THE ITO, WARD-1,, GANDHIDHAM vs. SHRI JUNEJA CHANDRAKALA MOHINDER,, GANDHIDHAM

PER WASEEM AHMED ACCOUNTANT MEMBER: The captioned cross appeals have been filed at the instance of the Assessee and Revenue. Revenue is in appeal against the order of Learned Commissioner of Income Tax (Appeals)-II, Ahmedabad [Ld. CIT(A) in short] dated 24/02/2010, arising in the matter of assessment order passed under s.143(3) r.w.s. 148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 02/12/2008. Assessee is in appeal against the penalty order dated 02/10/2013 passed u/s 271(1)(c) of the Act relevant to Assessment Year (A.Y) 2005-06.

First we take up Revenue’s appeal bearing ITA No. 995/RJT/2010 for A.Y. 2005-06. The Revenue has raised the following grounds of appeal. 1. The Ld.CIT(A)-II, Rajkot has erred in law and on facts of the case in granting relief of Rs.2,34,92,160/- as against original addition of Rs.2,66,13,710/- made by the Assessing Officer on account of unexplained deposits made with banks. On the facts of the case, learned CIT(A) ought to have upheld the order of the Assessing Officer. It is therefore, prayed that the order of the learned CIT(A)-II, Rajkot may be set-side and that of Assessing Officer be restored.

The only issue raised by the Revenue is that the learned CIT (A) erred in deleting the sum of Rs. 2,34,92,160 /- out of the total addition made by the AO for Rs. 2,66,13,710/- on account of unexplained deposits in the bank.

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 3 - 2. The assessee is an individual and engaged in the business of transportation. The assessee in the year under consideration claimed to have owned two trucks and has declared an income of Rs. 1,25,000/- under section 44AE of the Act. The assessee during the year has deposited certain sum of money in her bank account. The details of the same stand as under: Sr.No. Name of the Bank A/C. No. Amount Deposited 1. H.D.F.C 5531 5,83,009/- 2. G.M.C.B. C.A. 4408 1,50,97,216/- 3. Bank of Baroda 2408 1,09,33,485/- Total 2,66,13,710/-

2.1 On question by the AO about the source of deposits in the impugned bank accounts, the assessee submitted as under:

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 4 - cheques purchased from above is in B. P. Facility Rs.2399000 Deposited Bank back which is deposited with 23 days this is B.P. facility. Rs.1048000 Deposited in B.O.B Rs.220000 Deposited in HDFC Rs.350 is dividend Rs.50000 cheque deposited is returned. There is difference in total of Rs.1555001 The amount should be Rs.13542215. This includes opening balance of Rs.2999.28. This is also taken in totals. 3. BOB BANK: Temporary loan of Rs.5034000 by cheque which is returned within one or two days. Transfer from GMCB Rs.2652000 Cash deposited drawn from GMCB 1048000 Cash freight recd Rs.1356800 Freight by Cheques 631400 Total Rs. 10731200 in this Opening balance of 202285 is taken Total Rs. 10933485

2.2 However, the AO disagreed with the contention of the assessee by observing as under: HDFC BANK A/c.: (1) The assessee has claim that Rs.3,63,000/- is temporary loan from her husband. However, source of the same and genuinely of the transaction is not established. (2) The assessee has claim that Rs.2,20,000/- is withdrawn from Gandhidham Mercantile Co Operative Bank and deposited. However, assessee failed to establish direct nexus between the deposits made in the bank account and her alleged claim regarding withdrawal from GMCB (entry to entry). GMCB BANK: (1) The assessee has claim that Rs.48,39,000/- is temporary loan from her husband. However, source of the same and genuinely of the transaction is not established. )

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 5 -

(2) The assessee has claim that Rs.55,80,000/- is transfer from BOB and deposited. However, assessee failed to establish direct nexus between the deposits made in the bank account and her alleged claim regarding withdrawal from GMCB (entry to entry). (3) The assessee has claim that Rs.5,29,999.87 is represents freight received from Agrawal Auto Mobiles. However, on verification of TDS Certificate issued by Agrawal Auto mobiles it is notice that assessee has received freight amounting to Rs.13,42,459/- from Agrawal Auto Mobiles. And therefore, the assessee's claim is not tenable. (4) The assessee has claim to have received Rs.l,39,000/- as maturity amount of recurring deposit. However, failed to substantiate here claim. (5) The assessee has claim that Rs.36,67,000/- represents cash withdrawal from GMCB. However, assessee failed to establish direct nexus between the deposits made in the bank account and her alleged claim regarding withdrawal from GMCB’s (entry to entry). For other entries, the assessee has submitted the details of depositing with other bank, which is not relevant to GMCB's transaction. BANK OF BARODA: (1) The assessee has claim that Rs.50,43,000/- is temporary loan from her husband. However, source of the same and genuinely of the transaction is not established. (2) The assessee claim that Rs.26,52,000/- & Rs.10,48,000/- is transfer from GMCB. However, assessee failed to establish direct nexus between the deposits made in the bank account and her alleged claim regarding withdrawal from GMCB (entry to entry).

In view of the above the AO treated the entire sum of deposit in the bank for Rs. 2,66,13,710/- as income from undisclosed sources and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to the learned CIT (A).

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 6 - 3. The assessee before the ld. CIT-A explained the source of deposit in all the banks. The detailed reply of the assessee is placed on pages 6 to 11 of the ld. CIT-A order.

3.1 The ld. CIT-A vide letter dated 23-03-2009 called for the remand report from the AO on the details furnished by the assessee. The AO in turn vide letter dated 16-10-2009 filed the report without pointing out any adverse finding on the submission of the assessee.

3.2 However, the learned CIT (A) was not convinced with the submission of the assessee and the remand report of the AO. Accordingly, the learned CIT (A) issued a show cause notice vide letter dated 24th November 2009 requiring the assessee to furnish more details about the transactions carried out by her in the bank accounts.

3.3 The assessee in response to such notice vide letter dated NIL made a detailed reply explaining the source of deposits in the impugned bank accounts along with other details mentioned as under (a) Summary of cheque received from New Haryana Road Lines of India (Proprietor- Mohinder R. Juneja husband of assessee) in GMCB account and cheque paid back. (b) Summary of contra deposit transaction (c) Summary of freight charges received in GMCB account. (d) Summary of Cheque received and return (e) Summary of cash withdrawal and re-deposited in bank accounts (f) Summary of cheque from New Haryana Road Lines of India in BOB account and paid back

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 7 - (g) Summary of cash received on account of freight charges (h) Copy of cheque discounting certificate from bank (i) Copy of bank account of New Haryana Road lines showing transaction with assessee (j) Copies of the other relevant ledgers, bank book, cash book etc.

3.4 However, the learned CIT (A) was not satisfied with the reply of the assessee on the reasons as detailed under: i. Once the assessee was eligible for filing the return of income under section 44AE of the Act, she was not under the obligation to maintain the requisite accounts. But still, she’s maintaining all the books of accounts on regular basis such as cash book, ledgers, bank statements and other related records. As such there was no reason for the assessee to maintain deposit accounts. ii. There were deposits in the bank accounts maintained by the assessee for more than 2.50 crores though she is maintaining only two trucks. Accordingly, the learned CIT (A) construed that the assessee was engaged in some other business activities or engaging trucks of the outside parties for her transport business. iii. The assessee has discounted cheque worth of Rs.1,01,50000/- from the banks against the receivables which evidences that the gross receipts of the assessee from the business was more than Rs. 20 lacs as disclosed income from plying trucks.

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 8 - In view of the above, the learned CIT (A) was of the opinion that the transactions shown by the assessee in the return of income are not free from the doubts. Accordingly, the learned CIT (A) rejected the books of accounts maintained by the assessee.

3.5 Apart of the above, the learned CIT (A) was of the view that no prudent business man withdraws the money from the bank and keeps the same with her/him-self and re-deposits the same with the bank after a certain period of time. Accordingly, he rejected the plea of the assessee that the amount withdrawn from the bank was re-deposited in the bank. However, the learned CIT (A) in all fairness has given the benefit to the assessee for the cash deposits in the bank immediately within the period of 5 days from the date of withdrawal. Accordingly, he worked out the amount of cash deposited beyond 5 days after the withdrawal amounting to Rs. 31,21,550/- and treated the same as income from the undisclosed sources under section 69 of the Act.

3.6 In addition to the above, the learned CIT (A), similarly, after rejecting the books of accounts estimated the income on all the deposits in the bank amounting to Rs. 2,34,91,620/- ( 2,66,13170- 31,21,550 ) at the rate of 2% of such amount. Accordingly, he worked out the business income of Rs. 469832/- (2% of Rs. 2,34,91,620/-). Thus, the learned CIT (A) confirmed the addition made by the AO in part.

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 9 - 2,34,91,620/- whereas the assessee is in appeal against the confirmation of the addition made by the learners ITA for Rs. 34,66,382/- (31,21,550+4,69,832-1,25,000) after rejecting the books of accounts under section 145(3) of the Act.

Assessee’s appeal bearing ITA No.930/Rjt/2010 for A.Y. 2005-06

The grounds of appeal raised by the assessee stand as under: 1. That, the learned CIT(A) has wrongly rejected the books of accounts u/s.145(3) of the I.T. Act. 2. That, the learned CIT(A) has wrongly estimated net profit @ 2% and made addition of Rs.4,69,830/- 3. That, the learned CIT(A) has wrongly confirmed the addition of Rs.31,21,550/- on account of cash deposited in bank accounts. 4. That the findings of the learned CIT(A) are not justified in law as well as facts of the case and required to be deleted.

6.1 The learned AR also claimed that there was no defect pointed out by the AO in the submissions filed by the assessee during the remand proceedings.

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 10 - 6.2 The learned AR also claimed that there is no denial under the Act to maintain the books of accounts even the return of income filed by the assessee on presumption basis.

8.1 From the preceding discussion, we note that there emerge certain issues for the adjudication as detailed under: i. Whether the books of accounts of the assessee are liable to be rejected under the provisions of section 145(3) of the Act in the given facts and circumstances. ii. Whether the deposits in the bank represents the undisclosed income of the assessee or it represents the business transactions and part of it of Rs. 31,21,550/- as unexplained investments.

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 11 -

8.2 As per section 145 of the Act, the AO is empowered to reject the books of accounts of the assessee and make best judgment assessment in the manner as specified under section 144 of the Act if he is not inter-alia satisfied with the completeness or correctness of the books of accounts of the assessee. Generally, the instances for the rejection of books of account include when entries in respect of certain transactions are altogether omitted or incorrect or where the accounts show an abnormally low rate of profit or where there is an inherent lacuna in the system of accounting.

8.3 However, the AO cannot use this power as a tool to reject the books of accounts merely due low income, variation in gross profit and non-furnishing of certain vouchers or its explanation etc. Anyway, before rejecting the books of accounts, the AO must record the specific reason for rejecting the books of accounts. Such satisfaction has to be established and substantiated based on facts and figures, which further depends on the circumstances of each case.

8.4 In the given case, CIT (A) has rejected the book results of the assessee based on the facts and figured culled out by him as detailed hereunder: i. Once the assessee was eligible for filing the return of income under section 44AE of the Act, she was not under the obligation to maintain the requisite accounts. But still, she’s maintaining all the books of accounts on regular basis such as cash book, ledgers, bank statements and other related records. As such

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 12 - there was no reason for the assessee to maintain deposit accounts. ii. There were deposits in the bank accounts maintained by the assessee for more than 2.50 crores though she is maintaining only two trucks. Accordingly, the learned CIT (A) construed that the assessee was engaged in some other business activities or engaging trucks of the outside parties for her transport business. iii. The assessee has discounted cheque worth of Rs. 1,01,50000/- from the banks against the receivables which evidences that the gross receipts of the assessee from the business was more than Rs. 20 lacs as disclosed income from plying trucks.

In the light of the above facts, the learned CIT (A) invoked the provisions of section 145(3) of the Act and thereby he has worked out business income @ 2% of total deposit made in bank account other than Rs. 31,25,550/- which he treated separately as undisclosed investment u/s 69 of the act. In doing so, the learned CIT (A) has drawn authority given to him under section 145(3) of the Act. Now we analyze each of the findings of the learned CIT(A).

8.5 As far as the case on hand is concerned, we note that learned CIT (A) has not pointed out any specific defect in the reply made by the assessee. As such, the learned CIT (A) apprehended that the assessee is engaged in some other business activity which was not disclosed in the income tax return as the assessee got the cheques discounted from the bank amounting to Rs. 1,01,50,000/- against the receivables. However, in

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 13 - this regard we note that the assessee has given complete details about the cheque issued by the party namely New Haryana Road Lines of India which is placed on pages 15 of the paper book. Indeed, the assessee got the cheque discounted for Rs. 1,01,50,000/- but the same was not representing the business transactions as alleged by the learned CIT (A).

8.6 We also note that the books of accounts cannot be rejected merely on the basis of assumption without bringing any concrete evidence of assessee being earned income outside. In this respect we find guidance and support from Hon’ble ITAT Bench in the case of Haridas Parikh Vs. ITO reported in 113 TTJ 274 wherein it was held as under: Unless the Assessing Officer is able to point out certain transactions which have been left to be entered in the books of account or that the assessee has sold some of the items at a price higher than what is disclosed in the books of account or if proper particulars, bills, vouchers are not forthcoming, etc., the books of account cannot be rejected without assigning specific reasons. In the instant case merely because different range and nature of items were being dealt with by the assessee and the maintenance of quantitative stock of each and every item was not practically possible, the books of account maintained by the assessee which were free from any defect could not be rejected merely because the average GP rate was slightly lower than the average GP rate of the earlier year. In the instant case, the sales of the assessee during the year under consideration had increased substantially from Rs. 1.24 crores to Rs. 1.54 crores which resulted in marginal decline in GP rate from 11.51 per cent to 9.94 per cent, the same could not be made reason for rejecting the book results. It is well-settled business proposition that for having increase in sales, a businessman has to sacrifice a small margin of profit rate. During the year the total sales of the assessee had increased from Rs. 1.24 crores to Rs. 1.54 crores. No defect was found in the books of account. There was no valid reason for rejection of books of account during the year under consideration and thereby applying higher GP rate of 11.51 per cent, which was earned by the assessee on low sales of Rs. 1.24 crores in the preceding year. The other reason stated by the Assessing Officer of making trading addition was that in the assessment year 2001-02, GP rate declared by the assessee at 9.64 per cent was not accepted and trading addition so made by rejecting the books of account was confirmed by the Commissioner (Appeals), therefore, by following the order of the earlier year the Assessing Officer had made an addition by rejecting the GP rate of 9.64 per cent declared during the year

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 14 - under consideration. The assessee placed on record the order of the Tribunal in the assessee's own case in the assessment year 2001-02 wherein addition made by the Assessing Officer by applying GP rate of 10.14 per cent was deleted by the Tribunal and the GP rate of 9.64 per cent declared by the assessee was found to be reasonable and correct. As the facts and circumstances during the year under consideration were the same, the issue was squarely covered by the order of the Tribunal in the preceding year. Respectfully following the same, the findings and conclusion of the lower authorities were to be rejected and the Assessing Officer was to be directed to delete the impugned trading addition made by him. 8.7 Moreover, we note that the assessee is not under the obligation to maintain the books of accounts as she was filing her return of income under the provisions of section 44AE of the Act. But the provision of section 44AE of the Act does not prohibit the assessee to maintain the books of accounts. If the assessee is maintaining the books of accounts, then he/she cannot be penalized by rejecting the same without pointing out any specific defect therein. Accordingly, we hold that the learned CIT (A) erred by rejecting the books of accounts. As such, the learned CIT (A) should have accepted the result declared by the assessee.

8.9 Taking up the matter further regarding the addition made by the AO for Rs. 31,21,550/- we note that the learned CIT (A) has made the addition by observing that no prudent businessman retains the money after withdrawal from the bank and redeposit the same with the bank after certain period of time. The observation of the learned CIT (A) somewhat appears to be logical and practical. But, the learned CIT (A) has not brought any iota of evidence suggesting that the money withdrawn by the assessee from the bank was utilized for making some investment or it was incurred for some expenditure. Thus in the absence of any information, we left with no option except to believe that the

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 15 - assessee has deposited the same money with the bank which was withdrawn by her. Accordingly, we hold that there cannot be any addition of Rs. 31,21,550/- on account of unexplained investment under section 69 of the Act. Thus, the ground of appeal of the revenue is dismissed and the ground of appeal of the assessee is allowed.

In the result, the appeal of the revenue is dismissed and the appeal of the assessee is partly allowed.

ITA No.453/Rjt/2013 for A.Y. 2005-06. The assessee has raised the following ground of appeal

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 16 - 11. The assessee in the ground of appeal has challenged the penalty imposed by the AO and confirmed by the learned CIT-A under section 271(1)(c) of the Act.

In the result, the appeal of the assessee is allowed.

This Order pronounced in Open Court on 18/10/2019

-Sd- -Sd- (राजपाल यादव) (वसीम अहमद) �या�यक सद�य लेखा सद�य (RAJPAL YADAV) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Dated 18/10/2019 manish

ITA No.995/RJT/2010 & others A.Y. 2005-06 - 17 - आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent. 2. 3. संबं�धत आयकर आयु�त / Concerned CIT आयकर आयु�त(अपील) / The CIT(A)- II, Rajkot 4. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,राजोकट/DR,ITAT, Rajkot गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 19/09/2019. 2. Date on which the typed draft is placed before the Dictating Member 3. Other Member... 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk 23 /10/2019 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………