SAINATH POSHETTY PENDAM,MUMBAI vs. WARD 22(3)(6), MUMBAI, PIRAMAL CHAMBERS, MUMBAI

At the outset, it is noticed from the appeal record that there is a delay of 60 days in filing the appeal before us. In this regard, the Ld. AR has furnished an explanation for the delay in filing the appeal before us.

We have heard the Ld. Representatives of both the parties and perused the material placed on record, including the explanation furnished by the assessee for the delay. Considering the factual position explained before us and keeping in view the principles laid down by the Hon’ble Supreme Court in the case of Collector, Land Acquisition, Anantnag & Anr. vs. Mst. Katiji & Ors., 1987 AIR 1353 (SC), wherein it has been held that when substantial justice is pitted against technicalities of non-deliberate delay, substantial justice is to be preferred, we are of the view that the principle of advancing substantial justice is of prime importance.

Accordingly, considering the explanation furnished by the assessee and the facts and circumstances of the case, and taking a liberal view of the expression “sufficient cause”, we are inclined to condone the delay in filing the appeal before us. Consequently, the delay of 60 days is condoned and the appeal is admitted for adjudication on merits.

Briefly stated, the facts of the case are that the assessee is an individual engaged in the retail pharmacy business through two medical shops. For Assessment Year 2017-18, the assessee filed his return of income on 07.11.2017 declaring total income of Rs. 9,48,590/-. The case was selected for scrutiny to examine, inter alia, substantial cash deposits during the demonetization period and high-value investment in immovable property.

During the course of assessment proceedings, the Assessing Officer noted that the assessee had purchased an immovable property, being Unit No. 110, Bussa Heavy Industrial Premises Co-op. Society Ltd., Lower Parel, Mumbai, for a total consideration of Rs. 1,34,00,000/-. The assessee explained that an amount of Rs. 92,81,920/- was financed through a housing loan from Tata Capital Financial Services Ltd. The balance amount of Rs. 41,18,080/- remained unexplained. The Assessing Officer accordingly made an addition of Rs. 41,18,080/- under section 69 of the Act.

The Assessing Officer further noted that during the demonetization period, i.e. from 09.11.2016 to 30.12.2016, cash aggregating to Rs. 1,05,66,500/- was deposited in the assessee's bank accounts. In the absence of primary books of account and supporting evidence explaining the source of such deposits, the Assessing Officer made an addition of Rs. 1,05,66,500/- under section 69A of the Act.

In the first appellate proceedings, the Ld. CIT(A)/NFAC called for a remand report. On verification of the bank statements during the remand proceedings, it was found that an amount of Rs. 15,00,000/- out of the aforesaid sum of Rs. 41,18,080/- had been paid through banking channels from Abhyudaya Co-operative Bank on 29.11.2016. Since the source of the said bank transfer was linked to the cash deposited during the demonetization period, which had already been subjected to addition under section 69A of the Act, the Ld. CIT(A) deleted the addition of Rs. 15,00,000/- to avoid double taxation and restricted the addition under section 69 to Rs. 26,18,080/-.

As regards the balance amount of Rs. 26,18,080/-, the assessee stated that the same was received from parents and relatives. However, the assessee failed to furnish gift deeds, confirmations, bank statements or other documentary evidence establishing the identity and creditworthiness of the alleged donors and the genuineness of the transactions.

With regard to the addition of Rs. 1,05,66,500/- under section 69A, the Ld. CIT(A) sustained the addition, observing that the assessee had failed to produce the cash book, bank book and primary sales records before the Assessing Officer or during the remand proceedings so as to establish that the cash deposits represented business receipts.

Aggrieved by the sustenance of the aforesaid additions, the assessee is in appeal before us.

The Ld. AR submitted that the balance amount of Rs. 26,18,080/- utilised towards purchase of the property was funded out of small gifts and personal contributions received from the assessee's late father, mother and close family members from their past domestic savings. It was submitted that, since the major portion of the consideration was financed through an institutional loan of Rs. 92.81 lakhs and a further sum of Rs. 15.00 lakhs was paid through the assessee's bank account, the remaining amount represented genuine family contributions.

The Ld. DR, on the other hand, supported the orders of the lower authorities and submitted that no documentary evidence in the form of gift deeds, income-tax returns, bank statements or confirmations of the alleged donors had been furnished either during the assessment proceedings or during the remand proceedings.

We have heard the counsels for both the parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we noticed that the assessee was required to explain the nature and source of the investment of Rs. 26,18,080/-. The Ld. CIT(A), after examining the material available during the remand proceedings, had already granted relief of Rs. 15,00,000/- on the basis of the banking entries and restricted the addition to Rs. 26,18,080/-.

In respect of the balance amount, the assessee has claimed that the same was received as gifts/contributions from family members. However, no cogent documentary evidence has been placed on record to substantiate the identity and creditworthiness of the alleged donors or the genuineness of the alleged receipts. Mere assertion that the amount was received from family members out of past savings, without supporting documentary evidence, cannot by itself satisfactorily explain the source of the investment.

In the facts and circumstances of the case, we find no infirmity in the order of the Ld. CIT(A) in sustaining the addition of Rs. 26,18,080/- under section 69 of the Act. Accordingly, Ground No. 1 is dismissed.

As regards the addition of Rs. 1,05,66,500/- under section 69A of the Act, the Ld. AR submitted that the assessee was carrying on the business of retail sale of medicines through two medical shops and had an audited turnover exceeding Rs. 5.47 crores. It was submitted that the assessee's business involved substantial cash sales and that the cash deposited in the bank accounts during the demonetization period represented regular business collections. The Ld. AR also referred to the quarterly VAT turnover and relied upon various decisions of the Tribunal to contend that business receipts cannot be treated as unexplained merely because the same were deposited in the bank accounts during the demonetization period.

The Ld. DR, on the other hand, submitted that despite opportunities granted during the assessment proceedings and specific requisitions made during the remand proceedings, the assessee failed to produce the cash book, bank book, stock registers or day-to-day sales records for the relevant period or the preceding financial years. It was accordingly submitted that the assessee had failed to establish that the cash deposited in the bank accounts represented business receipts.

We have heard the counsels for both the parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we noticed that the assessee's contention is that the cash deposits aggregating to Rs. 1,05,66,500/- represented cash collections from his retail pharmacy business. The mere fact that the assessee was carrying on a business having substantial turnover, however, would not by itself establish that the specific cash deposits in question were generated from such business. The source of the particular deposits has to be established with reference to the books of account and other contemporaneous records.

In the present case, as noted by the authorities below, the assessee was required to produce the relevant cash book and other primary records for verification. However, the assessee failed to produce the cash books for F.Ys. 2015-16, 2016-17 and 2017-18, as well as the bank book and contemporaneous sales records, despite being afforded opportunities. Consequently, there is no satisfactory documentary trail on record correlating the cash deposits in question with the cash generated from the business.

The fact that the assessee had reported substantial turnover in the VAT returns or in the audited financial statements may establish the existence and scale of the business; however, in the absence of the primary books of account and contemporaneous records, the same does not, by itself, establish the availability of cash of Rs. 1,05,66,500/- on the relevant dates for making the deposits in question.

The decision in the case of Smt. Tripta Rani vs. ACIT relied upon by the assessee is distinguishable on facts, as in that case the books of account had been produced and maintained and were accepted by the Assessing Officer without rejection. In the present case, the assessee has admittedly failed to produce the primary books of account and supporting records necessary for verification of the source of the cash deposits.

In view of the foregoing discussion and having regard to the facts and circumstances of the present case, we find no reason to interfere with the order of the Ld. CIT(A) sustaining the addition of Rs. 1,05,66,500/- under section 69A of the Act. Accordingly, Ground No. 2 is dismissed.

In the result, the appeal filed by the assessee stands dismissed.