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Facts
The assessee, an employee working as a peon, had cash deposits in his bank account during the demonetization period. The Assessing Officer (AO) made additions under Section 69A of the Income Tax Act as the assessee could not explain the source of funds. The CIT(A) confirmed part of the addition but deleted a significant portion, considering it already taxed in the hands of the employer.
Held
The Tribunal held that the assessee was a conduit for his employer, Mr. Atul Bora, who controlled and managed the transactions. Since the funds were also added in the hands of the employer, the addition in the assessee's hands for the same amount was not sustained. For the remaining amount, the Tribunal held that only the real income (commission at 2%) embedded in the transactions could be brought to tax, not the entire gross receipts.
Key Issues
Whether the additions made under Section 69A for unexplained credits in the bank account are sustainable when the funds were already taxed in the hands of the employer, and if not, whether only the real income can be taxed instead of gross receipts.
Sections Cited
69A, 144, 147, 148, 250, 115BBE, 131, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “F” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
All the grounds raised by the assessee are interconnected and interrelated and relate to challenging the order of CIT(A) in sustaining the additions under section 69A of the Income Tax Act, therefore, we have decided to take up all the grounds together and adjudicate of the same through the present consolidated order.
As per the facts of the present case, the assessee had deposited cash in his bank account maintained in the name of proprietary concern Vasant Engineering during the demonetization period, and as per the information there were credits in the said bank account. Since the assessee could not substantiate his claim and explain the source of credits including reported cash deposits, therefore, assessment was completed under section 144 read with section 147 of the Income Tax Act, thereby making additions under section 69A of the income tax act.
4. The appeal filed by the assessee was partly allowed there by restricting the additions to Rs.1,37,69,087/-.
Aggrieved by the said additions, the assessee has preferred the present appeal and in order to substantiate the grounds raised in the appeal Ld. AR reiterated the same arguments as were raised by him before the revenue authorities and also relied upon his written submissions, the contents of which are reproduced here in below:
The assessee is an employee working as a peon in the office of Mr. Atul Bora (employer). During impugned year, the assessee did not file his return of income, since his income was below the basic exemption limit. An information was received from ITBA portal that the assessee had deposited cash in bank a/c during demonetization period and thus, AO issued the notice u/s.148 of the Act. During course of assessment, AO issued the notice u/s.133(6) and obtained the copies of A/c opening form and bank statements of assessee's personal a/c and of his proprietory concern M/s. Vasant Engineering. Thereafter, AO issued the summon u/s.131 and recorded the statement of the assessee on oath, wherein the assessee stated that he is working as a peon in the office of Mr. Atul Bora, who had opened the assessee's proprietary concern M/s. Vasant Engineering and had controlled and managed the activities and also had operated the bank account of such proprietary concern. The assessee further stated that Mr. Atul Bora has taken his signature on cheque book of M/s. Vasant Engineering and all transactions including cash deposits had been done only by Mr. Atul Bora and the assessee had not done any transactions. Accordingly, AO issued the summon to Mr. Atul Bora which had remained uncomplied. Thereafter, AO held that the assessee had not explained the source of funds credited in bank account and made the addition u/s.69A of entire cash and other credits appearing in the bank account of Rs.1,92,69,087/-.
Findings of Ld. CIT(A)
In 1st appeal, the CIT(A) observed that the addition of Rs.55,00,000/- had already been made in hands of Mr. Atul Bora (employer of the assessee) and deleted the addition subject to verification to avoid double taxation. The CIT(A) confirmed the balance addition of Rs.1,37,69,087/- under the reason that the assessee had not furnished the source of such credit entries. Further, the CIT(A) relying on judicial decision of Jabalpur, ITAT in the case of ACIT v. Sandesh Kumar Jain (ITA No.41/JAB/2020) directed the AO to calculate the tax @ 30%, (as against computed by AO @ 60%) under the reason that amended provision to Sec. 115BBE applies to transactions entered after 15/12/2016.
Contention of the assessee:
The assessee was a conduit of his employer Mr. Atul Bora, who had opened, controlled and managed the entire activities of his proprietary concern M/s. Vasant Engineering and all transactions in bank account had been undertaken by his employer.
Accordingly, relying on such information shared by AO, the assessment of Mr. Atul Bora was reopened u/s.148 and reassessment order for impugned year had been passed u/s.144 of Mr Atul Bora on 30/05/2023. In assessment order of Mr. Atul Bora, the AO held that Mr Atul Bora had opened and controlled the proprietary concern of the assessee M/s. Vasant Engineering and he had operated the bank account of such concern. It is further held that the assessee is a mere name lender and proxy of Mr. Atul Bora and all transactions in assessee's bank account had been controlled and managed by Mr. Atul Bora, Thereafter, AO of Mr. Atul Bora analyzed the transactions entered in bank account and made the addition of Rs.1,24,00,225/-, which includes the funds transferred by the assessee to Mr. Atul Bora of Rs.55,00,000/-. The bank statements filed at page-43A of paper book reveals that there is circulation of funds and ultimately, the funds of Rs.55,00,000/- had been transferred to Mr. Atul Bora and Mr. Dhaval Shah. For example, the bank statement of M/s. Vasant Engineering discloses the credit entry of Rs.25,00,000/- on 05/04/2016 and corresponding debit entries of Rs.25,00,050/- are reflected on 05/04/2016 and 06/04/2016. In similar manner, Rs,14,00,000/- is found credited on 30/05/2016 and corresponding entries of Rs. 13,99,955/- is found debited on 30/05/2016 and 31/05/2016. In similar manner, Rs.72,90,000/- is found credited on 23/06/2016 and corresponding entries of Rs.72,85,200/- is found debited on 24/06/2016. Thereafter, ultimately the funds of Rs.55,00,000/- had been transferred to the account of Mr. Atul Bora and Mr. Dhaval Shah and the addition of Rs.55,00,000/- in the assessment order passed u/s 144 of Mr. Atul Bora. Accordingly, once the identity of main person is established and the addition of transactions made in bank account of assessee's proprietory concern M/s. Vasant Engineering is already made in hands of his employer Mr. Atul I. Bora, then similar addition made in hands of the assessee cannot be sustained.
As regards the appeal filed by the department, CIT(A) had deleted the addition of Rs.55,00,000/- subject to verification to avoid taxation. The AO had not brought any material/evidence on record to dispute the fact that the addition of Rs.55,00,000/- had already been made in hands of employer Mr Atul Bora in the assessment order passed for impugned year u/s 144 of the Act. As regards applicability of Sec. 115BBE, the assessee relies on the judicial decisions of SMILE Micro Finance Ltd v. ACIT (2078 & 1742 of 2020- Madras High Court), Naranbhai Smatbhai Bharwad v. ITO (ITA no- 272/Ahd/2024) and Shri Sandeep Sethi v. DCIT (ITA no. 155/JP/2022) and ACIT v. Sandesh Kumar Jain (ITA no- 41/Jab/2020) and DCIT v. Punjab Retail Pvt Ltd (ITA no- 677/Ind/2019), wherein Hon'ble ITATs had decided that Sec 115BBE shall apply w.e.f 15/12/2016.
On the other hand, Ld. DR relied upon the orders passed by the AO and submitted that since the assessee could not explain the source of funds credited in bank account and therefore, AO had rightly made addition under section 69A of the Act on entire cash and other credits appearing in the bank account of Rs.1,37,69,087/-.
We have heard the counsels for both the parties and perused the material placed on record, judgements cited before us and the orders passed by the revenue authorities.
From the records, we noticed that during the year under consideration, the assessee did not file his return of income as according to the assessee his income was below the basic exemption limit. However, on the basis of information that assessee had deposited cash in his bank account during demonetization period, therefore AO initiated the proceedings of reopening and during the course of assessment issued notices to obtain copies of account, account opening Form and bank statements of assessee’s personal accounts and his proprietary concern M/s Vasant engineering, wherein huge cash amount was deposited by the assessee and in the said bank account other credits were also appearing.
Ld AR submitted that the entire amount of cash as well as other credits appearing in the bank account of the assessee belongs to one Mr Atul Bora, as the assessee is an employee working as a peon in the office of Mr Atul Bora, who is the employer of the assessee. It was submitted that assessee had not carried out any transactions. However, he said that Mr Atul Bora had taken his signatures on cheque- book of M/s Vasant Engineering and therefore, all transactions including cash deposits had been done only by Mr Atul Bora and assessee had not done any transactions.
It is pertinent to mention here that after evaluating the entire facts and circumstances of the present case, Ld. CIT(A) had observed that additions of Rs.55 lakhs had already been made in the hands of Mr Atul Bora, the employee of the assessee and therefore deleted the additions subject to verification to avoid double taxation. The remaining additions of Rs. 1,37,69,087/-, were confirmed on the ground that assessee could not furnish the source of such credit entries. Apart from above Ld. CIT(A) also relied upon the decision of the coordinate bench of ITAT, in the case of a CIT Vs Sandesh Kumar, Jain in and directed the AO to calculate the tax @ 30% as computed by the AO @ 60%, on the reason that amended provisions to section 115BBE applies to the transactions entered after 15 December 2016.
Now the question before us is as to whether the additions of Rs.1,37,69,087/- are liable to be sustained or liable to be deleted. In this regard, after appreciating the evidences and the findings of the revenue authorities, we noticed that assessee was a conduit of his employer Mr Atul Bora, who had opened, controlled and managed the entire activities of his proprietary concern, M/s Vasant Engineering, and all the transactions in the bank account had been undertaken by his employer. The said facts were admitted and relied upon by the AO because the assessment of the said Mr Atul Bora was also reopened u/s 148 of the Income Tax Act and reassessment orders for the year under consideration had been passed on 30th May 2023 in the case of said Mr. Atul Bora. It is pertinent to mention here that in the assessment order of Mr Atul Bora the AO had categorically held that the said Mr. Atul Bora had opened and controlled the proprietary concern of the assessee M/s. Vasant Engineering, and he had operated the bank account of such concern. It was further held by the AO that the assessee in the present appeal is a mere name, lender and proxy of Mr Atul Bora and all the transactions in assessee’s bank account had been ‘controlled and managed’ by Mr Atul Bora, therefore, after analyzing the transactions and after evaluating the evidences and appreciating the fact that assessee was merely an employee of Mr Atul Bora and all the activities of the proprietary concern, M/s. Vasant Engineering were controlled and managed by the said Mr. Atul Bora. Therefore, AO made additions in the hands of Mr Atul Bora of Rs. 1,24,00,225/- which included the funds transferred by the assessee to Mr Atul Bora of Rs. 55,00,000. Apart from above, after analyzing the documentary evidence placed on record, more particularly in the shape of bank statements filed at paper book page No. 42 to 43A, wherein it clearly reveals that there is ‘circulation’ of funds and ultimately the funds of Rs.55 lakhs had been transferred to Mr Atul Bora and Mr Dhaval Shah, we have further noticed that the bank statement of M/s. Vasant Engineering disclosed is the credit entry of Rs.25,00,000/- on 05.04.2016 and corresponding debit entry of Rs.25,00,050/- lakhs are reflected on the same day i.e on 05.04.2016 and 06.04.2016 and in a similar manner the sum of Rs.14,00,000/- is found credited on 30.05.2016 and corresponding entries of Rs.13,99,955/- is found debited on the same day ie. 30.05.2016 and 31.05.2016, in similar manner, a sum of Rs.72,90,000/- is found credited on 23.06.2016 and corresponding entries of Rs.72,85,200/- is found debited on 24th June 2016. Thereafter, ultimately the funds of Rs.55 lakhs had been transferred to the account of Mr Atul Bora and Mr Dhaval Shah and the addition of Rs.55 lakhs had already been made in the assessment order passed in the case of Mr Atul Bora. In this way, when once the identity of the main person is established and the addition of transactions made in bank account of assessee‘s proprietary concern, M/s. Vasant Engineering has already been made in the hands of his employer Mr Atul Bora, then under these circumstances, similar additions made in the hands of assessee cannot be sustained. And therefore, we are in agreement with the orders of Ld. CIT(A) qua deleting the addition of Rs. 55,00,000/-.
Even the findings of the AO while finalizing the order of assessment in the case of Mr. Atul Bora, it was specifically held that the present assessee is none other than name lender and proxy for Mr. Atul Bora and all that transactions in the said bank account are ‘controlled and managed’ by the said Atul Bora therefore, it was categorically held that the entire amount deposited in the said account during demonetization period belongs to Mr. Atul Bora. Now, the question is that when once a specific finding has been recorded by the AO of Mr. Atul Bora after analyzing and appreciating the factual matrix of the present case therefore, the revenue authorities cannot be allowed to ‘approbate and reprobate in the same breath’.
As far as the credits in the bank account of Rs. 1,37,69,087/- are concerned, in this regard, assessee has taken a categorical stand that he has engaged himself in the business of brokerage/commission, activities of engineering and electronic goods under the assistance and guidance of his employer Mr. Atul Bora and he had received the business advances from various customers which were deposited in his personal bank account and thereafter, the assessee had made the similar payments to other parties and suppliers of engineering and electronic goods. It was specifically stated that the supply of goods was directly made by the suppliers to the customers and the assessee in normal course of brokerage/commission activities had earned at the most the brokerage/commission income @ 2% of entire credits. The bank statement of the assessee disclosed the name of all parties from whom business advances had been received from the traders/customers and thereafter, paid to other traders/suppliers. The said bank statements, further disclosed the refund of business advances received from the original customers, in case of non-completed transactions in this way the assessee has successfully proved that he had utilised the entire deposit for making the payments to other traders / suppliers and such amounts had not been utilised for making any investments and accordingly the additions of entire deposits/credits cannot be made and at the most the brokerage/commission income on such credits could be held as taxable income of the assessee.
After having heard both the parties at length, we are also of the view that the concept of real income needs to be adopted under such circumstances and ‘only real’ profit embedded on disputed credits could at the most be brought to tax and it is a settled law that only the ‘real income’ embedded in disputed transactions could be held as suppressed income. We are conscious of the fact that several courts had consistently decided that income tax is the tax on income and not on the receipt. Therefore, keeping in view the said principles, we are of the view that the entire gross receipt cannot be brought to tax, and only the real income embedded on disputed transactions could at the most be brought to tax after evaluating the factual position.
15 In the present case, we found that there exists nexus of corresponding payments made to traders / suppliers against the funds received from customers. Therefore, we rely upon the judicial decisions wherein, it has been held that the entire receipts cannot be brought to tax and only the income embedded on disputed receipts could be brought to tax and in this regard, we draw strength from the decisions in the case of CIT vs. President Industries 258 ITR 654 (Guj- High court), wherein it was held as under:
"It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales." b) CIT vs. BalchandAjit Kumar 135 Taxman 180 (High Court - MP) Total sale cannot be regarded as the profit of the assessee. The net profit rate has to be adopted and once a net profit rate is adopted, it cannot be said that there is perversity of approach. Whether the rate is low or high, it would depend upon the facts of each case. In the present case net profit rate of five per cent has been applied. It is not appropriate that the same requires to be enhanced. It is high. In any case, it cannot be said that there has been perversity of approach." c) Man Mohan Sadani vs. CIT 304 ITR 52 (MP- High court)
"Entire sale proceeds of the assessee cannot be added to his income for assessing income from undisclosed sales; net profit rate has to be applied." d) Kachwala Gems vs. JCIT 288 ITR 10 (SC) "It is well settled that in a best judgment assessment there is always a certain degree of guesswork. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily.", A 16. Therefore, considering the entire facts and circumstances of the present case and while taking into consideration the settled principles of law, we are of the view that in respect of credits of Rs. 1,37,69,087/-, the entire amount could not be added as income of the assessee as the said deposits had been made in normal course of brokerage/commission activities. Therefore, the brokerage / commission income be estimated @ 2% on the deposits of Rs. 1,37,69,087/- which comes to Rs. 2,75,381.78/- Therefore we restrict the additions by estimating the commission @ 2% of the entire credits of Rs.1,37,69,087/- which comes to Rs2,75,381.74/-, therefore we partly allow this ground of appeal raised by the assessee.
ITA No. 1898/Mum/2024, A.Y 2017-18
Now coming to the appeal filed by the revenue, in this regard, our findings recorded in are applicable mutatis mutandis in the present appeal as well. Since Ld. CIT(A) had deleted the addition of Rs.55 lakhs subject to verification to avoid taxation and AO has not brought any material/evidence on record before us to dispute the fact that the addition of Rs.55,00,000/- had already been made in the hands of employees, Mr Atul Bora in the assessment order passed for the year under consideration, therefore, we find no reason to interfere into or to deviate from the findings so recorded by Ld. CIT(A) with regard to deletion of addition of Rs.55 lakhs. Therefore we dismiss the ground raised by the department and upheld the orders passed by Ld. CIT(A), thereby deleting the addition of Rs.55,00,000.
18. As regards the applicability of section 115 BBE of the Act, the assessee has categorically relied on the following judicial decisions:
Smile Micro Finance Ltd vs. CIT in 2. 1742 of 2020 Hon’ble Madras high court, 3. Naranbhai Samad Bhai Bhardwaj vs. ITO in
Shri Sandeep Sethi vs DCIT in ITA No. 155/DP/2022 5. CIT vs Sandesh Kumar, Jain, ITA No.41/JAB/2020 6. CIT vs Punjab Retails Private Limited in ITA No. 677/IND/2019
Wherein consistently, the Courts and Benches of ITAT had decided this issue wherein it was held that section 115BBE shall apply with effect from 15.12.2016. Nothing has been brought before us in order to controvert or rebut the findings of ld. CIT(A) on this issue as well. Therefore, while adhering to the principles of judicial consistency and judicial discipline and relying upon the aforementioned judgements, the grounds raised by the department are dismissed.
In the result the appeal filed by the assessee is partly allowed and appeal of the revenue is dismissed.
Order pronounced in the open court on 24.02.2025.