/- in these alleged cash credits is nothing but the unaccounted income of the assessee in the books by way of cash deposits in different account as appearing Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 5 in the annexure appended to this order. Same is therefore, added back to his total income. Since the assessee concealed the particulars of this income penalty proceedings under Section 271(1) (c) of the Act are to be initiated separately for concealing the particulars of income.” 7. The findings recorded by the CIT(A) in his order dated 16.4.2010, Annexure A.2 are as under:- “3.4 I also do not agree with the learned counsel that the decision of the Hon'ble Rajasthan High Court in the case of Smt. Harshila Chordia v. ITA reported in (2007) CTR (RAJ) 208 (supra), helps the case of the appellant. In that case the Hon'ble Tribunal had found as a fact that the assessee was receiving money from the customers against which delivery of vehicles was made. It was accordingly held there that such cash deposits were self explanatory and would not attract Section 68 of the Act. However in the case of the appellant question of receiving advances against subsequent delivery of any other goods etc. was not found to be a fact on the basis of material whatsoever brought on record. Therefore, the ratio of this decision would further not help the case of the appellant. 4. Next in the written submissions by referring to the decision of the Hon'ble Mumbai High Court in the case of Commissioner of Income Tax, Poona v. Bhaichand H.Gandhi reported at 141 ITR 67 and the decision of the Hon'ble Chandigarh bench of ITAT in the case of Ms. Mayawati v. Dy. CIT reported in (2008) 19 SOT (Delhi), the learned counsel has contended that bank pass book supplied by the Bank to an assessee cannot be regarded as the book of the assessee and, therefore, such passbook does not fall within the ambit of Section 68 of the Act. However here also I am not in agreement with the learned counsel. First of all it is not the case of the appellant that books of account were not maintained. The observation of the AO in this case has been that such books of Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 6 account were not produced. In answer to question No.5 of the statement of Shri S.K.Sharma recorded by the AO on 14.12.2009 and which has been reproduced in the assessment order, Shri Sharma has stated that 'record of clients is as per books of account'. In answer to question No.6 wherein the AO asked to provide the books of account Shri Sharma had stated that 'I will provide it on tomorrow i.e. 15.12.2009'. Again with regard to the query in respect of cash deposited as per books of account on behalf of the clients, in answer to question No.8 of the statement Shri Sharma had stated that the details were there and that he would check from the books of account and provide the same. The answer to these questions clearly show that the appellant did maintain the books of account. It is therefore, implied that the deposits made in the bank accounts were also entered in these books of account of the appellant. Accordingly though in the absence of the books of account the AO has made the basis of addition to be the deposits in the bank account, this would tantamount to same as such deposits/credits would also appear in the books of account of the appellant which were somehow not produced before the AO. The AO was therefore fully justified in invoking the provisions of Section 68 of the Act in this case and the ratio of decisions relied upon by the learned counsel as above would not take the case of the appellant any further. 4.1 In view of the above discussion and also the observations of the AO in para 4 of the assessment order as reproduced in the preceding paragraphs, having not been controverted by the learned counsel, the decision of the AO to invoke the provisions of section 68 of the Act in the facts and circumstances of appellant's case is upheld in principle.” However, the CIT(A) sustained the additions by applying provisions of Section 68 of the Act but on the basis of peak credits maintained additions amounting to ` 17,66,000/- only out of total amount of ` 7,64,21,362/-. A Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 7 perusal of the order of CIT(A) clearly spells out that CIT(A) without recording whether there existed any nexus between various entries had allowed the benefit of peak credit which was legally not sustainable. 8. While dismissing the appeals of the assessees and accepting those of the revenue and reversing the aforesaid basis of peak credit, the Tribunal vide order dated 27.6.2013, Annexure A.3, noticed as under:- “21. The first issue to be addressed by us in the present facts and circumstances of the case is whether the provisions of section 68 of the Act are applicable to the facts of the present case. During the course of survey conducted under Section 133A of the Act on 31.10.2007, in the statement recorded, the assessee admitted to be engaged in the business of giving accommodation entries. The modus-operandi explained during the course of survey was that the assessee was receiving the amount in cash and the same were being returned vide cheques through bank accounts. However, during the course of assessment proceedings, the statement of the assessee was again recorded wherein when confronted with the bank statement of M/s Big Bull Commodities Pvt. Limited with Centurion Bank, Pakhowal Road, Ludhiana in which huge cash was deposited by various entries, the assessee in reply stated that the cash was deposited as per books of account on behalf of the clients. Vide query No.8, the assessee was asked to provide the names and addresses of the customers/clients who had deposited these amounts. The reply of the assessee in this regard was, 'If details are there, I will check from books of account and provide the same'. The assessee, thereafter was directed to produce atleast 10 persons who had deposited `1 lac and above in the bank account. The assessee explained that he will verify from record and let the Assessing Officer know about it. In reply to query No.10, the assessee claimed that cash is received from customers and same is deposited in bank. The Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 8 plea of the assessee before the Assessing Officer was that he was engaged in the business of commodities and query Nos.12, 13 were raised in respect of the commission received from Ludhiana Commodities Exchange. The reply of the assessee query No.13 i.e. 'Are you registered with Ludhiana Commodity exchange' was that 'only M/s Shubh Krishna of which HUF is the proprietor and I am karta of HUF is registered with LCE and other companies and firms in which I am Director or Proprietor are branches/traders of M/s Shubh Krishna Commodities'. The query No.14 was 'whether the said companies/firms who were the traders of M/s Shubh Krishna were paying any charges to M/s Shubh Krishna'. The reply of the assessee in this regard was that 'He would let the Assessing Officer know after checking the same Query No.16 to 19 and their answers were as under:- xx xx xx xx xx xx xx 22. A bare perusal of the statement recorded during the course of assessment proceedings reflects that the claim of the assessee to have changed. The assessee admits that only M/s Shubh Krishna was registered with Ludhiana Commodities Exchange and rest all the concerns were the branches or traders of M/s Shubh Krishna commodities. In respect of the cash deposit in the bank account of one of the concern, the assessee stated that it had received cash from various parties and the same was as per the books of account. The case of the assessee was that it was receiving cash from its clients. But before the Assessing Officer it was not the case of the assessee that it was engaged in providing accommodation entries. In respect of the entries not being through the exchange, the assessee claimed that client to client transactions were permissible as commercial transactions. The statement was continued on 22.12.2009 and as per query No.24, there was a specific query raised to explain various cash credits/deposits in the bank accounts of different companies in which the assessee was the Director and the Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 9 assessee was also asked to give source of cash deposits in various accounts. In reply to the same, a short reply was given by the assessee that it is the same as what is stated on 15.12.2009. At the conclusion of recording of the statement, the assessee stated that he would further explain relating to the cash, during the course of assessment proceedings. However, the assessee failed to produce the books of account nor give any explanation vis a vis the source of cash deposits in the bank account. In the absence of any explanation or any evidence being produced by the assessee, the onus cast upon the assessee not being discharged, the said cash credits are to be included as income of the assessee in view of the provisions of section 68 of the Act. Xx xx xx xx xx xx xx xx 24. Under the provisions of section 68 of the Act, it is provided that where the assessee offers no explanation about the nature and source of the credits in the books of account, all the amounts so credited or where the explanation offered by the assessee is not satisfactory in relation to the same, then such credits may be charged to tax as income of the assessee for that particular previous year. Admittedly, in the case of the assessee, various amounts in cash are deposited in the bank accounts of the assessee and the onus was upon the assessee to explain nature and also the source of the said cash deposits. The assertion of the assessee in this regard was that it was the amount received from clients. However, the assessee failed to give the list of such persons who had advanced the said cash to the assessee. The assessee even failed to bring on record any evidence to prove its stand that it was the amount received from such persons who were his clients. The assessee failed to file any confirmation in respect of the said cash credits nor any of the persons were produced for examination before the Assessing Officer, though specific direction in this regard was given by the Assessing Officer within the course of recording Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 10 of statement of the assessee, during assessment proceedings. The assessee even failed to produce the books of account. In the absence of the assessee having discharged his onus of proving the identity, credit worthiness and genuineness of the cash transaction of the cash credits in the bank account, we find no merit in the plea of the assessee in this regard and dismiss the same. 25. Another plea raised by the learned AR before us was that as the assessee was engaged in giving accommodation entries, only commission should be included as income of the assessee. Admittedly, while recording the statement during the course of survey, the assessee had stated that it was engaged in the business of giving accommodation entries. However, during the course of assessment proceedings, the assessee did not raise any submissions in this regard and on the other hand, the assessee time and again in the course of statement recorded during the assessment proceedings, pointed out that the cash deposited in the bank account was as per entries in the books of account and the same would be explained from the books of account. The plea of accommodation entries was not put to the Assessing Officer. However, before CIT(Appeals), a plea was raised that only commission is to be added in the hands of the assessee in view of various judicial precedents. A perusal of the order of the CIT(Appeals) does not reflect any findings on this issue and issues addressed by the CIT(Appeals) were whether provisions of section 68 are applicable and in the alternative, whether peak credit is to be applied in the hands of the assessee. The assessee in this ground of appeal raised before the Tribunal has not raised any such issue of the commission income being included in his hands. Only two issues have been raised i.e. invoking of provisions of section 68 of the Act and confirmation of addition of ` 10,55,260/-. The issue of whether the assessee is engaged in giving accommodation entries or not is a purely factual issue which has not been raised before the Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 11 authorities below i.e. during the course of assessment proceedings or even before the CIT(Appeals), the said issue has not been adjudicated. The plea of the assessee of admission of such new factual issue was not admissible at this stage of adjudicating of the appeal in the captioned years. We find no merit in the said plea of the assessee and the same is rejected. 26. We are in conformity with the order of CIT(Appeals) in holding that the provisions of section 68 of the Act in the present set of facts and circumstances of the case are applicable and we uphold the order of CIT(Appeals) in this regard. xx xx xx xx xx xx x 28.The next issue raised in the present appeals is in relation to the applicability of peak credit theory. In the facts of the present case, the said peak credit theory is not applicable as the assessee had deposited cash in the bank account and thereafter, cheques were issued to different parties. It is not a case where cash was deposited on different dates and in between, there were cash withdrawals from the different dates and in between there were cash withdrawals from the bank account. It is a case where there are deposits in cash but as against the said cash deposited, various cheques were issued and the assessee was unable to explain the source of cash deposited in his bank account. Rejecting the theory of peak credits applied by the Assessing Officer, we reverse the findings of CIT(Appeals) in this regard and restore the addition made by the Assessing Officer at ` 1,26,66,000/-. xx xx xx xx xx xx xx” 9. A perusal of the findings recorded by the authorities below clearly spells out that admittedly, various amounts in cash were deposited in the bank account of the assessee and the onus was upon the assessee to explain the nature and source of the said cash deposits. The assertion of the assessee in this regard was that it was the amount received from his clients. Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 12 However, the assessee failed to give the list of such persons alongwith confirmation in respect of the said cash credits nor any of the persons were produced for examination, who had advanced the said cash to him, before the Assessing Officer. The assessee also failed to bring on record any evidence to prove that it was the amount received from such persons who were his clients. The Assessing Officer had repeatedly provided opportunities to the assessee to produce the persons but they were not produced. The Tribunal had also noticed that inspite of opportunity having been provided to the assessee, in such circumstances, there was no justification to allow the appellant further opportunity to produce the persons. The parameters for leading additional evidence were not fulfilled, therefore, CM No.5693 CII of 2014 cannot be accepted and is accordingly rejected. Further, the Tribunal had rightly held that there were cash deposits in the bank account and thereafter cheques were issued to different parties and in such circumstances, the theory of peak credit could not be accepted. Moreover, the appellant had not been able to show that there existed any nexus whereby the amount deposited in cash had been withdrawn in cash and thereafter redeposited to take benefit under peak credit theory. 10. In respect of the issue regarding reopening in ITA No.81 of 2014, it may be noticed that once the additions were taxable under Section 68 of the Act, the reopening was validly initiated. The reasons for reopening recorded, as appearing at Pages 44 and 45 of Paper Book of ITA No.81 of 2014, read thus: “In this case the assessment was framed under section 143(3) of the Income Tax Act, 1961 vide order dated 18.12.2008 at an income of ` 42,420/- as against returned income of ` 11,622/-. Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.122 of 2014 (O&M) 13 During the assessment proceedings, information under Section 133(6) of the Income Tax Act, 1961 was called from the banks which reveals that the assessee has deposited cash amounting to ` 2,13,28,500/- in its bank account maintained with State Bank of India, Feroze Gandhi Market, Ludhiana. As in the assessee's own case for Assessment Year 2007-08, each cash deposit has not been verified and treating these to be the assessee's income from undisclosed sources added back to the income of the assessee. The amount of ` 2,13,28,500/- deposited in cash during the year under consideration also seems to be the income of the assessee company from undisclosed sources which has escaped assessment. I have, therefore, reasons to believe that income of ` 2,13,28,500/- has escaped assessment in this case for Assessment Year 2006-07 within the meaning of Section 147 of the Income Tax Act, 1961.” Moreover, from the perusal of the reasons recorded for reopening, it could not be said that the essential requirements for reopening were not fulfilled. Further, the assessee had never challenged validity of reopening before the Tribunal and, therefore, the claimed question does not arise from the order of the Tribunal. 10. In view of the above, no substantial question of law arises. The appeals stand dismissed. In view of the dismissal of appeals on merit, no order is required to be passed on the application filed under Section 5 of the Limitation Act, 1963 for condonation of delay in filing the appeal i.e. ITA No.122 of 2014. (Ajay Kumar Mittal) Judge May 12, 2014 (Jaspal Singh) 'gs' Judge Singh Gurbax 2014.06.10 13:41 I attest to the accuracy and integrity of this document High Court Chandigarh "