Loading judgment…
No AI summary yet for this case.
Before: Shri V. Durga Rao & Shri Manoj Kumar Aggarwal
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 9, Chennai dated 26.02.2018 relevant to the assessment year 2011-12.
Brief facts of the case are that the assessee filed his return of income for the assessment year 2011-12 on 13.06.2011 admitting a total income of ₹.1,71,541/-. The case of the assessee was selected for scrutiny and after following due procedure, the Assessing Officer has completed the assessment under section 143(3) of the Income Tax Act, 1961 [“Act” in short] dated 27.03.2014 assessing total income of the assessee at ₹.2,19,20,740/- by making addition of cash deposits of ₹.2,17,49,200/- as income from undisclosed sources. On appeal, the ld. CIT(A) has granted partial relief to the extent of ₹.1,26,14,536/- and the balance amount of ₹.91,34,664/- has been sustained on estimate basis.
On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the details of cash deposits which were made to pass the cheques issued by the assessee which was in an accommodative nature have been provided to the Assessing Officer as well as the ld. CIT(A). It was submission that the assessee has only facilitated the sale of timber in his relative business and has received commission on the same and has no income in such a scale as passed by the Assessing Officer which was partly confirmed by the ld. CIT(A). It was further submission that the assessee has filed all relevant details such as bank statements of other parties to prove that the cheques have been discounted by the other parties and the cash was handed over to the assessee. Confirmation letters were also provided to the authorities below.
On the other hand, the ld. DR fairly conceded that the relief granted by the ld. CIT(A) may be confirmed.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Against the addition made by the Assessing Officer of ₹.2,17,49,200/-, after considering the submissions of the assessee, the ld. CIT(A) has observed as under: 4. During the course of appeal proceedings, the appellant submitted letter dated 29.02.2016 enclosing certain additional evidences, which were forwarded to the Assessing Officer vide this office letter dated 30.09.2016 for remand report. The reminder to the Assessing Officer and the Range head dated 30.11.2016 and 06.07.2017 were issued by this office. But till date no report is received from the Assessing Officer. The AR of the appellant has submitted details which sing only in one tune and require that tax authorities adopt only limited view that someone gives cheques and someone encashes them without looking at the surrounding circumstances. As neither AO has responded despite reminders and neither the ARs have anything new to say, the case is now disposed off on merits. 5. The AR of the assessee has filed a letter dated 29.02.2016, in which he has tried to make out a case for cash deposits in the account of the assessee. The argument of the AR is that, that cheques have been issued to various parties so that the same are discounted by them from the bank and the cash flow is generated, which is of help to these people. After using the cash for their business need, they return the cash to the assessee to deposit the same in his bank account. It is seen from the instances given that cheque dated 04.03.2011 was issued to Shri. N.K. Nawas for Rs.l lakh, which was discounted by the recipient for Rs.99,560/-. In the meanwhile, on 07.03.2011 the assessee has issued another cheque to Shri. N.K. Nawas for Rs. l lakh, which was also discounted for Rs.99,560/- and cash of Rs. I lakh was withdrawn and claimed to be paid back to the assessee.
The cheque discount / interest of Rs.440/- on Rs.1 lakh comes to 0.44'% for just three days. This would mean that monthly discounting charges of 4.4%; (0.44 x 30 / 3), which would become annualize to 52.8% per annum. It is illogical and beyond test of human probability that somebody would borrow money at such a high rate of interest and is then able to return the whole amount to the assessee. One fails to understand what business purpose a recipient of the cheque could fulfill by paying such a high rate of interest monthly / annually. The contention of AR made in his letter dated 29/02/2016 is as under: "The assessee issues a cheque to one person and the same is discounted by the other person to clear the cheque issued by the other person. The assessee issue another cheque to the same person so that the second cheque is discounted to clear the earlier cheque issued by the assessee. And this second cheque which is discounted is transferred by the other person to the assessee's account and the assessee withdraws money from that account to deposit in the Axis Bank to pass the cheques issued by him. to various parties. Hence, it is clear that the parties have transferred the discounted amount to assessee's account which the assessee has withdrawn and deposited in his account with Axis Bank. Hence it is not true that the parties have withdrawn cash and given it to the assessee. This is clear from the explanation of transactions which we have annexed herewith for your perusal. This trail of transactions is given for about 10 transactions and we have enclosed the assessee's bank account copies along with the bank account statement copies of the other parties and marked in different colours for your reference. The parties have utilized this method only to temporarily overcome their cash flow problems and the assessee helped them so that he may get some business out of them. Otherwise, the assessee has not charged any commission for these transactions from the third parties."
7. In his earlier submission dated 14/12/2015, party wise break up of cash deposits has been given which is as under: Name Amount (Rs.) N.K. Navas 65,43,000/- Empee Saw Mill 43,64,000/- MP Ashraf 10,57,000/- VH Haneefa 12,00,000/- NK Noufal 13,68,000/- KK Wood Works 28,60,000/- Mangai Interiors 9,00,000/- Mangai Constructions 5,00,000/- Technotech Associates 35,000/- National Timber Depot 29,046/- Lingesh 70,000/- Most of these parties have filed confirmatory letters stating as under: I hereby confirm that the amount paid from Mr. Latheef"s bank account relates to me only for cheque discounting purpose and for that I paid cash to Mr. Latheef as given in the annexure enclosed during the financial year 2010-11. I am an assessee having PAN: .................. And they have attached copies of their own bank accounts 8. Earlier letter dated 10/12/2015 is merely repeat of same assertions and photocopies, though in his letter dated 19/09/2014, the AR contends that huge tax demand of Rs.90,06,260/- is bad in law and that the appellant has cooperated with I.T. Department by deposit of tax of Rs. l,50,000/-. Reference is made to the case of Sumati Dayal Vs CIT [214 ITR 80B SC (1995)] which brings about the test of human probability and that evidence has to be seen in the light of expected behavior of a normal person. As has been shown earlier, effective interest rate comes to about 52% p.a. The parties who have claimed to have taken accommodation from the appellant have neither furnished returns of income nor justified as to the uses to which such huge cash withdrawals have been made. The question arises as to whether all this is merely a game of lending money at high interest rates or is it some crude measure of money laundering. Even considering the fact that money has frequently been returned to be deposited again and again in appellant's bank accounts, the larger idea of - a) interest amount due b) final balances due from loan takers to appellant cannot be ruled out. How are the loan takers able to bear such high effect rate of interest. The AR has repeatedly sung only one tune and has nothing new to bring forward by way of facts. The ARs has, in addition, asked that in the light of the repeated cash deposits, only the peak cash deposit is to be taken for addition. One basic fallacy/lacunae in the whole business of cheques for cash is that banks discount cheques only if they are on revenue account i.e. “the payment is for business and for trade receipts”. Bank purchase cheque early for convenience of regular customers when the payment is due to them in the course of trade and do not go about discounting all and sundry cheques. If that be the case, then the cheques issued will be business income of the recipient and this fact and further Inquiry of such amounts in the hands of recipients as revenue income a, not been examined by the AO though it may prove to be fertile area for deepening of tax net. Question is not only of bearing high interest rates coming annually to 52% but also of how the loan takers (if it is a loan, that is) are able to return the money. Has there been a final settlement of accounts? And why have other options of availing cheaper credit (from banks/NBFCs) not explored? In all, combined facts and circumstances of this cheque for cash leave one in doubt of basic commercial sense in this whole business.
In this light of circumstantial evidence and material on record, 80% of effective interest rate i.e. 42% (52 x 0.8) of gross cash deposited is considered as income of the appellant. Balance 20% of estimated interest has been given as relief to the appellant and would include therein any claims on account of peak credit. As a result, out of the cash deposit of Rs. 2,17,49,200/-, 42% being Rs.91,34,664/- is sustained as income in the hands of the appellant and the appellant gets a relief of Rs. 1,26,14,536/-.
6. We have gone through the observations and findings of the first appellate authority, wherein, the ld. CIT(A) estimated and adopted 80% of effective interest rate i.e., 42% (52 x 0.8) of gross cash deposited is considered as income of the assessee. Balance 20% of estimated interest has been given as relief to the assessee and would include therein any claims on account of peak credit. As a result, out of the cash deposit of ₹. 2,17,49,200/-, 42% being ₹.91,34,664/- is sustained as income in the hands of the assessee and the assessee was granted relief of ₹. 1,26,14,536/-.
6.1 Considering the complete details furnished before the authorities below, we are of the considered opinion that the ld. CIT(A) has estimated and adopted the effective interest rate at an higher side. Accordingly, we direct the Assessing Officer to adopt 50% of effective interest rate i.e., 26% (52x0.5) of gross cash deposited shall be considered as income and 50% of estimated interest has been given as relief to the assessee and would include therein any claims on account of peak credit. As a result, out of the cash deposit of ₹.2,17,49,200/-, 26% being ₹.56,54,792/- is sustained as income in the hands of the assessee and the assessee get a relief of ₹.1,60,94,408/-.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced on 18th November, 2022 at Chennai.