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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI KULDIP SINGH, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEShri K. Gopal Shri Ashish Kumar Deharia
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals)-47, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 23.09.2022 for the A.Y.2006-07.
Brief facts of the case are, a search and seizure action u/s. 132 of Income-tax Act, 1961 (in short “Act”) in the case of Shri Hassan Ali Khan
2 (A.Y: 2006-07) Faisal Ahmed Abbas and his wife Smt. Rheema Hassan Ali Khan was conducted on 05.01.2007 by the Investigation Wing, Mumbai. Simultaneously, search was also conducted in the case of the assessee. During this year assessee render services to various horse owners through the Royal Western India Turf Club as a professional horse trainer. Consequent to the search and seizure operation, notice u/s 153A of the Act was issued and served on the assessee and in response to the above said notice assessee filed return of income on 17.08.2007 declaring income of ₹.3,74,500/-. Further, notices u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee along with the questionnaire. In response Authorized representative of the assessee attended and submitted relevant information as called for.
3. The Assessing Officer observed that original assessment was completed on 31.12.2008 in which the addition relates to cash paid for purchase of Skoda Car and disallowance of setoff of brought forward losses were made and subsequently assessee filed appeal before the Ld.CIT(A) and ITAT. After considering the detailed submissions of the assessee ITAT set-aside these issues back to the file of the Assessing Officer to consider the submissions of the assessee and relevant cash
With regard to Ground raised by the assessee on the issue of addition of cash paid for purchase of Skoda car which is the issue pending before us. The Assessing Officer issued notice u/s. 143(2) and 142(1) on the set-aside assessment proceedings as per the direction of the ITAT. In this regard assessee has filed relevant information as called for by the Assessing Officer. After considering the submissions of the assessee Assessing Officer rejected the submissions of the assessee with the following observations: -
“i. The cash flow statements presented are not audited. Even considering that, as discussed earlier, the assessee has not maintained a single cash flow upto any given point of time, and has presented it as per his requirements. ii. The assessee has not produced any evidence to buttress its claim of cash inflows and outflows. In the cash flow statement, there are many entries of advances, bank withdrawals, expenses incurred etc, however the assessee has not provide any document to substantiate it. The assessee is thus not able to prove the entries in his cash flow statement. iii. Even considering these entries, the treatment of the source of cash has not been explained, and how they have been accounted in books or taxability. Further the Ld. DR during the appellate proceedings had also pointed out that Capital Account shows personal withdrawal of Rs 1,01,831 only.
4 (A.Y: 2006-07) Faisal Ahmed Abbas iv. In conclusion, the cash flow statement prepared and presented by the assessee is not verifiable and credible, to warrant the allowance of credit for the purchase of car. The claim of the requisite cash availability for the purchase of car, Rs 4,31,000, can only be allowed if the cash flow statement is audited or verifiable or substantiated with proofs. The assessee has failed to do so.”
5. Accordingly, he sustained the addition made to the income of the assessee. Aggrieved assessee preferred an appeal before the Ld.CIT(A), before Ld.CIT(A) assessee made detailed submissions vide letter dated 06.07.2022, for the sake of clarity it is reproduced below: -
“The AO writes 4 reasons/basis for making additions on page no. 5 of his order as under Quote: (i) The cash flow statements presented are not audited. Even considering that, as discussed earlier, the assessee has not maintained a single cash flow upto any given point of time, and has presented it as per his requirements: Unquote: Our Submissions: Firstly, an individual is not required to prepare cashflow and get it audited under Income Tax Act, 1961. The AO has never asked for audited cash flow at the time of assessment proceedings. Further the meaning of cash flow has not been clearly understood by the AO. It is summarized statement which contains head-wise/grouping wise summary of inflow and outflow of cash. The H'ble Tribunal directed the AO to verify the availability of cash. The AO has stated "The assessee has not maintained a single cash flow up to any given point of time, and has presented it as per his requirements" The meaning of the above statement is not clear. In all the submission made in past, the prime fact, cash book was 5 (A.Y: 2006-07) Faisal Ahmed Abbas presented to all the authorities but did not find any mention in any of the orders. The 'A' is not required to furnish cash flow unless it is specifically asked by the officer. In this case he never asked for audited cash flow. We mentioned in brief what is submitted to him vide letter dated 22/11/2017. (a) Summary of cash flow. (b) Details of cash inflow for the said period. (c) Details of cash outflow for the said period. (A) Summary of Cash Flow as at 15/12/2005 Particulars Amount (Rs.) Opening balance 2,34,571/ Cash inflow 15,48,579/ Cash outflow 13,13,344/ Closing balance 4,69,806/ The explanation of cash Inflow for the said period: (B) Particulars Amount (Rs.) Amount (Rs.) Withdrawn from Banks Standard Chartered Bank 10,09,423/- 11,35,823/- Central Bank of India HDFCBank Bank of India 51,400/- 25.000/- 50,000/- Income as declared and accepted by the 3,50,555/- department Winning from House Racine; Other minor cash receipt Vijay Borde Hasen Alt 856/- 62156/- Khan Rheema Khan Neda Abbas RWITC 20.000/- 18.000/- 10.000/- 13.900/- Total cash inflow as on 15/12/2005 (A) 15,48,579/-
Further explanation for the cash inflow: 1. Cash in hand-Rs.1,81,827/- The books of accounts have been accepted for both the years Le. 2004-2005 and 2005-2006. There cannot be any dispute in the matter.
6 (A.Y: 2006-07) Faisal Ahmed Abbas 2. Withdrawal from Bank Rs. 11,35,823/- The statement of all banks have been submitted earlier. Those statements clearly mention the withdrawal of cash. Moreover, books were presented at the time of assessment. Further, the books of accounts were also accepted as the assessment was made U/s.143(3).
Winning from race Rs. 3,50,000/- The income was duly offered for the year at Rs. 3,50,000/- for the period ended on 15/12/2005. The said fact was accepted at the time of assessment. There was no dispute as regards to the earning of such income and was accordingly taxed. As stated the assessment was made u/s 143(3) and books of accounts were presented and duly accepted.
4. Other miscellaneous receipt Rs. 62,756/- These are small receipts and were duly accepted by the AO during the assessment. The Ld. CIT (A) in first appeal also accepted. The totals receipt including the opening balance stands at Rs. 15,48,579/- (C) Details cash outflow for the said period: 5. The assesse incurred various payment and expenditure aggregating to Rs. 13,13,344/- The breakup of such expenditure is as under: Outflow of cash Amount (Rs.) Amount (Rs.) Expenses Salaries 5,53,053/- Motor Car expenses 8,352/- Mediclaim 6,83 l/- Salary Payable 51,997/- Miscellaneous Expenditure 370/- Advance Office Expenses 32,200/- 6,52,533/- Paid to creditors Ajit 24,565/- Alanka 349/- D Dattoba 11,850/- Ambalal 25,000/- Draupadi 8,920/- Gallops 2,250/- Rajaram 3,550/-
7 (A.Y: 2006-07) Faisal Ahmed Abbas Outflow of cash Amount (Rs.) Amount (Rs.) Dr. R VLagad 735/- Raghunath Khobkar 10,000/- Helpro Health 3,000/- Deepak 24,262/- 1,14,511/- Paid for Purchase of Motor Car 4,31,000/- Cash Deposited in Bank 20,000/- Drawings 95,000/- Total Cash Outflow as on 15.12.2002 (B) 13,13,344/- Please note that: 1. Cash book was presented at the time of each proceedings. It is submitted that cash books is a better/higher evidence as it gives balance on day to day basis. Moreover, cashflow is a summarized form. The "A" is at al loss to understand how cash flow for that matter audited one is a better evidence than cash book.. The AO states that Quote: Appeal No. CIT(A) 1, Mumbai/10565/2017-18 The assessee has not produced any evidence to buttress its claim of cash inflows and outflows. In the cash flow statement, there are many entries of advances, bank withdrawals, expenses incurred etc, however the assessee has not provide any document to substantiate it. The assessee is thus not able to prove the entries in his cash flow statement. Unquote: Our Submissions The books of accounts have been accepted for both FY 2004-05 & 2005-06 (1) The bank statement for the year have been provided where in cash withdrawals of Rs. 11,35,823/- is available with AO in his file. (2) The AO has accepted winning from horse racing at 3,50,000/- (3) The minor cash receipt of Rs. 62,756/- is accepted by the AO at the time of assessment and also by Ld. CIT (A) in appellate proceedings. Outflows: Expenses Rs. 6,52,833/- These payments have been accepted as no addition have been made on account of expenditure
8 (A.Y: 2006-07) Faisal Ahmed Abbas The demand of cash flow & thereafter audited cash flow is merely an excuse for making additions when cash book itself was presented at the time of each proceedings. As stated earlier cash flows cannot be at higher platform then that of cash book. Cash flows are summary of cash for the period whereas from cash book one can have balance of each day. The AO made the addition as audited cash flow was not provided which he never asked. Moreover, this is not the requirement under Income Tax Act unless asked for. The H'ble Tribunal directions is as regard to the availability of cash with the 'A' when payment was made which can only be verified from cash book and not cash flows. We have submitted all the details/information/confirmations vide our various letters and in particulars 3 letters dated 10/12/2008, 26/09/2017 and one dated 22/11/2017. The said submissions are enclosed. Quote: The AO states that (iii) Even considering these entries, the treatment of the source of cash has not been explained, and how they have been accounted in books or taxability. Further the Ld. DR during the appellate proceedings had also pointed out that Capital Account shows personal withdrawal of Rs. 1,01,831 only. Unqoute: Our Submissions: In para (10) all details submitted vide various letters as stated in said para explains everything. The books were produced. Income and expenditure were accepted. Books were not rejected, source of cash was explained and the income was also accepted. If the contention of AO is to be accepted then he must answer how come income/expenditure/loans/creditors were accepted. The withdrawals of Rs. 1,01,831/- is shown in cash/bank book as withdrawals. Quote: The AO states that (iv) In conclusion, the cash flow statement prepared and presented by the assesse is not verifiable and credible, to warrant the allowance of credit for the purchase of car. The claim of the requisite cash availability for the purchase of car, Rs. 4,31,000, can only be allowed if the cash flow statement is audited or verifiable or substantiated with proofs. The assessee has failed to do so. UnQoute: Our Submissions:
9 (A.Y: 2006-07) Faisal Ahmed Abbas 1. The AO has accepted books of accounts.
2. The assessment was made U/s 143(3).
3. The 'A' has submitted details of all income and expenditure vide various letters submitted at the time of assessment proceedings.
4. Confirmation of loans advances and creditors were also submitted.
No addition is made on account of disallowance of expenditure.
No addition was made on account of unexplained income.
7. The cash flow was submitted to AO.
8. The AO never asked for audited cash flows which is otherwise not required of the law.
9. If all details i.e. Income, expenditure, assets and liabilities were accepted, it is for AO to ask in writing what he wants to verify further.
10. Absence of audited cash flows is mere an excuse to make addition.
11. If one has to go by what he has stated, the assessment proceeding should have been held void and nullity which he did not. From the above submission and the evidence as submitted it is clear that the additions for audited cash flow were without any basis, logics and without application of mind. Also it was mere an excuse for the sake of making addition. In the circumstances it is prayed that the disallowance made on account of Skoda car be deleted.”
6. After considering the submissions of the assessee Ld.CIT(A) rejected the same by observing that assessee has not proved and explained the sources through which he has maintained lavish life style, even though assessee has declared very low drawings of ₹.95,000/- during the year. By applying concept of human probability and by relying on decision in the case of DCIT v. Smt Phoolwati Devi (2009) 314 ITR AT 10 (A.Y: 2006-07) Faisal Ahmed Abbas 1 Delhi), Sumati Dayal v. CIT (1995) 214 ITR 801 and CIT v. Durgaprasad More 82 ITR 540 (SC) he has dismissed the appeal of the assessee without even discussing the issue under consideration before him.
Aggrieved assessee preferred appeal before us, raising following grounds in its appeal: -
“The CIT (A) erred in making disallowance of ₹.432,196/- paid in cash for purchase of Skoda car. The appellant reserves the right to add, to alter, or amend the grounds of appeal at or before the hearing of the appeal”
At the time of hearing, Ld. AR of the assessee submitted that it is second round of appeal before ITAT. He brought to our notice Page No.5 of the Paper Book which is the earlier ITAT order and he brought to our notice the decision of the Coordinate Bench and the various reasons for setting aside the issue back to the file of the Assessing Officer. Further, he brought to our notice Page No. 3 of the Assessment Order and explained that assessee has taken loan from finance company for ₹.9,34,000/- and balance was paid in cash and he brought to our notice the reason for rejection of plea of the assessee by the Assessing Officer that the assessee has not proved cash flow amounting to ₹.4,32,196/-. In this regard he brought to our notice that assessee has filed cash flow
11 (A.Y: 2006-07) Faisal Ahmed Abbas statement for the period 01.04.2005 to 16.12.2005 with the closing balance of ₹.9,00,806/-. However, Assessing Officer once again rejected the plea of the assessee with the observation that cash flow is not audited. In this regard he brought to our notice Page No. 23 to Page No. 26 of the Paper Book wherein assessee has filed a cash flow statement wherein assessee has explained the various withdrawals from bank and various expenditure incurred by the assessee and also cash deposited for purchase of car on 09.12.2005 and 15.12.2005. He prayed that the assessee has properly explained the source of the cash and its utilization.
On the other hand, Ld. DR relied on the orders of the lower authorities.
Considered the rival submissions and material placed on record, we observe that assessee has filed a cash flow statements for the period from 01.04.2005 to 16.12.2005 with a closing balance of ₹.9,00,806/- before the Assessing Officer and also the same statement was submitted in the earlier proceedings before Coordinate Bench. It is fact on record that the assessee has filed detailed ledger copy of the cash on hand which contains the details of cash withdrawal from bank and its utilization. It clearly indicates that assessee had sufficient cash balance at the time of making
12 (A.Y: 2006-07) Faisal Ahmed Abbas the payments for purchase of car. The Assessing Officer has rejected the plea of the assessee with the observation that the cash on hand ledger submitted by the assessee is not audited. Looking at the income declared by the assessee it does not require any audit of Books of Accounts. Therefore, the Assessing Officer cannot insist on audit of the cash statements submitted by the assessee, if at all, required Assessing Officer himself could have verified with the bank statement. We also observed that Ld.CIT(A) also has not dealt with this issue and merely rejected the plea of the assessee by observing the life style of the assessee which is not the subject matter before him. Accordingly, we do not find any reason not to delete the addition made by the Assessing Officer with the observation that at that point of time assessee had enough cash to make the payments for purchase of Car. Accordingly, ground raised by the assessee is allowed.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 03rd April, 2023