BHAWANI SHANKER GUPTA,NEW DELHI vs. ITO, WARD- 24(3), NEW DELHI

Facts of the case, in brief, are that the assessee is an individual and engaged in the business of retail trading of building material. He filed his return of income on 31st July, 2008 declaring the total income at Rs.1,07,216/-. The case of the assessee was selected for scrutiny through CASS. In this case AIR information was also received for deposit of cash above Rs.10 lakhs.

During the course of assessment proceedings, the AO noted that the assessee has shown gross receipt of Rs.1,80,560/- and after claiming of expenses to the tune of Rs.78,480/- had shown a net profit of Rs.1,02,080/-. The assessee has also shown Rs.11,415/- as ‘income from other sources.’ In the details submitted by the assessee, vide letter dated 25.11.2010, the assessee revised the gross receipt amount to Rs.7,08,320/- and declared profit of Rs.35,416/- u/s 44AF of the Act and also shown short-term capital gain of Rs.66,664/- apart from “Income from other sources” of Rs.11,415/-. The AO, thereafter, asked the assessee to explain the source of cash deposit amounting to Rs.10,19,000/-. It was explained that the deposits are out of his savings and business receipts, etc. In support of the same, the assessee also filed a cash flow statement. However, the AO did not accept the explanation given by the assessee in absence of any evidence/source of these deposits. He, therefore, adopted the peak balance of Rs.4,79,369/- as income from unexplained sources and added the same to the total income of the assessee. 3.1 Similarly, from the statement of affairs filed with the letter dated 25.11.2010, he noted that the assessee has invested Rs.6,36,004/- in shares from which long-term capital gain amounting to Rs.66,664/- was declared. Since these facts were not reflected in the original return of income, the AO made addition of Rs.7,02,668/- (Rs.6,36,004/- + Rs.66,664/-).

3.2 The AO further noted from the details filed by the assessee as per letter dated 25.11.2010 that the assessee has shown gross receipt from the business amounting to Rs.7,08,320/-. He, therefore, adopted the gross receipt declared by the assessee as per the said letter and after allowing the expenses of Rs.78,480/- claimed in the original return of income, determined the income from business at Rs.6,29,840/-. Thus, the AO determined the total income of the assessee at Rs.18,00,460/- as against the returned income of Rs.1,07,216/- 4. Before the CIT(A), the assessee made elaborate submissions and filed various details based on which the ld.CIT(A) gave part relief to the assessee. So far as the addition of Rs.6,29,840/- made by the AO is concerned, the ld. CIT(A) deleted the same by observing as under:- “6.1. The facts of the case and the written submissions of the appellant have been carefully considered. Ground No.1 of the appeal is against the addition of Rs.7,08,320/- made by the AO in appellant’s income from trading of building material. The AO treated the trading receipt at Rs.7,08,320/- but gave deduction of expenses at Rs.78,480/- originally claimed by the appellant out of total receipts of Rs.1,80,560/-. The appellant objected it on the ground that by this way profit has been computed at nearly 90% which is impossible. To appreciate the facts of the case, let us see the computation of income originally filed by the appellant which is as under: Income from Business/profession: Receipts from supply of building material 1,80,560 Less: expenses incurred 78,480 1,02,080 Income from other sources: REC Bond Interest 11,000 Bond Interest 415 11,415 Total Income 1,13,495 Less: Deduction u/s 80C (LIC Premium) 6,279 Net Income 1,07,216 However, when the appellant's case was taken up in scrutiny, on account of cash deposits of Rs.10,19,000/- in the bank account, the appellant filed revised computation of income as under: Computation of Total Income Income from Business/Profession Net profit declared in accordance with the provisions of section 44AF (5% of Rs.7,08.320/-) 35,416/- Income from Capital Gain Short Term capital gain (as per enclosed sheet) 66,664/- Income from Other Sources

So far as the addition of Rs.7,02,668/- is concerned, here also, the ld.CIT(A) bifurcated the same into two parts i.e., the investment portion and the profit thereon declared by the assessee of Rs.66,664/- and directed the AO to adopt the income from share at Rs.1,55,354/- as against Rs.66,664/-. So far as the investment of Rs.6,36,004/- for purchase of shares and the addition of peak credit in the bank account of Rs.4,79,316/- is concerned, the ld.CIT(A) recasted the cash flow and enhanced the same from Rs.4,79,367/- to Rs.7,98,770/-. He, however, directed the AO to delete the addition made by him of Rs.6,36,004/- on account of investment in shares. Thus, in effect, the ld.CIT(A) enhanced the addition on account of peak credit in the bank account from Rs.4,79,369/- to Rs.7,98,770/-.

Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:- “

The ld. counsel for the assessee strongly objected to the enhancement made by the CIT(A). The ld. Counsel for the assessee submitted that the solitary issue involved in the appeal relates to the addition of Rs.7,98,770/- i.e., addition of Rs.4,79,367/- and an addition of Rs.3,19,403/- (incorrectly stated as Rs.3,17,403/-). The ld. Counsel filed the following chart showing the status of the income determined by the AO and as per the order of the CIT(A) which is as under:-

Referring to the above, he submitted that the AO had made the addition of Rs.4,79,369/- being peak credit on account of alleged unexplained cash deposit which was enhanced by the CIT(A) to Rs.7,98,770/- and, thus, the effective 6 enhancement is Rs.3,70,403/-. The ld. Counsel drew the attention of the Bench to the following table showing the basis of addition made by the CIT(A):-

The ld. Counsel submitted that during the assessment proceedings it was stated that the assessee is engaged in the business of trading of building material. The business has been accepted by the AO as well as CIT(A). However, the AO assessed the said income at Rs.62,984/- whereas the ld.CIT(A) has accepted the income from the said business at Rs.1,02,080/-. He submitted that as per the provisions of section 44AF, the income of the assessee has to be assessed on presumptive basis at a sum equal to 5% of the total turnover. Since the assessee has claimed turnover at Rs.7,08,320/- and declared profit @ 5% of the turnover at Rs.35,416/- as income, therefore, without disturbing the turnover the AO should not have rejected the benefit u/s 44AF. Further, the CIT(A) neither accepted the turnover nor granted the benefit of section 44AF on the ground that the assessee could not offer any independent evidences to support his claim at a later stage i.e., turnover was Rs.7,08,320/-, despite the fact that there were cash deposits in the bank account of the assessee which aggregated to Rs.12,67,500/-. The ld. Counsel while explaining the deposit in the bank account submitted that the same is out of the receipt from supply of building material, earlier cash withdrawal from the bank, gifts received from parents at Rs.2,50,000/- and opening cash balance of Rs.2,50,256/-. Relying on various decisions, the ld. Counsel for the assessee submitted that the assessee is a very small assessee and has explained the source of deposits and, therefore, the explanation of the assessee should not have been rejected outright without conducting any further inquiry. He submitted that the gift of Rs.2,50,000/- was received from both parents at Rs.1,25,000/- each. The parents have given their confirmations. His father is a senior citizen aged 73 years and derives income from agriculture and ancestral land holdings. The land is situated at Fatehpuri Beri. The assessee had also enclosed Khatoni since 1984-85 which shows the landholding. So far as the opening cash of Rs.2,50,256/- is concerned, he submitted that the assessee had substantial cash withdrawal from F.Y. 2006-07 and the cash balance is a result of both withdrawals and on account of the fact that he is carrying on the business of construction material where the receipts are in cash only. The assessee has also produced the cash book before the AO as well as the CIT(A). Therefore, without proper appreciation of the facts the 8 ld.CIT(A) was not justified in enhancing the income of the assessee. He accordingly submitted that the addition enhanced by the CIT(A) should be deleted and the addition made by the AO also should be deleted.

The ld. DR, on the other hand, strongly supported the order of the CIT(A). He submitted that the ld.CIT(A), after going through the various submissions made by the assessee, has passed a very reasoned order. The ld. Counsel is not able to controvert the findings given by the CIT(A). Therefore, under the facts and circumstances of the case, the grounds raised by the assessee should be dismissed.

I have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find, the assessee, in the instant case, initially has shown the gross receipt at Rs.1,80,560/- and after claiming expenses of Rs.78,480/- had declared net profit at Rs.1,02,080/- out of retail trading of building material. However, subsequently, during the course of assessment proceedings, the assessee had shown gross receipts amounting to Rs.7,08,320/- and declared the profit at Rs.35,416/- by opting the benefit under provisions of section 44AF. Similarly, the assessee had shown short- term capital gain of Rs.66,664/- apart from ‘Income from other sources’ of Rs.11,415/-. I find, the AO determined the income of the assessee at Rs.18,00,460/- wherein he determined the income from supply of building material at Rs.6,29,840/- after allowing the deduction of Rs.78,480/- originally claimed from the revised gross receipt of Rs.7,08,320/-. Similarly, the AO made addition of Rs.4,79,369/- being the unexplained cash deposit by adopting the peak balance of Rs.4,79,369/-. The AO also made addition of Rs.7,02,668/- being the investment in shares at Rs.6,36,004/- and the short-term capital gain of Rs.66,664/- which was declared by the assessee. I find, in appeal, the ld.CIT(A) enhanced the income of the assessee by Rs.3,70,403/- wherein he enhanced the deposit in the bank account from Rs.4,79,369/- to Rs.7,98,770/-. He, however, deleted the other addition of Rs.6,36,004/- being the investment in shares and the addition made by the AO of Rs.6,29,840/- being the income from supply of building material for which there is no appeal by the Revenue. According to the ld.CIT(A), the assessee was unable to provide the source of various deposits in the bank account and the assessee failed to file the cash flow statement as no cash book was stated to have been maintained. The ld.CIT(A), therefore, determined the unexplained cash deposit at Rs.7,98,610/- as against Rs.4,79,369/- determined by the AO on the ground that the assessee was unable to explain the source of cash deposit. It is the submission of the ld. Counsel that the cash so deposited was out of the opening cash balance of Rs.2,50,256/-, gifts received from parents of Rs.2,50,000/- and out of the receipt from supply of building materials, etc.

The ld. Counsel for the assessee filed the following reconciliation statement and submitted that if the above is considered, the total cash deficit comes to Rs.1,66,850/-:-

So far as the difference of Rs.1,66,850/- as derived above, it is his submission that the same is further explained by the opening cash balance of Rs.2,56,256/- and gifts received from parents of Rs.2,50,000/-.