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Facts
The revenue filed appeals challenging the order of CIT(A) which deleted additions made by AO u/s 68 r.w.s 115BBE of the Income Tax Act. The assessee, a consultancy firm, was subjected to a survey where it failed to provide primary documents for its services. The AO treated the receipts as unexplained cash credit, but CIT(A) deleted the additions.
Held
The Tribunal held that the assessee had provided sufficient evidence and discharged the onus under Section 68. The AO had not brought forth clinching evidence to disprove the assessee's submissions. The Tribunal also noted that Section 115BBE does not apply to business receipts/turnover, and the income was already declared as business income.
Key Issues
Whether the receipts from consultancy services can be treated as unexplained cash credit under Section 68, and if Section 115BBE is applicable.
Sections Cited
Section 68, Section 115BBE, Section 133A, Section 131, Section 143(3), Section 147, Section 148A(d), Section 148, Section 37(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN & HON’BLE SHRI PRABHASH SHANKAR
Date of Hearing 08.04.2025 Date of Pronouncement 27.05.2025 आदेश / ORDER Per Bench: The present four appeals have been filed by the revenue challenging the impugned order 20.10.2023 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the A.Ys 2017-18, 2020-21, 2021-22 & 2018-19.
Since all the issues involved in these four appeals are common and identical, therefore, they have been clubbed, heard together and a consolidated order is being passed for the sake of convenience and brevity. I shall take A.Y 2017-18 as lead case and facts narrated therein.
2. Both the grounds raised by the department are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in deleting the additions made by the AO u/s 68 r.w.s 115BBE of the income tax Act, therefore we have decided to adjudicate the same through the present consolidated order.
3. Ld. DR appearing on behalf of the department while relying upon the order of AO filed a written submissions in support of his grounds of appeal. The contents of the written submissions filed by the department are reproduced here in below:
Briefly stating the facts of the case, the assessee was subjected to survey u/s. 133A of the Income tax Act (henceforth ITA), on 07.12.2020. The Assessee is claiming to be engaged in the business of providing consultancy services. There are three partners of the firm, namely Shri Vincent Albuquerque, Mr. Augustine Francis Pinto & Mrs. Grace Pinto. Shri Vincent Albuquerque was the working partner and other two partners were sleeping partners. Statement u/s. 131 of the ITA was recorded from Shri Vincent Albuquerque during the course of survey. The firm had declared income from commission and consultancy services. During the course of survey, Shri Vincent Albuquerque was unable to provide primary documents viz. Contract note bills/vouchers raised etc. despite multiple opportunities provided to substantiate the nature of services rendered by the firm. It was noted during
the course of survey that Mr. Vincent has never rendered any services as an independent consultant. Even though the firm claimed to have rendered services in tender filing, liaison & Infra work, not a single instance of any tender or infra work could be provided by the assessee, except general and vague statements. During post survey investigations, the partners could not provide documents in support of nature of services rendered and hence failed to establish the genuineness of the transactions. Therefore commission and consultancy income offered by the firm was treated as unexplained each credit u/s. 68 r.w.s. 115BBE of the act.
3. Aggrieved by the order of the A.O., the assessce preferred appeal before the CIT(A). The CIT(A) allowed relief on the ground that
1. Details furnished by the assessee demonstrates that service tax/GST has been paid as per invoices and TDS has been deducted on such remittances,
ii. Documents filed before DDIT & A.O. such as invoices, TDS records, agreements etc. do establish the case of the appellant that such income is liable to be taxed as business/professional income.
High percentage of taxable profits declared by the assessee is possible unless any specific discrepancy is brought on record.
4. The order of the CIT(A) is not acceptable since the arguments on the basis of which relief is allowed are superfluous without appreciating the facts on record. The assessee has claimed that it has rendered genuine business consultancy services based on the documents submitted before the DDIT & A.O. Those documents are filed as a paper book before the Hon'ble Bench on 04.09.2024. The nature of documents filed are Tax Invoices raised and Copies of agreements with the clients. On examination of agreements of engagement with the clients it is apparent that services were meant for Business Advocacy and information of clients, liaison for Business generation, Consultancy services, leasing
of properties, identification of potential investors and negotiations with the investors, securing NOC's & occupancy certificates for projects, SWOT analysis for product placement, Documentation work, Design of foundations as per the soil investigation reports for infrastructure projects, etc. The assessee also claims that service/GST and TDS has been deducted on the remittance made by the clients.
5. The CIT(A) has failed to appreciate that the assessee has provided a facade of documents to justify the receipts offered under the head Business & Profession. The assessee has not submitted a single document in support of actual work done for its clients. For instance, if the assessee has genuinely provided the services by identifying new clients to its customers, then the list of the those clients could have been provided. If the assessee has provided services in the form of business generation, then verifiable information regarding services provided could have been given. The assessee has failed to provide such primary documents. It only provides perfunctory, make believe kind of documents to justify a self- serving argument. The documents produced serve the purpose of creating a means to legalise earnings which are unexplained, which defeats the purpose of introducing section 68 in the provisions of the Act. All that the DDIT/Α.Ο. were expecting was documents to prove the "genuineness" of the transaction, which unfortunately have not been provided. The CIT(A) without appreciating the fact the assessee has not discharged the onus cast on it by section 68 of ITA has allowed relief by relying on certain documents, which are only superfluous in nature. The judgement of CIT(A) has done gross injustice to the revenue.
6. Establishing genuineness of transaction is one of the important requirements of Section 68 of the I.T. Act which assessee has failed to do so. Without fulfillment of the onus cast u/s. 68 of the I.T. Act, the CIT(A) has allowed relief to the assessee which is prejudicial to the interest of revenue. In view of the discussion in the pre paragraphs it is humbly requested that the order of the A.O. may be restored.
4. Whereas, on the contrary, Ld. AR while relying upon the orders passed by Ld. CIT(A) has filed his written submissions and reiterated the same arguments as were raised by him before the revenue authorities . The contents of the written submissions filed by the assessee is reproduced here in below:
AGV CONSULTANTS
Income-tax assessment year 2017-18 (Department appeal)
At the outset, we would like to inform you that the facts of the case for appeals of the Department for income-tax assessment years 2018-19, 2020-21 and 2021-22 are similar to the facts of appeal of the Department for income-tax assessment year 2017-18 which are discussed in detail hereinbelow - WRITTEN SUBMISSIONS
Facts of the case i) The assessee is a partnership firm and engaged in the business of Consultancy and Business Auxiliary Services. The previous year relevant to A.Y.2017-18 was the financial year ended on 31-3-2017. ii) The assessee filed its return of income on 23-10-2017 electronically showing total income of ` 7,45,35,880/-. The assessment was first completed u/s.143(1) on 3-3-2018 accepting the returned income. iii) In the meantime, a survey u/s.133A was carried out at the premises of the Appellant on 7-12-2020. It was claimed by the Investigation Wing- DDIT(Inv)-3(1), Mumbai that primary documents viz. contract notes, bills and vouchers were not available at the time of the survey. iv) The ld. AO had completed the assessment u/s.143(3) r.w.s. 147 on 26- 3-2022 by treating the gross business or professional receipts of Consultancy and Business Auxiliary Services as unexplained cash credit u/s.68 and assessed the same under the head “Income from other sources” without allowing deduction of business expenses incurred by the Appellant by charging Income tax as a special case u/s.115BBE arbitrarily. v) In the course of re-assessment proceedings, the assessee furnished all requisite details, information and explanation as called for by the AO from time to time. vi) In making the re-assessment u/s.143(3) r.w.s.147 on 23-12-2022, the learned Dy. Commissioner of Income Tax, Central Circle-5(2), Mumbai (i.e. ld. AO) treated the gross business or professional receipts of Consultancy and Business Auxiliary Services as unexplained cash credit u/s.68 and assessed the same under the head “Income from other sources” without allowing deduction of business expenses incurred by the Appellant by charging Income tax as a special case u/s.115BBE arbitrarily without appreciating the facts of the case in its proper perspective
2. Unexplained cash credit u/s.68 and business expenses ` 7,98,76,883/- i) The assessee firm is engaged in the business of Consultancy and Business Auxiliary Services. In filing the return of income the assessee has shown business income of ` 7,45,35,654/- under the head “Profits and gains from business or profession” determined on the basis of Income and Expenditure Account for the year ended 31-3-2017. We give hereunder brief details of the same for your ready reference:- Income and Expenditure Account – year ended 31-3-2017 Particular Amount Particular Amount (` ) (` ) Various 53,41,22 Consultancy 6,66,11, Expenses 9 Income 633 Net Surplus 7,45,35, Commission 1,32,65, 654 Income 250 7,98,76, 7,98,76, Total ` Total ` 883 883
During the previous year the assessee received Consultancy and Business Auxiliary Services of ` 7,98,76,833/- from various clients. We submit herewith a statement showing name, address, PAN, bill number, taxable value, service tax, total value, details of payment received, TDS, etc. marked. It is relevant to note that the assessee firm has levied and paid Service tax @14.5% on the Consultancy charges or GST @ 18% and the payees have deducted tax at source @10% in accordance with the relevant provisions of law. All the persons are regularly assessed to income tax. ii) During the course of assessment proceedings, the assessee submitted all requisite details, information and explanation as called for by the ld. AO vide following letters as under:- Letter dated 14-02-2022 23-02-2022 10-03-2022 24-03-2022
Copy of these letters are submitted herewith marked given hereinabove. iii) The ld. AO first of all discussed the facts of the case as well as information of survey u/s.133A being carried out on the Appellant firm on 7-12-2020 available on Insight Portal. The ld. AO also discussed about conducting enquiry, granting opportunity of being heard, considering the reply of the Appellant, passing order u/s.148A(d) and issue of notice u/s.148. The ld. AO in brief doubted that the Appellant firm has not rendered any services and whole façade has been created to make believe arrangement in absence of any supporting documents or expertise to render such consultancy services and the income offered can’t be considered to be that of genuine without considering all materials available on record. Accordingly the ld. AO issued notice u/s.148 after passing order u/s.148A(d) rejecting the explanation submitted by the Appellant. The reasons of the re-opening of the assessment and the reasons of addition are the same. Basically the ld. AO influenced with the survey u/s.133A being carried out by the Department on the Appellant. The ld. AO has reproduced the questions and answers of Mr. Vincent Albuquerque in the statements recorded in the survey and post survey investigation in the assessment order at both the places. iv) In making the assessment, the ld. AO treated the gross business or professional receipts of Consultancy and Business Auxiliary Services of ` 7,98,76,883/- as non-genuine and assessed such gross receipts under the head of “Income from other sources” as unexplained cash credit u/s.68 recording the following reasons:- "9.1 The submission of the assessee is duly considered and not found to be satisfactory, devoid of merit due to following reasons:
9.2 Consultancy on its own does not imply that a service has been rendered. The nature of consultancy has to be explicitly mentioned. Whether the consultancy is for managerial or economic benefit or for technical benefit, the same needs to be specified. It is not satisfying the test of human probability that one man all of a sudden starts advising people on issues which are not stated, not documented, not reduced to terms in writing and substantial payments are made for the same. The fact that no document or agreement could be produced neither could any communication be produced reveals that the nature was not in the nature of consultancy. By its very implication, the client would have entered into consultancy or spoken or communicated or discussed the benefits that would accrue to it while doling out such payment and not a single shred of evidence supports rendering of any such service.
9.3 The claim of the assessee that the documents were at its residential premises is also not acceptable as it was never stated as such during the course of the survey. In fact, the provision of Sec 133A of the Act, permit entry of the survey team to the residential premises if the assessee claims that books of accounts are to be found there. No such assertion has been made by the assessee during the course of the survey and in case the same was deliberately not done even though documents were being asked for explicitly, it would amount to deliberate concealment of facts. As per the Evidence Act, the document which is in possession of the assessee and does not produce the same, it can be inferred that the production of such document would have adversely affected him. Therefore, leave alone any benefit, the credentials of the documents are questionable and also do not satisfy the requirement of consultancy having been rendered.
9.4 The assertion of the assessee that the clients who have received the services have not denied the same does not help its case at all. The provisions of Income Tax Act, 1961 make a person liable for tax in case he has made payments which are not for the purposes of business. In case the client says that he has made a payment for which he has not received services, he has to disallow that payment in its books and paty tax on his end. Therefore, the non denial of service receipt does not satisfy the requirement of the law and moreover, is in the nature of a self serving assertion by the clients. It may not be out of place to mention that the relevant information has been shared with A.Os of the clients for taking appropriate actions and making the necessary disallowance under the law. As stated in point (i), the consultancy needed to be provide through some kind of correspondence or meeting or purpose which has been absolutely absent in the present case and therefore, the claim is not acceptable.
9.5 As regards the assertion that Mr. Vincent has got adequate qualification and experience, it may be noted that Mr. Vincent has never been an independent consultant and all of a sudden has been robed in as a partner in consultancy firm whose other two partners are sleeping partners. Even though it has been claimed that consultancy has been rendered in the field of tender filing, liason and infra work, not a single instance of any tender or infra work or the department in which the liasoning was done could be provided by the assessee except general and vague statements. Specific queries regarding consultancy has also been raised in statement recorded of Mr. Vincent which have not been answered. The assessee could also not offer the name of the person in several entities with whom he was interacting with even though that is mandatory in the consultation process. The assessee did not have any employee who could help out in the process.
Relevant portion of his statement recorded u/s 133A of the Income-Tax Act, 1961 on 07.12.2020 is reproduced herein under:
The relevant extract of his statement recorded on oath u/s 131 of the I.T. Act, 1961 on 11.12.2020 is reproduced herein under:-
9.6 The assessee has accordingly failed to prove the genuineness of receipts of Rs. 6,66,11,633/- with any corroborative evidences, explain & establish, that the assessee firm infact carried any ‘consultancy services’ during the year and in absence of any manpower, the genuineness of genuineness of the same cannot be established and remains unexplained and unsubstantiated. The genuineness about rendering of services by the assessee firm is not at all established as explained above.
9.7 As regards the legal provisions, the provisions of Sec. 68 of the Act and deeming provisions and are applicable when the nature of credit stands unexplained. The purpose of taxing the same at a higher rate was to ensure that the source of funds which are explained and genuine are not treated at par with non genuine receipts. It is to ensure that the provisions of the I.T. Act., do not become a means of legalising earnings which are unexplained and the purpose of the same is not known. To say that the amount which is disclosed as income cannot be treated as unexplained credit would be to say that the Sec. 115BBE of the Act, is a redundant section. Therefore, the contention of the assessee is not acceptable on this count as well.
10.1 From the above, it is amply clear that the assessee is unable to prove & establish the genuineness of any services rendered and also about consultancy income.
It is pertinent to mention here that, already during the course of Survey u/s 133A, Mr. Vincent Albuquerque, working partner, in his statements on oath, had admitted that he is only the ‘working partner’ and other two being senior citizen are as ‘sleeping partners’. The other two partners Mr. Augustine Francis Pinto, Mrs. Grace Pinto also in their statements on oath had admitted that they are not involved into day to day working of the firm. It is important to note, that during the Survey action as well as during post-suvey investigations, the Partners could not provide details and supporting in respect of the nature of services rendered, how & when they came to know about the parties/persons to whom ‘consultation services’ have been provided by the assessee firm and how & when they came to know that the said parties required consultation services from the assessee.
10.2 It is seen from the Income Expenditure Account of the assessee for the year ended 31.03.2017 that the assessee has shown income of Rs.7,98,76,883/- comprising of consultancy income of Rs.6,66,11,633/- and commission income of Rs.1,32,65,250/- and after incurring total expenditure of Rs.53,41,229/- arrived at net surplus of Rs.7,45,35,654/-.
10.3 It is abundantly clear from the above facts and discussions, that the assessee firm has consistently failed to prove & establish the ‘nature’ and ‘genuineness’ of the receipts of consultancy income and commission income totaling of Rs.7,98,76,883/- with any corroborative & concrete evidences and has also repeatedly failed to explain & establish that the assessee firm, had infact carried any ‘consultancy services’ during the year, during the assessment proceedings as well as during Survey and post survey investigations. Further, in absence of any manpower, the genuineness of the same cannot be established and thus remains unexplained and unsubstantiated. Hence the same is liable to be taxed u/s 68 of Income tax Act, 1961. Accordingly, the unexplained & unproved consultancy income and commission income totaling of Rs.7,98,76,883/- is treated as unexplained credit u/s 68 of the Income Tax Act, 1961.
10.4 In view of the above, the amount of Rs. 7,98,76,883/- which has been shown as consultancy receipts in the books of the assessee is to be treated as un explained cash credit u/s 68 of the Act r.w.s. 115BBE of the Act and taxed accordingly.” (Emphasis supplied). v) In the matter we submit that the addition made to the income of the Appellant under the head “Income from other sources” on account unexplained cash credit u/s.68 representing gross business receipts without allowing deduction of business expenses is incorrect and invalid for the following amongst other reasons:- a) The whole case has been build up by the ld. AO on statements u/s.133A/131 of Mr. Vincent Albuquerque recorded on 7-12-2020/8-12- 2020 during the course of survey u/s.133A carried on the Appellant as well as statement u/s.131 of Mr. Vincent Albuquerque recorded u/s.131 on 11-12-2020 during the course of post survey investigation in which information was collected asking 137 questions. We submit herewith copy of the statements u/s.133A/131 dated 7-12-2020 and 7/8-12-2020 as well as statement u/s.131 dated 11-12-2020 of Mr. Vincent Albuquerque. Admittedly in the course of survey no incriminating material was found which is clear from the fact that the ld. AO could not make any reference of incriminating material in the assessment order. It may be seen that in the first statement u/s.133A dated 7-12-2020 the authorised officer asked 14 question relating to general information. The second statement u/s.131 dated 7-12-2022 was started in the afternoon which continued till 8.30 pm on 7-12-2020 and break has been provided till 9.00 am on 8-12-2020. In this statement certain general information was collected by the authorised officer. The statement u/s.131 was resumed at 10.15 am on 8-12-2020 and continued till mid-night and the survey was closed in morning of 9-12- 2020. In all the authorised officer collected information asking 84 questions. In making the assessment the ld. AO relied on following 8 answers out of 137 answers from these statements and reproduced questions and answers in the assessment order which are not legible. We therefore reproduce these questions and answers for the sake of clarity. Statement u/s.131 Dt. 7-12-2020 Q.15 Please elaborate the nature of activities undertaken by M/s. AGV Consutlancy? Ans Sir, the nature of service provided are mostly confided to providing consultancy services various infra development concerns who are involved in filing tenders and taking contractual works. We also provide consultancy towards filing of relevant documents and facilitation in the process of tender uploading and computing the competitive rates. We also provide various professional services as per the requirement of the clients, to the best of our ability.
Q.19 Have you utilized the services of any professional personnel in M/s. AGV Consultancy for providing the “various consultancy services” to your various clients? if yea, furnish the details of payments made to such “professionals”.
Ans. Sir, M/s. AGV Consutlancy have never hired services of any professional personnel for providing the consultancy services to its clients.
Q.20 Please refer to your replies to Q.No.16 to 19 stated above. From the above it can be inferred that you have “Provided” services to various clients of “various consultancies” to your client base. Please confirm the same.
Ans Sir, I do confirm that various consultancy services were provided to the clients solely by me. The other partners of M/s.AGV Consultancy are not actively involved in day to day affairs of the firm.
Q.21 Please refer to your reply to Q.No.20. Keeping in view the nature of services provided by you through M/s. AGV Consultants to various clients, please state whether you have acquired any professional degree or any professional course or any professional experience or acquired any specific online training or any offline knowledge for providing such services.
Ans. Sir, I have no acquired any specific professional or qualified degree or qualification for providing the services which were tender by me to the various clients.
Q.25 Please provide vouchers/agreement/any other supporting document for providing “Consultancy” by M/s. AGV Consultants to the concerns mentioned in Q.No.23.
Ans Sir, as submitted to your honour, due to covid pendemic the day to day functioning of M/s. AGV Consultants is being carried out through contractual professionals. Hence, under these circumstances at this juncture, I am unable to provide you any supporting documents with regards to the above query.
Statement u/s.131 dated 11-12-2020 Q.14 Please explain in detail about the mode of communication, through which you had communicated with your clients, while providing the consultancy services.
Ans. In most of the cases we discuss in mobile and video calls. We also meet clients at common convenient places such as hotels/conference or meeting rooms. I don't have any record of any communication with the clients. I don't have record of any consultation given to the clients. Reason for not discussing/advising through mails or through any exchange of written communication are that my clients are in very competitive business and there is always very high risk of leakage of information. So, we maintain absolute confidentiality regarding any advices/consultation given to our clients.
Q.21 Please explain the modus operandi of M/s AGV Consultants in receiving/executing/rendering of services, against which it has received consultancy receipts.
Ans. Sir, majorly my clients approach me through our common connections and request me for consultation services. Later I once go through the request of client and initially discuss on the phone regarding services, which are to be rendered and cost of such services. Further if needed we would meet personally or I would provide consultancy services on phone only, as may be suited for both of us.
Q.22 You have stated in Q.24 of statement recorded on 07.12.2020 that you have provided services to "Panchshil Group". What are the exact services rendered by you to Panchshil Group? Further, what are the tenders/projects/deals for which you have provided them consultancy services, against which you have received such huge consideration as management consultancy fee.
Ans. Sir, I would confirm you again that I had provided consultancy services to Panchshil group through a liaison person. I have no records of services provided to Panchshil group. I don't remember the details of the liaison person. As answered in earlier questions because of confidentiality, I have no documentary evidence, such as email communication/service agreement/minutes of the meeting supporting the services rendered by me to the Panchshil Group.
On perusal of these answers you will appreciate Mr. Vincent Albuquerque has well explained the nature of activities, nature of services, mode of communication, modus operandi, etc. being carried out by the Appellant firm and no adverse meaning can be drawn from these lengthy questions and asnwers except to raise suspicion. It may be seen that no where Mr. Vincent Albuquerque has admitted anything to suspect that the Appellant has not rendered any services. however, the ld. AO ignoring the view-point of a businessman proceeded with suspicion. It is submitted that the addition cannot be made on account of suspicion, surmises and conjectures. It was held in Panchal Associates v. ITO 43 Taxman 295 (Ahd-Trib)(Tax-Mag), that departmental authorities were not justified in taking an adverse view against the assessee merely on the ground that they were not satisfied with the answers given by the parties, i.e., cash creditor as to what they did with the money after they got it back from the assessee. The authorities had made addition merely on suspicion, surmises and conjectures. It is by now trite law that no addition could be made on account of suspicion, surmises and conjectures. Even where the circumstances are highly suspicious, this by itself would not lead to the conclusion that the amount belonged to the assessee. In the absence of any other evidence to the contrary, disbelieving the evidence as such would not be proper. Therefore, the assessing officer was no justified in making an addition to the income of the assessee in Vishnulal Karwa v. ITO 32 Taxman 276 (JP-Trib)(Tax-Mag) The Tribunal was held to be justified in holding that the amount shown as loans could not be treated as income in the absence of sufficient material leading to such conclusion - vide CIT v. Theccanattu Firms 123 CTR (Ker) 590. Similarly where revenue had added the amount representing cash credit entry appearing in the books of the assessee in the assessee's income without any sound proof in that regard, the Tribunal in Sodagarchand Diwanchand v. ITO 32 TTJ (JP-Trib) 131, remanded the matter back to the Income Tax Officer with a specific direction that the party shall be summoned by the Income Tax Officer and that the assessee shall be allowed to cross-examine the party and the matter will be decided accordingly. The authorities below did not carry out the said direction and stated that the matter being old, it would be difficult for the Income Tax Officer to trace and summon the creditors. The authorities felt that on the basis of past evidence it was sufficiently established that the credits were not proved by the assessee to be genuine. It was held by the Tribunal that, in view of the specific direction not having been complied with by the authorities below and also in the absence of any evidence to the contrary except the general belief of the revenue, the above addition made as unexplained cash credit was uncalled for. The above decision makes it very clear that mere general belief on the part of the authorities cannot justify addition and that it will be necessary to produce evidence contradicting the explanation rendered by the assessee. In ITO v Kaka Iron Stores 54 TTJ (chd-Trib) 142, it was observed that it was not correct to say that the cash creditors had no capacity to advance the moneys to the assessee-firm. It may be that these cash creditors were agriculturists, that they had not charged interest, that they had advanced the loans in cash, that the entries of their cash credits appeared at the end of the cash book each day and that some of the names had been recorded in a different ink. All this may point to suspicion, but suspicion howsoever strong, cannot take the place of evidence. Where purchase have been held to be genuine and accepted as such, the credit that remained outstanding in such account could not be treated to have been remained unexplained - Vide Jt. CIT v. Mathura Das Ashok Kumar 11 (II) ITCL 443 (Ahd-Trib) 101 TTJ (All-Trib) 810. The provisions of section 68 are in pari materia with section 69. Section 68 also used the word "may" and, therefore, before making an addition under section 68, the assessing officer has to exercise his discretion judiciously. Further the assessee has discharged burden of proof and genuineness of transaction, creditworthiness of creditor was also not in doubt, the addition had been made on presumption surmise and suspicion and, therefore, cannot stand - Vide Harish Kumar v. Dy. CIT 85 ITD 366 (Hyd-Trib). b) It is submitted that a survey u/s. 133A was carried out on the business premises of the Appellant firm on 7-12-2020 where statements u/s.131 of Mr. Vincent Albuquerque, partner of the Appellant firm were recorded. During the course of his deposition he has provided the list of the persons to whom services were provided but could he not provide details of specific services rendered with copy of contracts, bills and vouchers in support thereof. However, the partner of the Appellant firm provided the list of the clients to whom professional services were rendered but the supporting documents in respect of the same could not be provided in the course of the survey as the same were lying at the residential premises of the partner Mr. Vincent Albuquerque. It is submitted that the world as a whole was suffering from pandemic COVID-19 at the time of the survey. As the world was trying to cope with the greatest human calamity of the century, newer ways were innovated by the world as a whole to survive. With complete lock down and severe restriction on movement in place, it was impossible to work like pre- covid times. Work from Home was the new culture that evolved. Like many other businessmen, Mr. Vincent Albuquerque partner of the Appellant firm carried out the files of Appellant firm to his residence from the office premises for work and reference purposes. While the Department conducted survey at a couple of premises but the above residential premises was not covered during the course of the survey u/s. 133A. It will be of paramount importance here to highlight that though Mr. Vincent Albuquerque requested an opportunity to present relevant documents lying at his residential premises, he was denied permission to depart from the premises of the survey nor was he allowed to call for these documents from his residential premises. However, during the course of post survey proceedings Mr. Vincent Albuquerque attended before DDIT(Inv.) Unit-3(1), Mumbai and submitted all the supporting documents of the services carried out by the Appellant firm vide letter dated 22-2-2021 which could not be produced in the survey proceedings due to unavoidable circumstances. Again the assessee has submitted copy of letter dated 22-2-2021 before the ld. AO alongwith letter dated 10-3-2022 together with supporting documents. It will be of paramount importance here to highlight that independently the Investigating officer has issued summons to each and every party to whom the assessee firm has rendered services. Various number of clients had informed the Appellant that they were in receipt of summons u/s. 131 in connection with the Appellant’s case. To the best of knowledge of the Appellant all these parties who were summoned by the Investigation Authorities have attended and made their submission confirming the transactions carried out with the Appellant firm before the investigating authorities. It appears that there was nothing incriminating found as a result of which there was no cross enquiries conducted further on the assessee firm so, its more than apparent and clear that when the parties independently appeared deposed/made submission to caste a spell of doubt on genuine transactions of the assessee firm is not only unjust but also unfair. It will be important here to highlight that during the course of the said survey there was a back-up of laptop taken which contained back up of accounts, copy of invoices generated, etc. Further also the Department has taken back up of the mobile of the Appellant firm’s partner, accountant and a tax consultant. It will be of paramount importance here to highlight that there was nothing incriminating that was found in such electronic back up taken by the Department otherwise the ld. AO had brought the same on record. There was nothing to suggest that the Appellant firm has not rendered services to its clients. The ld. AO alleged that the assessee firm could not provide even primary documents viz. contract notes, bills/ vouchers raised, etc. despite sufficient opportunities. The assessee firm would like to place very vital evidence on record that is the submission made before the DDIT(Inv) Unit 3(1), Mumbai is a letter where not only copy of contract with clients has been submitted but also copy of invoices raised by the assessee along with ledger accounts duly confirmed by the clients have been submitted. The investigating authorities have ignored the submission made by the assessee and alleged that despite sufficient opportunities the Appellant firm could not provide any documentary evidences of the services provided by the Appellant firm. The acknowledgment of the letter dated 22-2-2021 by the investigating authorities is significant evidence which puts to rest on the allegation of the investigation authorities on the assessee firm having not furnished evidences in support of the services rendered to various parties. It is also alleged by the ld. AO that the partner of the Appellant firm do not have professional or technical qualification/expertise to render such services. In the matter we humbly submit that Mr. Vincent Albuquerque who has been actively involved in day to day business activity of the Appellant firm is having ground work expertise. He has immense practical experience which helps him be a mark above people with qualification. It is practical knowledge of so many years that he is a name to reckon with. It is for this very reason that renowned business houses have availed of his services on commercial basis. The partner of the Appellant firm has acknowledged having rendered services on behalf of the Appellant firm from to time which cannot be visited with any adverse inferences. It may be seen that Appellant’s clients are flagship concerns of their field, who themselves have substantial expertise and battery of technical people to render the services hence it is the assertion that the Appellant has not rendered any services to the clients from whom it has received sums in lieu of so called consultancy services. In the matter the assessee humbly submits that such assumption is baseless and without any merits. It is true that clients are flagship concerns of their field who have substantial expertise and battery of technical people but sometime the in house teams are not able to deliver the desired result and these clients have sought help of the assessee who have delivered desired results. Here it will only be appropriate to cite example in income tax hearing inspite of big companies having their own in house Chartered Accountants, professionally a Chartered Accountant from a tax firm is appointed to appear before the tax authorities and in cases when the issue escalates to litigation, professional help is sought from tax advocates by these tax firms to argue matter for their clients before Higher Appellate forums. So inspite of having in house Chartered Accountants big corporates seek professional help and that goes to demonstrate seeking outside professional help is quite common. If the assessee was able to assist its clients in providing the experience of its partner to achieve desired results it cannot be said to be a façade. It is pure hard work and dedication of the partner who has flagship concerns of their field as clients. It is a matter of record that the Appellant firm has besides the service rendered levy of taxes has paid substantial taxes nearly on all receipts by claiming only actual expenses incurred. The assessee firm does not have any brought forward losses available for set off. It surprises the assessee firm, that inspite of diligently paying taxes it has been alleged to be involved in wrong doing. If the Appellant firm had to evade taxes, then why would the firm pay substantial taxes on income earned during the respective financial years. You will have to appreciate the assessee firm has lawfully earned income from relevant clients who are well known business houses of India. Each and every party carries a repute and an established player in its respective field. c) Section 68 basically applies to unexplained “Cash credit” like loans, deposits and advances, share capital, etc. The core condition for applicability of deeming provisions of section 68 is “Where any sum is found credited in the books of an assessee……” has to be satisfied and the word “sum” means “amount of money” whereas in the case of the assessee it is “amount of income” (Gross income) which has been duly considered as income while determining total income on which tax has been paid in filing the return of income and as such the same cannot be considered as “any sum” found credited in the books. In absence of core condition being satisfied the deemed provision of section 68 cannot be invoked in the case of the assessee. It is therefore submitted that income credited in the books of account on which tax is being paid cannot be considered as “sum” found credited in the books. The books of account do not include Balance sheet and Profit and loss account as held in J. K. Industries Ltd. V/s. Union of India 80 SCL 283 (SC). Each and every credit in the books of an assessee does not fall within the ambit of section 68. Once there are sums credited in the books of an assessee they will reflect in the Balance sheet. It is automatic if there are credits reflected in the Balance sheet prepared on the basis of books. Once the credits are offered as income, there is no basis and reasons to believe the same to be as unexplained credit or deemed income. The deemed provisions of section 68 are introduced to find unexplained cash credit and not the disclosed income in the return of income which are duly considered in determining total income subject to income tax. Section 115BBE deals with tax in certain special case and comes into play only and only where the assessed total income of an assessee includes any income reflected to in section 68 and other deeming sections. For the sake of better understanding, let us now ponder on the applicability of section 115BBE with reference to the provisions of section 68 dealing with unexplained cash credit. Section 68 provides inter alia that if any sum is found credited in the books of a tax payer and he either does not offer any explanation about the nature and source of such sum, or the explanation offered by him is not satisfactory in the opinion of Assessing officer, then such sum can be taxed as his income. Whether it means that the Assessing officer is vested with unfettered powers to reject any explanation, being not to his satisfaction. In fact the Assessing officer is required to act reasonable and just while framing any opinion surrounding the explanation offered by the tax payer. At the sametime the taxpayer is nevertheless saddled with primary obligation to demonstrate the nature and source of any sum credited in the books. It is submitted that section 115BBE is a machinery provision to levy tax on income and it should not enlarge the ambit of section 68 to create a deeming fiction to tax any income already credited/offered as income. Such recourse is unwarranted, keeping in view the objective of introducing section 115BBE more particularly when all the transactions are routed through normal banking channel. Even otherwise also, in the post survey proceedings, the assessee has produced sufficient materials in order to establish prime facie the nature and source of consultancy income as discussed hereinabove and the same has been cross examined by the Investigation Wing calling information directly from the clients of the assessee. It is quite important to note that the income has already been declared in the nature of business income and as such the same cannot be taxed under the deemed provision of section 68. In the case of ACT Central Circle-13 Mumbai v. Rahil Agencies, order dated 23 November, 2016 the Tribunal held that section 115BBE does not apply to business receipts/business turnover. The Tribunal observed as under: “19. We have considered rival contentions and found that by applying provisions of section 115BBE the AO has declined set off of business loss against income declared during the course of survey/search. The provisions of section 115BE are applicable on the income taxable under section 68, 69, 69A, 69B, 69C or 69D of the Act. The income declared by the assessee is unrecorded stock of diamond found during the course of search. The assessee is in the business of diamond trade and such stock was part of the business affair of the company. Therefore, since income declared is in the nature of business income, the same is not taxable under any of the section referred above and accordingly section 115BBE has no application in case.”
In the case of Abdul Hamid v/s. ITO (117 taxmann.com 986 – Gauhati) the ITAT has held that section 115BBE does not apply to business receipts/business turnover. Section 115BBE does not apply to business receipts/business turnover. d) In the course of post survey investigation as well as assessment proceedings, the assessee submitted following documents in support of genuineness of the transactions:- (a) Contract Note (b) Confirmation of the account by payers with PAN and address (c) Bank statement of the Appellant. (d) TDS deducted and paid on Consultancy receipts. (e) Service tax has been paid on Consultancy receipts. (f) Clients have confirmed the transactions before investigation authority.
In view of these documents we submit that all the three ingredients are established i.e. (i) identity of the creditor, (ii) credit worthiness of the creditor and (iii) genuineness of the transactions more particularly when nothing was found to be false in these documents. Considering the vortex evidences, the Appellant has successfully discharged the onus cast upon him by the provisions of section 68 more particularly when the AO has not brought on record any clinching evidence to disprove the evidences produced by the Appellant. Hence all the transactions with these persons are genuine beyond doubt and no part of these transactions can be termed “unexplained” covered under deeming provisions of section 68. In support of our contention we rely on the following decisions:- 1. CIT V/s. Orissa Corporation P. Ltd. 159 ITR 78 (SC) "Held, that in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which the conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case."
2. Jalan Timbers V/s. CIT 223 ITR 11 (Gau.) "Held, that the Tribunal did not make any endeavor to give any cogent reason why the income-tax returns filed by the creditors and accepted by the Income-tax Officer should be ignored. The credits were prima facie genuine. The Tribunal was not justified in upholding the addition of Rs.2,15,000 in the income of the assessee and disallowing the interest on the amount."
CIT V/s. Baishnab Charan Mohanty 212 ITR 199 (SC) "Held, that the first appellate authority as well as the Tribunal had accepted the identity of the persons who had entered into business with the assessee. The Tribunal further, relying upon the confirmation letters available in the paper book as well as all other relevant materials, recorded the finding that the transaction transactions were genuine. The Tribunal was justified in holding the transaction appearing in the names of M and MS to be genuine transactions and deleting the sum of Rs.57,000 from the income of the assessee."
Ram Niwas & Sons V/s. Asstt. CIT 44 ITD 394 (Delhi) "The assessee can be said to have discharged onus which lay on it vis-a-vis the various cash credits by placing on record cogent and positive material in the shape of (i) confirmation letters from parties, (ii) assessment of creditors, (iii) bank statements, and (iv) copies of accounts in the books of the assessee-firm and by showing that the deposits were made by account payee cheques and refunds wherever applicable were made also by the same mode. Further, one could not accept the view that in respect of the relatives and others, where assessments had been completed under section 143(1), the onus was not discharged unless and until the deposits in the bank accounts from where account payee cheques were issued were explained. This view was unacceptable especially when the assessee after it had placed on record relevant material and evidence specifically asked the Assessing Officer whether anything else was required to be done. At this stage, the onus shifted to the Assessing Officer and in case he did require any further information or desired to examine the depositors with a view to ascertain the genuineness of the cash credits, then the next step should have come from, his side. Inasmuch as, he failed to take any further action the onus which lay on the assessee stood discharged and there was no ground to reject the explanations given. Accordingly, the additions were deleted."
5. Subhash Dal Mill V/s. Asstt. CIT 124 Taxman 169 (Agra)(Mag)
"It was an admitted position that the loan had been obtained by account payee cheque. Confirmation, copy of account as well as the bank statement of the creditor had also been furnished. The loan as well as interest had been paid by account payee cheque. The tax had also been deducted at source. The creditor was also assessed to tax. Thus, the issue was squarely covered by the decision of the Supreme Court in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 Taxman
Respectfully following the same, no addition of cash credit was called for.
As there were certain cash deposits in the bank account of the creditor, the Commissioner (Appeals) felt that the assessee had not been able to prove the creditworthiness of the creditor. The Supreme Court in the case of CIT v. Daulat Ram Rawat Mull [1973] 87 ITR 349 has held that in case a partner of the firm is not able to explain certain deposits in his name introduced in the firm, it cannot lead to a conclusion that the income belongs to the firm. The ratio of the Supreme Court's decision squarely applied to the assessee's case.
On the basis of the above judicial pronouncement, it can be said that the source of the source cannot be inquired by the department.
Hence, the addition sustained by the Commissioner (Appeals) was not justified and the same could be deleted."
6. Mohar Singh V/s. Dy. CIT 77 TTJ 218 (Agra) "Admittedly the onus is on the assessee to prove the identity and creditworthiness of the creditors as well as genuineness of the transactions. The assessee has filed confirmations from all the creditors confirming the loan transaction. All the three creditors are being assessed to tax. The entire loans have been obtained by the assessee by cheque. Out of the three creditors, the two creditors have appeared in person before the assessing officer whose statements were also recorded. In their statements, they not only confirmed having advanced the loan to the assessee but also explained the sources from where they had advanced the loan to the assessee. One, who did not appear before the assessing officer was the wife of other creditor. By filing these evidences, the assessee had discharged its initial burden and the onus shifted on the department to show as to why the assessee's case could not be. accepted and as to why it must be held that the entries though purporting to be in the names of the three creditors still represented the income of the assessee from a suppressed sources.
The Supreme Court in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 had considered similar issue wherein it was held that if the assessee has given names and addresses of the creditors and it was in the knowledge of the revenue that the said creditors were being assessed to tax, the onus is on the revenue to pursue the matter with the creditors. In view of the above and the decisions of the Patna High Court in the case of Sarogi Credit Corn. v. CIT [1976] 103 ITR 344 and the decision of the Orissa High Court in the case of CIT v. Baishnab Charan Mohanty [1975] 212 ITR 199/78 Taxman 183 it was hold that the assessee has discharged its initial burden shifted in the revenue to disprove the contentions of the creditors. For disapproving it, sufficient and adequate material had to be brought in by the Assessing Officer. The only apparent reason for rejecting the case of the assessee regarding the genuineness of the loan transaction appeared to be certain deposits in the bank accounts of the creditors.
On the basis of different judicial pronouncements, it was held that as the source of the source cannot be enquired by the department, the these revenue receipts having been confirmed by the creditors who are assessed to tax and the transactions taking place through cheques, there was no occasion to treat these receipts as unexplained cash credit u/s.68. e) The expression "in the opinion of the Assessing Officer" and similar other expressions are found very often in various provisions of Income Tax Act, 1961 including section 68. The abundance of these tends to convey the impression that the AO has been vested with vast discretionary powers and the application of a provision depends mainly upon how he utilises his discretion. The question could be asked whether, he, in the exercise of his discretionary power, is unfettered by any rule of law or procedure and he can abuse it arbitrarily for a sinister purposes? The answer is definately big no. Discretion means that something is to be done according to the rules of reasons and justice, not according to private opinion, and according to law and not humour. It is to be not arbitrary, vague and fanciful, but legal and regular and it is to be exercised within the limit to which an honest man competent to the discharge of his office ought to confine himself (Punjab National Bank Ltd. V/s. Sri Ram Kunwar, Industrial Tribunal AIR 1957 SC 276). The mere ipse dixit of the Income Tax Authorities unrelated to the criteria laid down in the statute would not be considered opinion but a dogmatic assertion, which is impermissible under the statue (Natesan & Co. (P) Ltd. V/s. CIT 51 ITR 386 (Mad)). Thus the explanation as offered by an assessee about the nature and source of cash credit has to be considered without prejudice or bias. Any opinion, which is prima facie arbitrary, capricious or perverse, or is based on subjective consideration or irrelevant fact is no opinion in the eye of law and could be held so by the appellate authorities and courts. In fact the AO has to exercise his opinion honestly, fairly, reasonably and judicially. Though the ld. AO has alleged introduction of unexplained money under the guise of loans, advances in this case but at the same time he grossly failed to give any cogent reason in support of the same nor any convincing reason except saying such vogue practice is widely prevalent. The giving of reasons in support of their conclusions judicial and quasi-judicial authorities when exercising initial jurisdiction is essential for various reasons. Firstly, it is calculated to prevent unconscious, unfairness or arbitrariness in reaching the conclusions. The very search for reasons will put the authority on the alert and minimise the chances of unconscious infiltration of personal bias or unfairness in the conclusion. The authority will adduce reasons which will be regarded as fair and legitimate by a reasonable man and will discard irrelevant or extraneous considerations. Secondly, it is well-known principle that justice should not only be done but should also appear to be done. Unreasoned conclusions may be just but may not appear to be just to those who read them. Reasoned conclusions, on the other hand, will also have appearance of justice. Thirdly, it should be remembered that an appeal generally lies from the decision of judicial and quasi-judicial authorities. A judgment which does not disclose the reasons will be of little assistance to the Court. The Court will have to wade through the entire record and find for itself whether the decision in appeal is right or wrong. In many cases, this investment of time and industry will be saved if reasons are given in support of the conclusions. So it is necessary to emphasise that judicial and quasi-judicial authorities should always give reasons in support of their conclusions—Woohombers of India Ltd. v. Workers Union AIR 1973 SC 2758. Relying upon this decision of the Supreme Court, the Gujarat High Court in Rasiklal Ranchhodbhai Patel's V/s. CWT 121 ITR 219 (Guj) held that by passing such a cryptic order in a matter where he was required to exercise discretion and act in a quasi-judicial manner, the Commissioner had violated the principle of audi alterm partem. The order was struck down as only an apology of reasons had been given where substantial reasons were needed. Incorporation of reasons for a conclusion arrived at by an authority, is necessary to demonstrate that the said authority has considered the matter according to law and that its order may be subjected to judicial review—Associated Tube Wells Ltd. v. R.B. Gujarmal Modi AIR 1957 SC 742, Bharat Nidhi Ltd. v. Union of India [1973] 92 ITR 1 (Delhi), Shakuntla Mehra v. CWT [1976] 102 ITR 301 (Delhi) and Paras Bhan Sadh v. CIT 114 ITR 834 (All.). The order which is based on reasons which are invalid, is also liable to be set aside as invalid— K. L.
Sreenhasulu v. CIT [1981] 127 ITR 834 (Kar.). Orders passed in violation of natural justice is a nullity— Ram Swarup v. Shikar Chand AIR 1966 SC 893, State of U.P. v Kaluwa 40 STC 79 (All.) and Raja Jagdambika Pratap Narain Singh v. CBDT [1975] 100 ITR 698 (SC). f) The primary and sole reason for making the addition on account of cash credit u/s.68 in respect of Consultancy received during the previous year is non-availability of relevant document at the time of survey carried out on 7- 12-2020 which were produced in post-survey proceedings. Thus the Appellant has discharged the initial onus which lay on it in term of section 68 by providing the identity of the creditor by giving complete address, creditworthiness by giving PAN and genuineness by transactions through banking channel. In the case of CIT V/s. Orissa Corpn. (P) Ltd. 159 ITR 78 (SC), the Supreme Court observed that when the assessee furnished name and address of the creditor and the GIR number, the burden shifts to the Department to establish the revenue’s case and in order to sustain the addition, the revenue has to pursue the enquiry and to establish lack of creditworthiness. g) It is submitted that the assessment proceedings are quasi-judicial in nature and therefore in making an assessment, the AO does not act merely on what is technically described as "evidence" in the Indian Evidence Act, 1872. It may be seen from section 142 and 143 that he may also act on "the material gathered" by him. The word "material" clearly shows that the AO is not fettered by the technical rules of evidence and the like, and that he may act on material which may not, strictly speaking, be accepted as evidence in a court of law [Vimal Chandra Golecha V/s. ITO 134 ITR 119, 130 (Raj.)]. Material or evidence on which taxing authorities may rely under the Income Tax Act is not confined to direct testimony in the shape of statements made by witnesses. All relevant circumstances which have a bearing on the issue which are revealed in the course of the assessment, would be covered by the expression "material or evidence on which the Income Tax Officer could rely" [Mangalchand Gobardhan Das V/s. CIT 26 ITR 706, 710-1 (Assam)]. Section 143(3) is not exhaustive or definitive of the material on which an assessment may be based. The material, on which reliance may be placed by the AO, may be within his own knowledge and might have been derived by him from hearsay or from information of a most authentic character. Assessment may be based on all such information and material even though it may not be 'evidence' within the meaning of the Indian Evidence Act, 1872 and may be merely secondary or hearsay evidence within the meaning of that Act, provided the assessee's attention has been drawn to that information or material and the rules of natural justice are not violated [Seth Gurmukh Singh V/s. CIT 12 ITR 393, 425 (Lah)]. At the same time, material gathered in the assessment proceedings of one person is not legal evidence in the assessment of another person [N.S. Choodamani V/s. CIT 35 ITR 676 (Ker). Similarly, evidence brought on record without the knowledge of the assessee and used against him without giving him an opportunity to rebut it offends the principles of natural justice [M. G. Thomakutty V/s. CIT 34 ITR 501 (Ker); Dhakeshwari Cotton Mills Ltd. V/s. CIT 26 ITR 775, 782 (SC). A well-known mercantile custom can always be relied on by the authorities [Laxmi Co. V/s. CIT 37 ITR 461, 472 (All)]. The AO is not fettered by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a court of law - Dhakeswari Cotton Mills Ltd. V/s. CIT 27 ITR 126 (SC). The Indian Evidence Act, 1872 can have limited application - though the provisions of the that Act do not apply to assessment proceedings, when the authorities are called upon to consider the effect of the terms of a document the general principles embodied in section 91,92 and 94 of the said Act can be applied in construing the effect of the document - A.V.N. Jagga Row V/s. CIT 166 ITR 862 (AP). h) The deeming part of section 68 deals with cash credits. In section 68 where any sum is found credited in the books of an assessee for any previous year and he offers no explanation about the nature and source thereof or explanation offered by him is not satisfactory, the sum so credited "may" be deemed to be the income of the assessee. The word "may" has been deliberately used. A brief history of the legislation may be relevant. When the bill was introduced in the Parliament the provision was that the value of the investment or unexplained money "shall" be deemed to be the income of the assessee for such financial year. The Select Committee of the Parliament advised substitution of the word "may" for "shall". The word "may" which was finally adopted in the Act indicates that there is no presumption that unexplained investment must necessarily be added to the assessee's income and grants a significant amount of discretion to the Income Tax Authorities and the Tribunal in this regard. "The unsatisfactoriness of the explanation need and did not automatically result in deeming the value of the investment to be the income of the assessee. That is still a matter within the discretion of the Officer and therefore of the Tribunal". [Smt. P.K. Noorjehan 237 ITR 570 (SC)]. i) The ld. AO further did not allow all the expenses incurred by the Appellant for earning such income. It is submitted that all these expenses were incurred wholly and exclusively for the purposes of the business carried on by the Appellant. The reasons assigned by the ld. AO that no business was carried out is not correct. It is not a case where the expenses are considered to be bogus or any short coming in this regard has been observed by the ld. AO. Again the auditors has not reported any expenses of personal nature in the statutory report. It is submitted that the nature of these expenses itself shows that these expenses were incurred for the purposes of the business carried out by the assessee. There is nothing improper in these expenses so as to disallow without pointing out any lapses. Hence the addition is unwarranted on the facts of the case. In the business of the assessee, such expenses are inherent. In view of the above, we submit that all these expenses were incurred for the purposes of the business carried on by the assessee and there is direct and proximate nexus and/or connection with carrying on the business of the assessee. Thus these expenses must be regarded as integral part of the business. The expenses are allowable deduction if incurred wholly and exclusively for purposes of the business carried on by an assessee. The word "wholly" here refers to the quantum of expenditure. The word "exclusively" refers to the motive, objective and purpose of the expenditure and gives jurisdiction to the taxing authorities to examine these matters [Siddho Mal & Sons V/s. CIT 122 ITR 839, 844 (Del); Amritlal & Co. Pr. Ltd. V/s. CIT 108 ITR 719, 729 (Bom)]. The expression "wholly and exclusively" in section 37(1) does not mean "necessarily". Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of its or his business. Such expenditure even may be incurred voluntarily and without any necessity, and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction thereof u/s.37(1) even though there was no compelling necessity to incur such expenditure. As a matter of fact, the word "necessarily" found place in the Income-tax Bill, 1961, but it was dropped at the Legislative anvil [Sassoon J. David & Co. P. Ltd. V/s. CIT 118 ITR 261, 275-6 (SC).
Therefore, the CIT(A) order is correct to delete the addition made on account of cash credit u/s.68 and allowing deduction of all the expenses and charge income tax as regular rate of income tax.
Therefore, the Department appeal to Tribunal should be dismissed.
Facts of appeals of the Department for income-tax assessment years 2018-19, 2020-21 and 2021-22 are similar to what is mentioned above for income-tax assessment year 2017-18.
We have heard the counsels for both the parties, perused the material placed on record, judgement cited before us, and also the orders passed by the revenue authorities.
From the records, we noticed that a survey action in the case of assessee was carried out. It was noticed that during the survey, statements of one Shri Vincent Albuquerque partner of M/s AGV Consultant was recorded u/s 131 of the Act along with the statement of other partners. Wherein, it was submitted that they have earned business income from consultancy services. In this regard assessee has provided on record a list of entities to whom consultancy services were provided. However, AO was of the view that assessee could not provide other details regarding the nature of specific services, contract, agreements or details of communications. Therefore, the income of the assessee was taxed as ‘unexplained credit’ u/s 68 of the Act.
We have also perused the statement of Shri Vincent Albuquerque, the managing partner who has always been consistent in his statement that the assessee had been providing consultancy service, and the said facts were reiterated before the survey team as well as before the investigation wing. The specific replies made by the partners is reproduced here in below
"Q.37 Ongoing through the above statement and the facts of the case, it is evident that you have not been speaking the truth. In this regard, may I again bring to your notice that your statement has been recorded under the provisions of section 131, wherein you are oath bound to speak truth. I am providing one more opportunity to you and giving you 15 minutes to think and go through the statement and speak truth.
Ans. Ok sir
Q.38 On-going through the above statement, it is evident that you have put up concocted story to make believe arrangement. You are asked to explain as to why your statements made hereinabove may not be treated as false. You are further asked to explain as to why the entire payment received by your firm should not be considered as un-explained receipt and treated as unexplained credits into you books of accounts u/s 68 of IT Act and taxed @ 60% because the genuineness of the transaction is not established.
Ans. Sir, even though I couldn't not provide valid explanation against the receipts received byM/s AGV Consultants, I would like to state that we have been genuinely rendering services to our clients. Furthermore, I have been speaking truth and have not put up any concocted story. Regarding, Income tax Act and its implication, I am not aware of any consequences. My CA would be rather equipped to answer regarding such provisions in Income Tax Act."
4872 & 4865 /Mum/2023 AGV Consultants, Mumbai 8. Admittedly, in the course of survey no ‘incriminating material’ was found, which is clear from the fact that the AO could not make any reference of incriminating material in the assessment order. Whereas evenSection 68 basically applies to unexplained “Cash credit” like loans, deposits and advances, share capital, etc and the core condition for applicability of deeming provisions of section 68 is “Where any sum is found credited in the books of an assessee……” has to be satisfied and the word “sum” means “amount of money” whereas in the case of the assessee it is “amount of income” (Gross income) which has been duly considered as income while determining total income on which tax has already been paid while filing the return of income and as such the same cannot be considered as “any sum” found credited in the books. Therefore in the absence of core condition being satisfied, the deemed provision of section 68 cannot be invoked in the case of the assessee. Thus in our view the income which has been credited in the books of account on which tax has already been paid, cannot be considered as “sum” found credited in the books. Even otherwise the books of account do not include Balance sheet and Profit and loss account as held in the case of J. K. Industries Ltd. V/s. Union of India 80 SCL 283 (SC).
Further in our view, each and every credit in the books of an assessee does not fall within the ambit of section 68. Once there are sums credited in the books of an assessee they will reflect in 4872 & 4865 /Mum/2023 AGV Consultants, Mumbai the Balance sheet. It is automatic if there are credits reflected in the Balance sheet prepared on the basis of books. Once the credits are offered as income, therefore there is no basis and reasons to believe the same to be as ‘unexplained credit’ or ‘deemed income’. As the deemed provisions of section 68 are introduced to find ‘unexplained cash credit’ and not the disclosed income in the return of income which are duly considered in determining total income subject to income tax.
In our view, Section 115BBE deals with tax in certain special case and comes into play only and only where the assessed total income of an assessee includes any income reflected to in section 68 and other deeming sections. For the sake of better understanding, let us now ponder on the applicability of section 115BBE with reference to the provisions of section 68 dealing with unexplained cash credit. Section 68 provides inter alia that if any sum is found credited in the books of a tax payer and he either does not offer any explanation about the nature and source of such sum, or the explanation offered by him is not satisfactory in the opinion of Assessing officer, then such sum can be taxed as his income.
Now the question arises as to whether it means that the AO is vested with unfettered powers to reject any explanation, being not to his satisfaction. In fact the Assessing officer is required to act ‘reasonable and just’ while framing any opinion surrounding 4872 & 4865 /Mum/2023 AGV Consultants, Mumbai the explanation offered by the tax payer. At the same time the taxpayer is nevertheless saddled with primary obligation to demonstrate the nature and source of any sum credited in the books. In our view, Section 115BBE is a machinery provision to levy tax on income and it should not enlarge the ambit of section 68 to create a deeming fiction to tax any income already credited/offered as income. Such recourse is unwarranted, keeping in view the objective of introducing section 115BBE more particularly when all the transactions are routed through normal banking channel. Even otherwise also, in the present case, in the post survey proceedings, the assessee had produced sufficient materials in order to establish prime facie the nature and source of consultancy income as discussed hereinabove and the same had been cross examined by the Investigation Wing calling information directly from the clients of the assessee.
It is quite important to mention here that the income has already been declared in the nature of ‘business income’ and as such the same in our view cannot be taxed under the deemed provision of section 68. Reliance in this regard is being placed upon the decision of ACT Central Circle-13 Mumbai v. Rahil Agencies, order dated 23 November, 2016, wherein the Tribunal held that section 115BBE does not apply to business receipts/business turnover and the operative portion of the order of the Tribunal is reproduced herein below:
4872 & 4865 /Mum/2023 AGV Consultants, Mumbai “19. We have considered rival contentions and found that by applying provisions of section 115BBE the AO has declined set off of business loss against income declared during the course of survey/search. The provisions of section 115BE are applicable on the income taxable under section 68, 69, 69A, 69B, 69C or 69D of the Act. The income declared by the assessee is unrecorded stock of diamond found during the course of search. The assessee is in the business of diamond trade and such stock was part of the business affair of the company. Therefore, since income declared is in the nature of business income, the same is not taxable under any of the section referred above and accordingly section 115BBE has no application in case.”
In the case of Abdul Hamid v/s. ITO (117 taxmann.com 986 – Gauhati) the ITAT has held that section 115BBE does not apply to business receipts/business turnover.
Even during the investigation, the documents in the shape of service agreements with respective vendors, copies of sales invoices raised by the assessee on the respective vendors, copy of ledger account duly confirmed by the respective vendors were also placed on record. We also noticed that the same details were also furnished by the assessee during the course of assessment proceedings vide letter dated 29.10.2022.
A perusal of the details furnished by the assessee shows that consultancy income has been booked in respect of four parties namely Aura Designs, Balaji Symphony, Shankeshwar Infra Projects and S R Energy Consultants for the period relevant to AY 2016-17. The details furnished shows that service tax has been paid as per such invoices and TDS has been deducted on such remittances. Although the relevant details were not furnished by the assessee at the time of the survey, nothing bars the assessee from submitting the same subsequently. Unless there are evidences to show that such documents are doctored with or that the documents are not genuine in nature, they cannot be discarded, particularly when they are in relation to books of account already finalised and the transactions reflected therein correspond with the bank accounts.
Even as per facts, in this case, survey took place on 07.12.2020. However, the assessee had offered consultancy income over a period of time starting from AY 2016-17, the brief details of which are as under:- A.Y Return Income Consultancy Expenses Date of income claimed filing of return 2016-17 7,12,03,950 7,86,57,895 78,93,310 03.10.2016 2017-18 7,45,35,880 6,66,11,633 53,41,229 23.10.2017 2018-19 92,25,30,540 92,45,13,221 27,39,224 26.10.2018 2020-21 76,31,17,380 77,50,29,918 1,19,27,684 30.01.2021 2021-22 64,17,46,330 65,36,68,410 1,19,50,794 05.03.2022
In the case of ACIT vs Grasim Industries Ltd in for AY 1992-93 dated 17.11.2006, the Hon'ble ITAT held that "The task of the Tribunal would, 4872 & 4865 /Mum/2023 AGV Consultants, Mumbai therefore, be to analyse the materials relied on by both the sides and evaluate the relative merits and reliability. It is sometimes in the nature of a comparative exercise to measure the degree of reliability between the materials relied on by the revenue and the materials relied on by the assessee. This degree of reliability seems to be the crucial test in the present case in applying the principles of preponderance of probability. We think that this is the way to proceed to find a balance of convenience on which alone it might be possible for us to come to a fair decision.". Eventually, the Hon'ble Tribunal held that balance of convenience was apparently tilting in favour of the assessee and ruled as such.
Applying the above ratio, in the given set of facts before us, we are of the view that balance of convenience lies in favour of the assessee. Even if one were to assume that the appellant overcharged the recipients for the services rendered but that alone may not suffice to change the taxability of such receipts from business income to unexplained cash credits. The onus of proving that conditions of S. 37(1) were adequately fulfilled would continue to remain on such service recipients but as far as the appellant is concerned, the only onus is to show that these were business receipts and received in lieu of providing services. The assessee has been able to 4872 & 4865 /Mum/2023 AGV Consultants, Mumbai reasonably demonstrate its case in view of its submission referred to in the letter dt. 22.02.2021 before the DDIT and also the submissions made before the AO vide its various letters including the one dt. 14.02.2022. The invoices, confirmation, TDS records, agreement, etc. do establish the case of the appellant that such income is liable to be taxed as business/professional income and not u/s 68 of the Act.
As far as the expenses are concerned, they are in the range of upto 2% of gross receipts and are reflected in audited books. No specific discrepancy that they have not actually been spent for the business has been brought out. As regards the high profitability of the assessee, in the case of CIT vs Vesesh Infotechnics Ltd, 210 Taxman 522, the Hon'ble Karnataka HC has held that ‘it is perfectly possible for a software enterprise to establish a new unit at an investment of Rs.2.06 lakhs, make a sale of Rs.72.32 lakhs in 18 days and have profitability of 94.8%’. The Hon'ble HC has thus held that Revenue could not doubt the claim of the assessee. Under these circumstances, we are also of the view that the action of the AO in not allowing the expenses of the appellant cannot be sustained.
Even the AO being the investigator and adjudicator, could not bring on record any notices issued to the vendors 4872 & 4865 /Mum/2023 AGV Consultants, Mumbai who are flagship concerns of their fields, to verify the payments made by them on account of availing consultancy services. No statement of vendor or the persons who availed the consultancy of the assessee were called for or recorded and no reasonable explanation has been furnished by the revenue authorities before us. Even nothing has been brought on record to prove that assessee was not doing any consultancy services and it is a case of unexplained credit.
No new facts or material has been brought on record before us during the appellate proceedings by the department in order to controvert or rebut the findings so recorded by Ld.CIT(A). Therefore, we find no reasons to interfere into or deviate from the lawful findings so recorded by Ld.CIT(A). Hence the grounds raised by the department stands dismissed.
As the facts and circumstances in these appeals are identical to for the A.Y 2017-18 (except variance in figures) and the decision rendered in above paragraph would apply mutatis mutandis for these appeals also. Accordingly, the grounds of appeal of the present appeals also stands dismissed.
Order pronounced in the open court on 27.05.2025.
Sd/- Sd/- (PRABHASH SHANKAR) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 27/05/2025 KRK, PS आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent. 2. संबंिधत आयकर आयु� / The CIT(A) 3. आयकर आयु�(अपील) / Concerned CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मु�बई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स�ािपत �ित //True Copy//
1. उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु�बई मु�बई / ITAT, Mumbai मु�बई मु�बई