DY. COMMISSIONER OF INCOME TAX, CIRCLE - 01,, VARANASI vs. SHRI RAJA RAM KHEMKA,, KOLKATA

O R D E R

PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER:

I.T.A. No137/VNS/2020 Assessment Year:2017-18 2 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta 2. The grounds of appeal raised by Revenue in memo of appeal filed with Income-Tax Appellate Tribunal, Varanasi Circuit Bench, Varanasi (hereinafter called “the tribunal”) in for ay:2017- 18, reads as under: GROUNDS OF APPEAL “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in admitting additional evidences furnished by the assessee and not granting opportunity to the AO under Rules 46A of the Income Tax Rules, 1962 to give comments.

2. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs. 1,55,00,534/- made by the AO on account of unexplained cash credits /deposits u/s 68 of the I.T. Act, 1961.

3. Right is reserve to alter , modify and to file any fresh ground of appeal.”

3. The brief facts of the case are that the assessee e-filed his return of income on 27.03.2018 declaring returned income of Rs. 20,92,960/-. Thereafter, the case of the assessee was selected by Revenue for complete scrutiny assessment. Statutory notice u/s 143(2) was issued by AO on 26.09.2018 for compliance on 28.09.201, which was claimed by AO to have been duly served upon the assessee through his registered email. Thereafter , notices u/s 142(1) were issued by the AO from time to time which were claimed by the AO to have been duly served , and which the details are duly recorded by AO in the assessment order. The assessee , in response thereof, filed information and documents on e-proceeding at ITBA portal. On perusal of the information, material and documents furnished by the assessee in his e-ITR as well during assessment proceedings, it was noticed by the AO that the assessee has taken cash credits during the year under consideration which was confirmed from such persons from whom taken, however, some other cash I.T.A. No137/VNS/2020 Assessment Year:2017-18 3 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta credits/deposits received from unknown persons which did not confirm by the assessee. The details of such cash credits/deposits made in his various bank accounts were extracted by the AO in his assessment order (page 2), as under :

S.No. Name of Bank Account Number Unexplained cash credits in aggregation 1. HDFC Bank 02202790000114 Rs.61,24,622/- 2. HDFC Bank 02201000098245 Rs.33,94,774/- 3. HDFC Bank 02202320004757 Rs. 27,50,394/- 4. HDFC Bank 02191000096670 Rs. 13,55,255/- 5. SBI 00032112343207 Rs. 18,75,539/- Total Cash Credits Rs, 1,55,00,534/- In view of the above mentioned table, the AO observed that the assessee has taken cash credits/deposits in aggregation to sums of Rs. 1,55,00,434/- as recorded in his aforesaid five bank accounts for which the assessee failed to satisfy the mandate of Section 68 of the 1961 Act. The AO observed that the assessee has furnished neither his explanation nor any confirmations of such persons from whom such credits/deposits have been taken, to prove the genuineness of transactions and creditworthiness of such persons with their identity . Thus, for failure of the assessee to satisfy the mandate of Section 68, the AO treated such sum aggregating to Rs. 1,55,00,534/- as unexplained cash credits/ deposits u/s 68 of the 1961 Act which stood added by the AO to the total income of the assessee and taxed u/s 115BBE of the 1961 Act at the rate Assessment Year:2017-18 4 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta of 60%, vide assessment order dated 26.12.2019 passed by AO u/s 143(3) of the 1961 Act.

5b. The ld. Counsel for the assessee submitted in rebuttal that the additions were made by the AO based on the credits in the bank accounts. It was submitted that the ld. CIT(A) rightly deleted the additions as were made by the AO. It was submitted by ld. Counsel for the assessee that all the details were filed before AO and no additional evidences were filed by the assessee before ld. CIT(A). Our attention was drawn to the reply filed by the assessee before the AO during assessment proceedings , which is placed in paper book at page 12-18. The assessee has filed paper book containing 18 pages, which is placed on record in file.The assessee has also filed summary of details of amount received from the Debtors, Summary of Loan received back and the summary of credits received in all the five bank accounts. The same are placed on record in file. Prayers were made by ld. Counsel for the assessee to uphold the appellate order passed by ld. CIT(A) and dismiss the appeal filed by Revenue.

S.No. Name of Bank Account Number Unexplained cash credits in aggregation 1. HDFC Bank 02202790000114 Rs.61,24,622/- 2. HDFC Bank 02201000098245 Rs.33,94,774/- 3. HDFC Bank 02202320004757 Rs. 27,50,394/- 4. HDFC Bank 02191000096670 Rs. 13,55,255/- 5. SBI 00032112343207 Rs. 18,75,539/- Total Cash Credits Rs, 1,55,00,534/- Assessment Year:2017-18 7 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta Thus, the AO observed that with respect to aforesaid cash credits/deposits in the aforesaid five bank accounts of the assessee , aggregating to Rs. 1,55,00,534/- , the assessee has not given satisfactory explanation and the assessee failed to satisfy the mandate of Section 68 as the identity and creditworthiness of the persons from whom said amount was received could not be established ,nor the genuineness of the transactions for cash credit/deposits stood proved, and hence the AO made the addition of Rs. 1,55,00,534/- to the income of the assessee by invoking provisions of Section 68 read with Section 115BBE of the 1961 Act. The ld. CIT(A) deleted the entire additions. We have observed that the assessee has eight bank accounts, while the additions were restricted by AO to only five bank accounts, and that too with respect to the unexplained cash credits/deposits. It is important at this stage reproduce the reply filed by the assessee before the AO (page 12-18/paper book), which reads as under:

I.T.A. No137/VNS/2020 Assessment Year:2017-18 8 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta Assessment Year:2017-18 9 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta I.T.A. No137/VNS/2020 Assessment Year:2017-18 10 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta I.T.A. No137/VNS/2020 Assessment Year:2017-18 11 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta I.T.A. No137/VNS/2020 Assessment Year:2017-18 12 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta I.T.A. No137/VNS/2020 Assessment Year:2017-18 13 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta I.T.A. No137/VNS/2020 Assessment Year:2017-18 14 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta I.T.A. No137/VNS/2020 Assessment Year:2017-18 15 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta While going through the replies filed by the assessee before the AO during assessment proceedings ,it is observed that the assessee merely filed bank statements before the AO during assessment proceedings , but details were not furnished. In reply to query of the AO asking asssessee to explain (page 17/paper book-question no. 2)the sources of funds deposited in cash or credited on transfer/clearing etc, with supporting evidences to prove genuineness of transactions and creditworthiness of the persons from whom deposits/credits were taken,the assessee merely replied that no cash was deposited during the year in any of the bank accounts and there is no reference to other credits/deposits in the bank account. Thus, the assessee did not gave any explanations with respect to other credits/deposits in his bank accounts, With respect to query of the AO ( page 17/paper book-question no. 3) to explain purpose and nature of transactions entered into with respect to funds debited as withdrawal or clearing /transfer with supporting evidences to prove the genuineness of transactions, the assessee merely replied that the details are under preparation. Thus, it clearly establishes that the assessee did not replied to the specific queries raised by the AO to explain credits/deposits in the bank accounts as no explanation was furnished by the assessee to explain cash credits/deposits in the bank. There were in all eight bank accounts maintained by the assesse, while additions were restricted by AO to only five bank accounts, as rest stood accepted by the AO. Further, the AO restricted the additions only to unexplained credits/deposits in these five bank accounts, aggregating to Rs. 1,55,00,534/- appearing in five bank accounts of the assessee, by invoking provisions of Section 68 read with Section 115BBE of the 1961 Act . The claim is made by ld. Counsel of the assessee, that the AO did not specify as to which additions were made Assessment Year:2017-18 16 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta during assessment proceedings, as no details/break-up of cash credits/deposits in the bank accounts are mentioned in the assessment order , and the assessee is not aware of the breakup/details of specific additions made by the AO . Again the argument of the assessee does not hold merit as while replying before ld. CIT(A) which is emanating from the appellate order passed by ld. CIT(A) , wherein reply of the assessee was reproduced by ld. CIT(A) in his appellate order, the assessee has given before ld. CIT(A) explanation about the break-up/details of the amount each bank wise which was added by the AO to the income of the assessee, which clearly demonstrate that the assessee was fully aware of the specific unexplained credits/deposits in the five bank accounts as were added by the AO while framing assessment order. As is emerging from the record, that the assessee came forward and did gave reply / explanation before ld. CIT(A) explaining the transactions aggregating to the tune of Rs.1,55,00,534/- in these five bank accounts, but the ld.CIT(A) simply accepted the explanations filed by the assessee without verifying/ enquiring the truthfulness of explanation and its implication/bearing on the computation of the income for the impugned assessment , and also as to whether these explanations comply /satisfy with the mandate of Section 68 . For example, the assessee has declared total gross receipts/turnover of Rs. 11,29,048/- in his proprietary concern M/s Khemka Papers,and claim is made that turnover/business is declining, while in the bank account the assessee has now claimed that Rs. 73,07,872/- was on account of collection from Debtors including old debtors. It is was incumbent on the part of ld. CIT(A) to have verified the collection from old debtors, to have seen that income arising from transactions with these old debtors in the earlier years were offered to taxation by the assessee, and these are genuine transactions. Similarly, Assessment Year:2017-18 17 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta the assessee has claimed that there were refund of loan of Rs. 20,73,523/- from M/s Saarthak Vanijya India Limited, and it was incumbent on the ld. CIT(A) to have verified that the claim of the assessee is genuine. It is also claimed by the assessee that he received Rs. 5,32,655/- from the family members, it was again incumbent on ld. CIT(A) to verify the claim of the assessee. It is also claimed by the assessee that Rs.34,13,158/- was received from income tax refund/LIC Maturity/REIT maturity/security deposit refund, it was incumbent on ld. CIT(A) to have verified the genuineness of these transactions and whether the income component ,if any in the said transaction was offered by the assessee to taxation, so and so forth as there are other transactions of credit/deposits also reported by the assessee, which were also not verified by ld. CIT(A) as to the genuineness of the claim of the assessee and its chargeability to tax under the provisions of the 1961 Act. Thus , the ld. CIT(A) did not verify/enquire the truthfulness of explanations submitted by the assessee , and merely accepted all the explanations submitted by the assessee in toto, and deleted the additions. No such independent analysis was done by ld. CIT(A) of each of the explanation submitted by the assessee , and its bearing on computation of income for the year consideration, before deleting the entire addition of Rs. 1,55,00,534/- in toto. The ld. Counsel for the assessee has stated that these replies were also filed before the AO, but the reply filed by the assessee before the AO speaks just the opposite that no such detailed reply/explanation as was filed before ld. CIT(A) were furnished before the AO. It was for the assessee to have demonstrated that detailed reply filed before ld. CIT(A) was also filed before the AO, which in our considered view the records speaks just opposite what assessee is now contending. Even, ld. CIT(A) did not verify whether the reply which is Assessment Year:2017-18 18 DCIT,Circle-1,Varanasi, U.P. v. Shri Raja Ram Khemka,Kolkatta filed before him was ever filed before the AO , as the findings of the AO was categorical that the assessee has not filed details/explanations about credits/deposits to the tune of aggregate amount of Rs. 1,55,00534/-. Moreover, the ld. CIT(A) did not forwarded these explanations which were filed by the assessee for the first time before ld. CIT(A), to the AO for rebuttal/comments by the AO , as ld. CIT(A) did not call for remand report/comments/rebuttal from the AO . Adherence to rules of principles of natural justice and granting of fair hearing to both the parties is an important pillars of justice delivery system. Thus, there is clearly a breach of principles of natural justice in the instant case as the AO was not granted opportunity by ld. CIT(A) to rebut the claim of the assessee, as no remand report was called by ld. CIT(A) from the AO with respect to the explanations/detailed reply submitted by the assessee for the first time before ld. CIT(A). Thus,there is clearly a breach of Rule 46A of the 1962 Rules, and this appellate order passed by ld. CIT(A) is not sustainable. There were unexplained cash credits/deposits aggregating to the tune of Rs.1,55,00,534/- in five bank accounts of the assessee , as detailed by the AO in the assessment order, and the onus is squarely on the assessee to satisfactorily explain these credits/deposits in his bank accounts , as to that it satisfy the mandate of Section 68 of the 1961 Act and no income component embedded in these receipts/credits/deposits which is chargeable to tax has escaped assessment. Section 68 of the Act cast obligation on the tax-payer where any sum is found credited in the books of an tax-payer maintained for any previous year, and the taxpayer offers no explanation about the nature and source of credit thereof or the explanation offered by the taxpayer is found not satisfactory in the opinion of the AO, the entire sum so credited in books of the tax-payer may treated as income and charged to income-tax as income of the