KANISHKA GUPTA,,HYDERABAD vs. ACIT CENTRAL CIRCLE-3(1), HYDERABAD

Appellant by : Shri Narahari Biswal. Respondent by : Shri K.P.R.R. Murthy. Date of Hearing : 09.01.2023 Date of Pronouncement : 11.01.2023 O R D E R Per Bench : The captioned three appeals filed by different assessees are against the separate orders passed by the learned Commissioner of Income Tax (Appeals) – 11, Hyderabad for the assessment year 2018-19.

2. The grounds raised by the respective assessees in both the appeals i.e. and 120/Hyd/2022 are same and hence, we are reproducing the grounds of only, for the sake of brevity and the same read as under :

“1. The order of ld.CIT(A) is erroneous both on law and on facts.

2. The ld.CIT(A) erred in confirming the addition of Rs.35,00,000/- made by the Assessing Officer u/s 69B.

3. The ld.CIT(A) erred in upholding Assessing Officer’s rejection of appellants explanation regarding return of advance of Rs.35,00,000/- in cash which was paid to M/s. Aditya Constructions for purchase of villa without making cross verification with this company and without considering the fact that such claim and documentary evidences were filed before the ADIT(Inv.) in post search enquiry.

4. The ld.CIT(A) erred in agreeing with Assessing Officer’s rejection of appellants claim that the source of cash was withdrawal from partnership firm.

5. The ld.CIT(A) erred in rejecting appellants explanation that money was withdrawn from firm M/s. Supreme Agro which was given in cash to M/s. Adithya Construction Ltd which was later on returned to appellant.

6. The ld.CIT(A) erred in rejecting appellants claim that section 69B is not applicable to the facts of the case.

7. The ld.CIT(A) erred in confirming the addition though same amount has been treated as unexplained cash credit in the hands of the firm M/s. Supreme Agro by the Assessing Officer which was confirmed by the ld.CIT(A) in his appeal order for A.Y. 2018-19 in case of the firm.

8. The ld.CIT(A) erred in upholding Assessing Officer’s computation of tax u/s 115BBE.

9. The ld.CIT(A) erred in rejecting appellant’s claim that interest u/s 234A and 234B are to be levied on returned income in place of assessed income as held by courts.”

“1. The order of ld.CIT(A) is erroneous both on law and on facts.

2. The ld.CIT(A) erred in upholding the order of the Assessing Officer where the Assessing Officer has rejected appellants claim of sale of scrap which was accounted for in the books of accounts.

3. The ld.CIT(A) erred in upholding Assessing Officer’s treatment of sale proceeds of scrap of Rs.70,00,000/- as unexplained cash credit u/s 68 without any valid reason even though it was accounted for as business income in the books of accounts of the appellant firm.

4. The ld.CIT(A) erred in upholding Assessing Officer’s computation of tax u/s 115BBE.

5. The ld.CIT(A) erred in rejecting appellant’s claim that interest u/s 234A and 234B are to be levied on returned income in place of assessed income as held by courts.”

“Whether the addition made by the assessing officer / ld.CIT(A) to the income of the assessee was in accordance with law not?, 4.1 Facts of the case, in brief, are that the assessee filed his return of income for AY. 2018-19 on 20.03.2019 declaring total income of Rs.14,64,590/-. Search and seizure operations under Section 132 of I.T. Act was carried out in the case of M/s. Clarion Agro Products Pvt Ltd and others on 02.05.2018 in which the assessee was a Director. Consequent to search, the assessee’s case was centralized and a notice u/s 153A dt.05.03.2019 was issued to the assessee and in response to the notice u/s 153A, the assessee filed his return of income on 13.04.2019 declaring total income of Rs.14,64,590/-. Thereafter, the Assessing Officer had completed the assessment u/s 143(3) r.w.s. 153A by making an addition of Rs.35,00,000/- u/s 69B of the Act and thereby assessed the total income of the assessee at Rs.39,23,910/-. The assessing officer in paragraphs 4.0 to 4.5 had decided the issue in the following manner:-

4.0 During the course of search in the business premises of M/s Clarion Agro Products Pvt Ltd., certain loose sheets (pages 3 85 4) evidencing payment of cash of Rs.70 lakhs towards purchase of property were found and marked as A/CAPPL/OFF/1. As per these sheets, Rs.20,00,000/- and Rs.50,00,000/-were paid on 09.08.2017 and 31.10.2017 to Aditya (Constructions Ltd) towards advance for purchase of Villa No.39 8; 40, in Casa Grande, Narsingi, Hyderabad. When questioned on the above payments, the assessee in response to summons issued u/s 131 during the course of post-search enquiries, submitted that the cash paid was received back. The operative portion of the submission is as under:

1. In the course of search at Office premises of M/s Clarion Agro Products Pvt Ltd on 3/ 5/ 2018 two loose sheets were seized. These loose sheets were money receipt issued by Sri B. Venkat Rami Reddy of Sri Aditya Construction Pvt Ltd for receipt of Rs.70,00,000/ - in cash on two dates from Kanishk Gupta and Ronak Gupta towards purchase of two villas in Aditya Casa Grande projects of Sri Aditya Construction Ltd.

These villas are under construction. We accept that these payments were made in cash. The source of this cash was unaccounted business income of M/s Supreme Agro in which Kanishk Gupta and Ronak Gupta are partners. However Sri Reddy returned cash of Rs.70,00,000/ - on the ground that as advised by his Chartered Accountant no cash can be received in excess of Rupees two lakhs towards sale of any property as per new provisions of Income Tax Act effective from 1.4.2017. This cash was with us which has been seized in course of search on 2.5.2017.

However, there was an entry with regard to cash payment of Rs.35,00,000/-to the assessee on 31.03.2018. Since this payment of cash is in the month of March, that too on the last day of the financial year, no credit can be given for the cash payments made by the assessee in the months of August 86 October, 2017. 4.3 Though absence of any cash withdrawals in the capital account of the partners from the firm, M/s Supreme Agro, during the months of August / October 2017 is sufficient to rebut the claims of the assessee that they have not withdrawn any cash from the firm, a further look towards the cash book of the firm was also made. The cash book of M/s Supreme Agro evidences cash balance of Rs.1,75,378 as on 08.08.2017. Likewise, the cash balance as on 30.10.2017 is Rs.1,13,141/- and the same is Rs.72,165/- as on 31.10.2017. The firm M/s Supreme Agro, is a new firm established during the year only and the sales started from 22.11.2017. Even otherwise, as per the cash book, there are no worthwhile cash transactions to withdraw Rs.70 lakhs at any point of time till 31.10.2017 or thereafter, except that there was a debit of Rs.70 lakhs towards scrap on 31.03.2018. Therefore, the claim of the assessee that they withdrew cash from their firm M / s Supreme Agro has no basis and the assessee had not furnished any other material to substantiate cash withdrawals from the firm with any evidences. 4.4 The claim of the assessee that they received back the cash during November, 2017 from the builder has nothing to do with explaining the sources of cash availability in August 85 October, 2017 and will not alter the position of cash payments made during August / October. 4.5 Therefore, since the assessee failed to adduce evidences with regard to the sources for the cash payment of Rs.70 lakhs to M/s Aditya Constructions towards purchase of two villas along with his brother, 50% of the above cash payments, i.e., Rs.35,00,000/- is considered in the hands of the assessee as unexplained cash investment u/s 69B.”

Further, the submissions of the appellants are contradicting. At one point, it was stated that Rs.70 lakhs pertain to unaccounted cash sales during the year and at another point it was stated that Rs. 70 lakhs pertain to scrap sale. The appellants are only trying to put a convenient argument as it appears that the partnership concern seems to have a business loss and the appellants are trying in vain to create the same cash as part of business receipts to escape the taxation as well as the provisions of Section 115BBE which puts higher quantum of tax on unaccounted cash. Just because the appellants, in their firm MOs Supreme Agro, have passed an entry in the firm's books of a sum of Rs. 70,00,000/ - does not become a bonafide explanation and further just because the appellants have offered the same as business income in the hands of the firm and further taxed by the Assessing Officer in the hands of the firm as unexplained credit, does not become a bonafide source in the hands of the appellants. The appellants are trying to escape taxation through a manufactured story and that does not entitle them to a right of telescoping of unexplained credit taxed in the hands of the firm, in their respective hands. The appellants and the firm are different entitites and therefore needs to be taxed separately in their own hands especially when the nature is different and it is important to note that when the incriminating documents of Rs.70,00,000/ - pertaining to both the appellants were found, the same were manufactured into sales by these appellants in the hands of the firm and during the course of Search, none of the entries of so claimed cash sales of scrap or otherwise or partners' withdrawal were found and the evidence of scrap sales and its respective source has not been established in any manner but for a general statement. The submission without bonafide evidences is just a verbal escape route devoid of merits and only reflects the lack of bonafide explanation for the source of Rs.70 lakhs and the appellants' malicious intention to escape the special rates of taxation as per provisions of Section 115BBE. Considering the appellants' explanation of sources of Rs.70 lakhs being income from sale of scrap, it is beyond logic and comprehension that for sale worth Rs. 70 lakhs, the appellants did not maintain even basic details like name of person etc to whom. the scrap was sold and could not even furnish any explanation as to the nature of scrap sold. Further, it is also to be noted that scrap sale warrants various state taxes like excise duty etc which the appellants did not furnish to support his contention. Therefore, it is clearly a case of self-serving story created by the appellants to explain the sources of investment and avoid the rigors of Section 69B and subsequent taxation as per Section 115BBE. It is very clear that the payments have been made by both the appellants Ronak Gupta and Kanishk Gupta and there is no mention of the firm in the seized documents. The appellants are only trying an argument of convenience as M/s Supreme Agro is in losses and by ascribing the seized cash to the firm, the intent is only to escape taxation. The appellants have failed to prove its bogus claim with any basic evidences also and therefore the same is rejected accordingly. The Assessing Officer has rightly observed that the return of cash has nothing to do with the source of cash at any point in time and the source needs to be explained by the appellants. The appellants have stated that the scrap sales were not recorded and were subsequently recorded is all a bogus story of convenience as already observed that there are various levies on scrap sales and also there has to be reason for generation of scrap, whereas the appellants are just reiterating submissions without giving any justification or evidences, in view of the same, the additions made by the Assessing Officer are confirmed. The Assessing Officer has rightly added the amounts u/s 69B. The relevant provisions of Section 69B are reproduced as under: Amount of Investments, etc., not fully disclosed in books of account. 69B. Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may he deemed to be the income of the assessee for such financial year. In the instant case, the appellants have made the investment in cash towards purchase of property and the explanation regarding the sources was held to be non-satisfactory by the Assessing Officer and therefore, the Assessing Officer has rightly made the additions u/s 69B. Further, the Assessing Officer has rightly invoked the taxation of the same u/s 115BBE which reads as under: 115BBE. j(1) Where the total income of an assessee,— a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income- tax payable shall be the aggregate of— i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent: and ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).J (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance for set off of any loss/ shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) /and clause (b)] of sub-section (1).J In the present case, the Assessing Officer has determined the additions u/s 69B and taxability u/s 115BBE and therefore, the applicability of the Section 115BBE(1)(b) is valid." From the above, it is clear that: a credit entry has been offered by the appellant of Rs.70,00,000/- as a front for the partners. However, this income has been offered by the appellant and the sources of the same are not proved by the appellant regarding the identity, genuineness and the bonafides of the transaction. No proof has been given regardinggenerating of scrap or the identity of the person to whom sales were made along with the proof of deposit of various state and central taxes along with proof of withholding tax. In the case of the appellant, the entry remained unproved within the meaning of Section 68 and the relevant provision of Section 68 is reproduced as under: "68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year :" The appellant has not been able to give any bonafide explanation for the sum of Rs.70,00,000/- credited in its P&L account and therefore, the addition has been rightly made u/s 68. Further, the Assessing Officer has rightly invoked the taxation of the same u/s 115BBE which reads as under:

115BBE.((1) Where the total income of an assessee,— a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of— ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause N.] (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance (or set off of any loss/ shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) [and clause (b)/ of sub-section (1)./ In the present case, the Assessing Officer has determined the addition u/s Section 68 and therefore the applicability of the Section 115BBE(1)(b) is valid. It would not be out of place to mention as adjudicated in the appeal of the partners of the appellant firm, no telescoping of the amount of Rs.70,00,000/- is allowable in the hands of partners as the appellant has offered the same in the P&L account and this credit has been doubted and thus was taxed u/s 1 15BBE. There are no proofs of the above sums being ever given to the partners and the documents seized only indicate the payments by partners for the said villas and the dates of payment made by the partners and the dates of credit entry on account of scrap generated do not match as nothing of this sort has been furnished. In view of the same, the addition is confirmed accordingly and the ground no.2, 3,4 and 6 are dismissed accordingly. The sum of Rs.70.00,000/- has been considered u/s 68, thus the same has to be removed from the computation of business income and the resultant business loss will increase accordingly. The Assessing Officer is directed to recompute the same. In view of the above directions, the ground no.5 is partly allowed. The ground no.7 pertains to levy of interest u/s 234A and 2348. The appellants stated that the Assessing Officer has levied interest u/s 234A and 234B on assessed income instead of returned income. The relevant provisions of Section 234A and 234B are reproduced as under:

234A. (1) Where the return of income for any assessment year under sub- section (1) or sub-section (4) of section 139, or in response to a notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and,— (a) where the return is furnished after the due date, ending on the date of furnishing of the return; or (b) where no return has been furnished, ending on the date of completion of the assessment under section 144, on the amount of the tax on the total income as determined under sub-section (1) of section 143, and where a regular assessment is made, on the amount of the tax on the total income determined under regular assessment, as reduced by the amount of, 2348(3) inhere, as a result of an order of reassessment or recomputation under section 147 or section 153A. the amount on which interest was payable in respect of shortfall in payment of advance tux /Or any financial year under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April next following such financial year and ending on the date of the reassessment or recomputation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment as referred to in sub-section (1), as the case may be; From the above provisions of Section 234A and 2348, interest is to be levied on the shortfall of the tax due on the assessed income. Therefore, the Assessing Officer has rightly levied the interest u/s 234A and 234B on the assessed income and thus the ground no.7 is dismissed accordingly. The ground no. 1 and 8 are general in nature and need no separate adjudication. To sum up the appeal is partly allowed.”

13. This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. The Chairman of the Settlement Commission has emphasised that the appellant did possess the winning ticket which was surrendered to the Race Club and in return a crossed cheque was obtained. It is, in our view, a neutral circumstance, because if the appellant had purchased the winning ticket after the event she would be having the winning ticket with her which she could surrender to the Race Club. The observation by the Chairman of the Settlement Commission that "fraudulent sale of winning ticket is not an usual practice but is very much of an unusual practice" ignores the prevalent malpractice that was noticed by the District Taxes Enquiry Committee and the recommendations made by the said Committee which led to the amendment of the Act by the Finance Act of 1972 whereby the exemption from tax that was available in respect of winnings from lotteries, crossword puzzles, races, etc. was withdrawn. Similarly the observation by the Chairman that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence.

14. In the circumstances, no case is made out for interference with the order passed by the settlement commission the appeals therefore fail and are accordingly dismissed with costs.”

Order pronounced in the Open Court on 11th January, 2022.