PANNA LAL PRAJAPATI,MIRZAPUR vs. ITO, WARD 3(2), MIRZAPUR

A.Y. 2011-12 Shri Panna Lal Prajapati, vs. Income Tax Officer, Bhudev Dubey, Kai Gali, Ward-3(2), Mirzapur Bhatwa Ki Pokhari, Mirzapur PAN:AZEPS1524N (Appellant) (Respondent) Assessee by: Sh. Praveen Godbole, C.A. Revenue by: Sh. A.K. Singh, Sr. DR Date of hearing: 01.10.2024 Date of pronouncement: 27.12.2024 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal against the order of the ld. Addl CIT(A)-Kolkata passed under section 250 of the Income Tax Act, 1961 on 27.03.2024. The grounds of appeal are as under:

1. That in any view of the matter assessment made on income of the Rs. 12,73,650/- by order dated 26.12.2018 passed u/s 143 (3)/147 of the I.T. Act is bad both on the facts and in law.

2. That in any view of the matter the proceeding u/s 147 of the Act as initiated on the allegation that assessee has made cash deposit amounting to Rs.30,63,500/- in bank account which remain unexplained is not correct since the cash deposit are from disclosed sources hence the satisfaction recorded is not correct and there was no independent application of mind by the assessing officer before initiating proceeding u/s 147 of the Act.

3. That in any view of the matter the learned CIT Appeal was not correct in deciding the appeal ex-parte without providing reasonable opportunity to the assessee and the order not speaking order in the eye of law.

A.Y. 2011-12 Panna Lal Prajapati 4. That in any view of the matter addition of Rs. 10,35,000/- as made by the assessing officer without mentioning section under which addition is made and his action as confirm by CIT Appeal NFAC is highly unjustified.

6. That in any view of the matter finding and observation of both the two lower authorities with regard to addition of Rs. 10,35,000/- are incorrect and contrary to the actual facts of the case.

hearing of appeal.”

2. The brief facts of the case are that after observing that the assessee had made total cash deposit of Rs.30,63,500/- in his savings bank accounts at HDFC Bank Limited and Axis Bank Limited and another deposit in cash of Rs.10,35,000/-, the ld. AO issued a notice under section 148. No compliance was made by the assessee therefore, further notices under section 142(1) were issued. Subsequently, the assessee filed a return and therefore, a notice under section 142(2) was issued. The assessee submitted that he did the business of Metal Scrap and he had filed his ITR in compliance to the notice under section 148. Furthermore, he submitted that he had filed his returns under section 44AD as he was a very small trader. However, the ld. AO asked him to submit the details of the persons from whom he had purchased goods, so that his sales could be established and also to produce the books for verification, if they were maintained along with a narration of each entry in the bank accounts, for both deposit and withdrawal. In response, the assessee submitted that he was a small time trader who had accidently deposited his business receipts in a savings bank account. He further submitted that he did not have any books of accounts but he had managed to find some purchase bills which he was producing before the ld. AO. It was submitted that since he was primarily dealing with small traders, he used to receive the money in cash and then deposit 2 A.Y. 2011-12 Panna Lal Prajapati them after accumulation into the bank account. Furthermore, since he was dealing with traders mostly in rural areas, he would deposit the collections received from a number of them in bank account because it was not safe to carry cash. He submitted that he did not have any documentary evidence other than these purchase vouchers but since these were his business receipts, he may kindly be assessed to tax at 8% of the gross receipts. The ld. AO, on consideration of these purchase vouchers, conceded the fact that it could mean that he had done some business. However, since he had failed to furnish the details of narration of cash, he deemed it reasonable to disallow cash deposit made in excess of Rs.2,00,000/- or more in the HDFC Bank Account and accordingly made an addition of Rs.10,35,000/- to the income of the assessee on this account. The assessee filed an appeal before the ld. CIT(A), Allahabad on 3.02.2019. Subsequently, this appeal was migrated to the Addl CIT(A)-Kolkata who took it for consideration under the e-appeal scheme. The Addl CIT(A) records that he gave two opportunities to the assessee vide his letters dated 9.10.2023 and 11.03.2024 and also the fact that he received a submission which had been considered before deciding the appeal. The ld. Addl CIT(A), on consideration of the various grounds, observed that the assessee had neither provided the details of cash deposit in narration form, such as the source of the deposit or the purpose of withdrawal of his total cash deposits in both the bank accounts and that since he had not filed any documentary evidence in support of his submissions, the ld. Addl CIT(A) found it fit to confirm the additions.

3. Aggrieved with the said additions, the assessee is in appeal before us. Shri. Praveen Godbole, C.A. (hereinafter referred to as the ld. ‘AR’) appeared on behalf of the assessee and submitted that following a notice under section 147, the assessee had disclosed income of Rs.2,38,650/- on a turnover of Rs.30,63,500/- under the provisions of section 44AD of the Act. It was submitted that during the assessment proceedings, a copy of the bank account and other details had been filed and the Ld AO was not justified in making an addition to the tune of Rs.10,35,000/- as 3 A.Y. 2011-12 Panna Lal Prajapati unexplained deposit, when the entire deposits represented the sale proceeds of business and were duly covered by the turnover disclosed in the return. It was further submitted, that the ld. Addl CIT(A) had not given proper opportunity to the assessee and the order was not a speaking order in the eyes of law. It was submitted that if the assessment order was seen, it would confirm the fact that the ld. AO was himself convinced that the assessee was carrying on a business, but had even thereafter, added cash deposits of more than Rs.10,00,000/- as not explained which was contradictory, because once it had been accepted that the assessee had done business and bank deposits represent the sale proceeds, then it was not correct to make addition of part of the sale proceeds. Furthermore, the sales could never be the income of the assessee and therefore, the order was also bad in law on this account.

4. On the other hand Shri. A.K. Singh, Sr. DR (hereinafter referred to as the ld. ‘Sr. DR’) appearing on behalf of the assessee submitted that the assessee had not been able to substantiate the sources of deposit and therefore, the additions made by the ld. AO and confirmed by the ld. Addl CIT(A) were fully justified.

5. We have duly considered the facts and circumstances of the case. A perusal of the two bank accounts reveals that the cash deposits made into the bank account are either proceeded by or succeeded by payment of amounts to various parties based at Salem, Raipur, Rajaji Nagar or Delhi by cheque or some other transfer instrument. Perusal of the bank account also reveals that the assessee was making cash withdrawals in various parts of the country such as Bangalore, Kottayam, Salem, Raipur, Guahati and Ernakulam. It is, therefore pretty apparent from the examination of the bank accounts, that these bank accounts were being used for the purposes of business. The ld. AO has also not doubted the fact that these bank accounts were being used for the purposes of business. That being the case, the question that arises whether the assessee was entitled to taken shelter under the provisions of section 44AD, because if that were the case then the assessee would be 4 A.Y. 2011-12 Panna Lal Prajapati entitled not to keep books of accounts / documents since he was declaring income on a presumptive basis. The assessee filed his return under section 44AD, albeit in response to notice under section 148. Be that as it may, once the return was filed taking shelter of section 44AD and the ld. AO could not point out any reasons to deny the assessee the benefit of section 44AD, it does not make sense to take a portion of the business receipts and consider the same as unexplained only because they were above a certain threshold. If the ld. AO were to come to a finding that the assessee was not doing a business of the scale that could permit deposit of such amounts of cash as are deposited in the said bank account, then the additions may have been justified. But once the ld. AO, after examining bills and vouchers produced before him, accepted the fact that a business was being done and that the proceeds of that business were being deposited in cash into the said bank account, he could not, in our opinion, hold that cash deposited into that bank account over a particular threshold limit was unexplained only because the assessee failed to produce the necessary documentary evidences regarding the source of the same. We observed that the ld. AO did not make any enquiries with the parties to whom amounts were paid out of the said bank account to disprove the purchases made by the assessee. In the circumstances, the sales could not be doubted and insistence upon documentary evidences to substantiate cash deposits of an assessee filing a return under the provisions of section 44AD is not in accordance with what has been envisioned in the law. Accordingly, we delete the additions made by the ld. AO as the same are in the nature of an adhoc addition.