THE ACIT, CEN-CIRCLE-2,, ERNAKULAM vs. SRI. JAYAKRISHNAN A, THODUPUZHA, IDUKKI

Per CHANDRA POOJARI, AM:

These appeals filed by the Revenue are directed against the common order of the

CIT(A)-III, Kochi dated 17/09/2018 and pertain to the assessment years 2012-13

to 2014-15.

except for variance in figures:

1) The Commissioner of Income Tax (Appeals) while deleting the additions made on account of unexplained cash credits, overlooked the fact that a sum of Rs.3.17 Crores was withdrawn from banks for the purpose of construction of a bar hotel at Thodupuzha out of the total cash withdrawals of Rs. 6.44 Crores. This was evidenced by the copies of the cheques obtained from the banks and placed in file.

I.T.A. Nos.559-561/Coch/2018

2) The Commissioner of Income Tax(Appeals) while deleting the additions made on account of unexplained cash credits, has overlooked the sworn statement dated 7/8/2015 of Shri Rajendra Babu K.V. in whose name the bearer cheques was issued in most of the cases where in it was admitted that the signature on the bearer cheques belongs to him and the money was withdrawn as per the instructions of Shri A. Jayakrishnan, for the purpose of Hotel construction which was going on at Hotel Vysali.

3) The CIT(A) has erred in accepting the copy of the certificate obtained from the Thodupuzha Municipality, issued at a later date, stating that no hotel or commercial building construction was going on at Thodupuzha, during the period from 1/4/2011 to 31/3/2014, without verification of the same.

revealed large financial dealings between Shri, Sunil Kumar of Kollam and the

assessee. The assessee had accepted the following loans from the concerns

belonging to Shri Sunil Kumar @ Sunil Swamy.

Date A.Y Concern Amount .

15.09.2011 2012-13 Sabari Quality Foods Rs. 2,00,00,000/-

03.10.2011 2012-13 Sabari Quality Foods Rs. 1,44,00,000/-

21.10.2011 2012-13 Sabari Quality Foods Rs. 6,00,000/-

20.04.2012 2013-14 Sabari Switch Gears(P)Ltd. Rs. 1,25,00,000/-

I.T.A. Nos.559-561/Coch/2018 3.1. These credits appeared in assessee’s bank accounts with Kotak Mahindra

Bank, Thodupuzha Branch. A/c No. 15531. It was seen that the assessee had repaid

part of the loans in this year itself from the same bank as below:

Date Repayment Amount Cash Deposits prior to repayment

03.10.2011 Sabari Quality Foods Rs.10,00,000/-

03.11.2011 Sabari Quality Foods Rs. 2,50,000/-- 03.11.2011 Rs. 3,50,000/-

08.11.2011 Sabari Quality Foods Rs, 10,00,000/- 05.11.2011 Rs. 5,45,000/-

01.12.2011 Sabari Quality Foods Rs. 10,00,000/- 30.11,2011& Rs. 12,75,000/- 01.12.2011

01.12.2011 Sabari Quality Foods Rs. 2,50,000/-

03.02.2012 Sabari Quality Foods Rs. 2,50,000/- 03.02.2012 Rs. 2,50,000/-

04.02.2012 Sabari Quality Foods Rs. 10,00,000/- 04.02.2012 Rs. 10,00,000/-

05.03.2012 Sabari Quality Foods Rs. 2,50,000/- 05.03.2012 Rs. 2,50,000/-

06.03.2012 Sabari Quality Foods Rs. 10,00,000/- 06.03.2012 Rs. 10,00,000/-

30.03.2012 Sunil Kumar Rs. 80,00,000/-

Rs.1,40,00,000/- Rs. 46,70,000/-

3.2 In order to explain cash deposits, the assessee prepared a cash book. All the

cash deposits in bank accounts were explained as withdrawal from cash book and

deposits in cash book were explained as withdrawal from bank accounts.

Corresponding to the deposits of Rs. 12,75,000/- on 30.11.2011 and 01.12.2011,

I.T.A. Nos.559-561/Coch/2018 there were cash withdrawals shown in the cash book on these days. Similarly

corresponding to cash deposits in the cash book, there were withdrawals from the

various banks. Total cash introduced in the cash book is as follows:

Date Particulars Amount

20.04.2011 EAP Jewellery Rs. 30,00,000/-

20.04.2011 EAP Jewellery Rs. 1,20,00,000/- partners A/c

02.05.2011 Federal Bank A/c Rs. 1,65,000/- 169277

02.05.2011 Federal Bank A/c Rs. 14,85,000/- 169277

07.06.2011 Federal Bank A/c Rs. 10,00,000/- 169277

05.07.2011 Federal Bank A/c Rs. 20,00,000/- 169277

07.07.2011 Federal Bank A/c Rs. 30,00,000/- 169277

25.08.2011 Federal Bank A/c Rs. 22,00,000/- 169277

01.09.2011 Federal Bank A/c Rs. 5,00,000/- 169277

15.09.2011 Federal Bank A/c Rs. 6,05,000/- 169277

17.09.2011 ING Vysya A/c Rs. 25,00,000/- 15531

17.09.2011 ING Vysya A/c Rs. 25,00,000/- 15531

I.T.A. Nos.559-561/Coch/2018 17.09.2011 ING Vysya A/c Rs. 25,00,000/- 15531

17.09.2011 ING Vysya A/c Rs. 25,00,000/- 15531

26.09.2011 ING Vysya A/c Rs. 50,00,000/- 15531 01.10.2011 ING Vysya A/c Rs. 25,00,000/- 15531

03.10.2011 ING Vysya A/c Rs. 20,00,000/- 15531

08.10.2011 ING Vysya A/c Rs. 24,00,000/- 15531

22.10.2011 ING Vysya A/c Rs. 6,00,000/- 15531

30.12.2011 Kumaly gate Rs. 6,00,000/-

23.01.2012 ING Vysya A/c Rs. 10,00,000/- 15531

25.01.2012 ING Vysya A/c Rs. 4,00,000/- 15531

26.01.2012 Wingspark Hotel Rs. 10,00,000/-

14.02.2012 ING Vysya A/c Rs. 10,00,000/- 15531

14.02.2012 ING Vysya A/c Rs. 15,00,000/- 15531

01.03.2012 ING Vysya A/c Rs. 15,00,000/- 15531

01.03.2012 ING Vysya A/c Rs. 15,00,000/- 15531

01.03.2012 ING Vysya A/c Rs. 20,00,000/- 15531

I.T.A. Nos.559-561/Coch/2018 30.03.2012 ING Vysya A/c Rs. 49,00,000/- 15531

31.03.2012 Agricultural income Rs. 6,00,000/-

Rs.6,44,55,000/- l

3.3 The Assessing Officer noticed that whereas the assessee did not have books in

fish business and claimed to be earning only commission from the fish business,

faced with the situation of having to explain the cash deposits in bank accounts, the

assessee prepared a cash book claiming that he was buying and selling fish. It was

noticed that through the expedient of the cash book, he claimed to be explaining all

the cash deposits in the bank accounts. During post search investigations, the

instruments used for withdrawing cash from the bank, were called for and examined

and it was found that on the back of certain cheques, the name of the person

withdrawing the amount and the purpose for which it was intended was mentioned

which is as follows:

Date Particulars Amount Remarks written at the back of the cheque

20.04.2011 EAP Jewellery Rs. 30,00,000/-

20.04.2011 EAP Jewellery Rs.1,20,00,000/- partners A/c

02.05.2011 Federal Bank A/c Rs. 1,65,000/- 169277

02.05.2011 Federal Bank A/c Rs. 14,85,000/- 169277

I.T.A. Nos.559-561/Coch/2018 07.06.2011 Federal Bank A/c Rs. 10,00,000/- 169277

05.07.2011 Federal Bank A/c Rs. 20,00,000/- 169277

07.07.2011 Federal Bank A/c Rs. 30,00,000/- 169277

25.08.2011 Federal Bank A/c Rs. 22,00,000/- 169277

01.09.2011 Federal Bank A/c Rs. 5,00,000/- 169277

15.09.2011 Federal Bank A/c Rs. 6,05,000/- 169277

17.09.201 1 ING Vysya 15531 Rs. 25,00,000/- On-going hotel construction at Thodupuzha

17.09.2011 ING Vysya 15531 Rs. 25,00,000/- On-going hotel construction at Thodupuzha

17.09.2011 ING Vysya 15531 Rs. 25,00,000/- On-going hotel construction at Thodupuzha

26.09.2011 ING Vysya 15531 Rs. 50,00,000/- On-going hotel construction at Thodupuzha

01.10.2011 ING Vysya 15531 Rs. 25,00,000/-

03.10.2011 ING Vysya 15531 Rs. 20,00,000/ - On-going hotel construction at Thodupuzha

I.T.A. Nos.559-561/Coch/2018 08.10.2011 ING Vysya 15531 Rs. 24,00,000/- Cash drawn for bar construction at Thodupuzha

22.10.2011 ING Vysya 15531 Rs. 6,00,000/- Withdrawn by Harish

30.12.2011 Kumaly Gate Rs. 6,00,000/-

23.01.2012 ING Vysya 15531 Rs. 10,00,000/- On-going hotel construction at Thodupuzlia

25.01.2012 ING Vysya 15531 Rs. 4,00,000/- Hotel Vysali, Thodupuzha

26.01.2012 Wingspark Hotel Rs. 4,00,000/-

14.02.2012 ING Vysya 15531 Rs. 10,00,000/- For Construction of Bar Hotel

14.02.2012 ING Vysya 15531 Rs. 15,00,000/- For Construction of Bar Hotel

01.03.2012 ING Vysya 15531 Rs. 15,00,000/- Amount Drawn for Construction of Bar Hotel

01.03.2012 ING Vysya 15531 Rs. 20,00,000/- Cash Drawn for Bar Hotel construction

30.03.2012 ING Vysya 15531 Rs. 49,00,000/- Hotel Vysali Thodupuzha

31.03.2012 Agricultural income Rs. 6,00,000/-

Rs.6,44,55,000/-

3.4 From the above, the Assessing Officer noticed that out of the cash claimed to

have been introduced in the books of the Fish Business by withdrawing from the

Bank, Rs. 3,17,00,000/- was withdrawn for the purpose of construction of a bar 8

I.T.A. Nos.559-561/Coch/2018 hotel at Thodupuzha which was evidenced by the copies of cheques obtained from

the Bank and hence, the cash deposits amounting to Rs. 3.17 crores were held to

be unexplained and treated as the income of the assessee. The Assessing Officer

rejected the contention of the assessee that there was no hotel construction during

the year and the staff in the Bank might have recorded the narration in the cheque.

The assessee further enclosed a certificate from the Secretary, Thodupuzha

Municipality stating that he had not constructed any commercial building during the

said period. The assessing officer observed that a case was not brought out that a

new commercial building had been constructed but there could always be an

extension. The Assessing Officer relied on the sworn statement dated 07.08.2015

from Shri Rajendra Babu K.V. in whose name the bearer cheque was issued in most

of the cases. Shri Rajendra Babu admitted that the signature on the bearer cheque

belonged to him and the money was withdrawn as per the instructions of Shri

Jayakrishnan. Further, he stated that Hotel construction was indeed going on at

Hotel Vysali, Thodupuzha and the construction was managed by one Shri Abhilash.

From the above, the Assessing Officer found that where the purpose of withdrawal

was mentioned in the reverse side of the cheque and also authenticated by the

person making the withdrawal, it was apparent that the withdrawal was made for

that very purpose. In the circumstances, the Assessing Officer treated the amount

of Rs. 3.17 crores being the amount of withdrawals taken for Hotel construction

which was shown as source of cash in the cash book as income from "Other

Sources" for the year under consideration.

I.T.A. Nos.559-561/Coch/2018 4. Before the CIT(A), the assessee explained that Hotel Vysali at Thodupuzha

was a family restaurant and run in association with two more partners. This Hotel

Vysali was not owned by his firm and it was taken on rent. He also gave a recent

photograph of the hotel, which proved that it was a reasonably small premise and

no construction work was carried out at the said hotel. The CIT(A) observed that

the source of bank deposits was explained and there was no dispute about

withdrawals made. According to the CIT(A), the A.O. had not pointed out to any

specific mistakes in the cash-book maintained by the assessee and the A.O. had

also not indicated any other source through which cash was being generated which

was then deposited in the bank account of the assessee. According to the CIT(A),

no incriminating material evidencing generation of unaccounted cash was found

during the course of search and cash withdrawals from one's own bank account

cannot be treated as income. In view of all these facts discussed above, the CIT(A)

was of the view that the A.O. was not justified in making addition of Rs.

3,17,00,000/- on account of cash withdrawal from the Bank and deleted the

addition.

4.1 Similarly, for the assessment year 2013-14, on identical reasons, the CIT(A)

deleted the addition of Rs. 1.62 crores on account of cash withdrawal from own

bank account.

I.T.A. Nos.559-561/Coch/2018 4.2 For the assessment year 2014-15, addition was made for an amount of Rs.

52,25,000/- on account of cash withdrawal from Bank account, The A.O. observed

that as per the narration at the back of the withdrawal slip, the cash was withdrawn

for paying bar license fee and this was an unexplained expenditure of the assessee.

It was contended that the assessee had no bar license in his name and no such fees

were paid by him. On identical reasons, the CIT(A) deleted the addition of Rs.

52,25,000/- on account of cash withdrawal from the Bank account.

is that there is evidence to show that the assessee has used the amount withdrawn

from Bank for the construction of Hotel Vysali in Thodupuzha which was reflected in

the back side of the cheque. However, the CIT(A) solely based on the certificate

issued by the Secretary, Thodupuzha Municipality deleted the addition by observing

that there was no construction of commercial building or hotel during the period.

According to the Ld. DR, the details written on the back side of the cheque is having

direct nexus with the purpose for which the money was withdrawn from the Bank

account and once money was spent for construction of hotel building, that amount

was not available with the assessee for depositing in the Bank account. Hence, she

submitted that the order of the Assessing Officer may be confirmed.

were withdrawals from Bank account and utilized for construction of Bar at

Thodupuzha which was accepted by the Assessing Officer. However, cash

I.T.A. Nos.559-561/Coch/2018 withdrawals were taken as unexplained and treated as income of the assessee. The

Ld. AR submitted that for the assessment year 2013-14, the Assessing Officer

considered the Bank withdrawals for the period from 30.04.2012 to 30.03.2013,

aggregating to Rs.1,62,00,000/- as unexplained credit and merely from the

withdrawals made from the Bank account in ING Vysya Bank. SBT and Federal

Bank, the Assessing Officer aggregated the withdrawals at Rs.1,62,00,000/- which

was treated as undisclosed income. The CIT(A), after considering the facts and lack

of proper verification, deleted the addition. The Ld. AR submitted that for the

assessment year 2014-15, the Assessing Officer added Rs.52 lakhs, which

represented the withdrawal from the Bank account in ING Vysya Bank on

31.03.2014. It was submitted that two withdrawals of Rs.10,00,000/- and

Rs.42,25,000/- were treated as unexplained credit without any verification or

enquiry. According to the Ld. AR, Rs.42,25,000/- was withdrawn for renewing Bar

licence fee and the above sum was added mechanically as undisclosed income

which was rightly deleted by the CIT(A).

6.1 The Ld. AR pointed out that for assessment year 2012-13, the explanation of

the assessee that there was no hotel construction made during the year which was

certified by the Secretary, Thodupuzha Municipality stating that the assessee had

not constructed any commercial building during the said period was not considered

by the Assessing Officer. It was submitted that the utilization of the amount

withdrawn from the Bank account over the period of one year was truly reflected in

the cash book as for business purposes and not for building construction. It was

I.T.A. Nos.559-561/Coch/2018 submitted that the employee who withdrew the cash from the bank account was

examined. However, it was submitted that the assessing officer without any

verification or without bringing any evidence or material on record mechanically

treated the utilization of the cash as unexplained credits and brought the same and

assessed the same by invoking section 69 of the Act.

6.2 As regards, the addition of Rs.52,25,000/- for the assessment year 2014-15,

the assessee clearly explained that the withdrawal of Rs.52,25,000/- was for

payment of Bar License Renewal Fees and the same was utilized for that purpose as

per the cash book. It was submitted that the assessing officer had mechanically

added the amount by relying upon the copies of cheques obtained from Bank and

the addition was misconceived since the expenditure is treated as income when the

source is from bank withdrawal.

6.3 It was submitted that the assessing officer also disallowed part of the interest

claim for the asst. year 2010-11 and the assessee's appeal against these

disallowances were dismissed and additions were sustained by the CIT(A). Against

this order, no second appeal has been filed by the assessee.

6.4 Similarly, for the asst. years 2011-12 to 2014-15, the CIT (A) also sustained

disallowance of major part of agricultural income claimed by the assessee resulting

in treating substantial portion of the agricultural income as business income and the

disallowance of the agricultural income was to the extent of Rs.2.25 lakhs for 2011-

I.T.A. Nos.559-561/Coch/2018 12, Rs.5 lakhs for 2012-13 and Rs.6 lakhs for 2014-15. No 2nd appeal was filed by

the assessee. It was submitted that all the bank transactions of deposits and

withdrawals were also truly reflected in the books of accounts and had been

accepted. It was submitted that the allegation that the assessee utilized the

amount withdrawn for construction of commercial building was also disproved by

the assessee and also substantiated by the certificate issued by Thodupuzha

Municipality. The Ld. AR relied on the findings of the CIT(A) for all the assessment

years. In addition to the above and on merits of the case, for the asst. year 2014-

15, the Ld. AR submitted that the tax effect on Rs.50,25,000/- was below the

monetary limit for sustaining the Departmental Appeal and therefore, this ground

also may be considered.

assessee had introduced Rs.6,44,55,000/- into cash book for the assessment year

2012-13 as per the narration written on the back side of the cheque. Out of the

above amount, Rs.3,17,00,000/- was withdrawn by the assessee from the Bank

account for the purpose of construction of bar/hotel in Thodupuzha. This was

evidenced by copies of cheques obtained from the Bank by the Assessing Officer. As

such, the Assessing Officer observed that the sum of Rs.3.17 crores which was

introduced into the cash book was not at all available with the assessee as it was

used for the construction of bar/hotel. To support this, the Assessing Officer relied

on the sworn statement recorded from Shri Rajendra Babu K.V. in whose name the

bearer cheque was issued in most of the cases. Shri Rajendra Babu admitted that

the signature on the back side of the cheque belonged to him and money was

I.T.A. Nos.559-561/Coch/2018 withdrawn as per the instructions of the assessee, Shri Jayakrishnan. The Assessing

Officer observed that construction of hotel was going at Hotel Vysali in Thodupuzha

and construction was managed by one Shri Abhilash. However, contrary to this, the

CIT(A) observed that there was no construction activity with regard to Hotel Vysali

in Thodupuzha and the said hotel was owned by the assessee and two more

partners and not by the assessee himself. The building was taken on rent and no

construction work has been carried out at the said hotel. For this purpose, he relied

on the certificate issued by Secretary, Thodupuzha Municipality. However, we find

that each entry in the cash book for introduction of cash was not at all explained by

the assessee. The assessee made a general statement that there was no

construction activity at Hotel Vysali and the amount was available for introduction

into the cash book. In our opinion, the assessee has to explain each entry in the

cash book. The Assessing Officer has to prove that if there is construction activity,

how much amount has been spent for construction activity at the said hotel after

providing opportunity of cross-examination of the person whose statement was

relied on by the Assessing Officer for making such additions for these assessment

years under consideration. With this observation, we remit the entire issue in

dispute in all these appeals to the file of the Assessing Officer for fresh

consideration. This ground of appeals of the Revenue is partly allowed for statistical

purposes.

I.T.A. Nos.559-561/Coch/2018 9. In the result, the appeals of the Revenue are partly allowed for statistical

purposes. Order pronounced in the open Court on this 15th July, 2019

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 15th July, 2019 GJ Copy to: 1. Shri A. Jayakrishnan, Nandanam, Temple Road, Thodupuzha, Idukki-685 584. 2. The Assistant Commissioner of Income-tax, Central Circle-2, Kochi. 3. The Commissioner of Income-tax(Appeals), Kochi. 4. The Commissioner of Income-tax, Central, Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin