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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: SH. SANJAY ARORA & SH. N. K. CHOUDHRY
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. No. 79/(Asr)/2018 Assessment Year: 2009-10
Vikas Sharma, WG-385, Niwan Vs. Income Tax Officer, Suraj Ganj, Jalandhar W-3(2), Jalandhar [PAN: AWIPS 7405B] (Appellant) (Respondent)
Appellant by : Sh. M. R. Bhagat Respondent by: Sh. Charan Dass (D.R.) Date of Hearing: 15.11.2018 Date of Pronouncement: 02.01.2019 ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-2, Jalandhar ‘(CITA)’ for short) dated 02.11.2017, dismissing the assessee’s appeal contesting his assessment under section 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) dated 27.12.2011 for Assessment Year (A.Y.) 2009-10.
2.1 This is the second round before the Tribunal. The assessment having been framed by treating the cash deposit of Rs.21,04,500/- in the assessee’s saving bank account with SBI during the year as unexplained income u/s. 69A, the controversy involved came about due to the non-admission of the additional evidence by way of books of account (of the assessee’s cloth business under the trade name M/s.
2 ITA No. 79/Asr/2018 (AY 2009-10) Vikas Sharma v. ITO Vikas Enterpresis) by the first appellate authority. The tribunal, after hearing the parties, held as under (in ITA No. 594/Asr/2014, dated 22/2/2017):
‘4. It is seen that the addition made on account of unexplained cash deposits amounts to Rs.21,04,500/-. A printout of cash book was produced by way of additional evidence before the Id. CIT(A). However, the assessee had not explained sufficient cause for not producing the evidence before the AO, resulting in the rejection of his request for admission of additional evidence, as also the dismissal of his appeal. The assessee was visited with this consequence due to non availability of anyone before the Id. CIT(A) at the relevant time after filing the application for adjournment. The Id. CIT(A) has himself observed that there was nobody present, either to take the date, or to file submissions.
The case involves substantial financial implications either way i.e., in the event of the addition being sustained, as has come about, or if the addition were to be deleted. The additional evidence produced might as well be crucial in the matter, subject, of course, to the assessee showing sufficient cause for not been able to have produced it before the AO. Therefore, in the interest of justice, we remit this appeal to the file of the Id. CIT(A), to decide it afresh in accordance with law, on affording one last opportunity to the assessee to file his counter comments to the AO’s remand report. The Id. CIT(A) shall decide the merits of the addition after considering the assessee’s counter comments, if any are filed by the assessee. The assessee shall, no doubt, co-operate in the fresh proceedings before the Id. C1T(A) and he shall not seek any further unnecessary frivolous adjournment. This remand is being ordered at the risk and peril of the assessee, as mentioned. It also goes without saying that all pleas available to the assessee under the law shall remain so available to him.’
The matter, accordingly, was restored for fresh determination as per law, consistent, of course, with the facts and circumstances of the case, after allowing due opportunity to the parties to state their respective cases. The ld. CIT(A), in second round, held as under:
3 ITA No. 79/Asr/2018 (AY 2009-10) Vikas Sharma v. ITO ‘4.1 I have gone through the directions given by the Hon’ble ITAT, submissions filed by the appellant, remand report of the AO, counter comments of the appellant, and find that an addition of Rs.21,04,500 has been made by the AO on account of cash deposits in the saving accounts of the appellant. The appellant has filed additional evidence in the course of appellate proceedings which was forwarded to the AO for examination. During the course of assessment proceedings based on the information received by the AO from ITD database, it was found that substantial cash deposit of Rs.21,04,500 have been made by the appellant in cash in a saving bank account with SBI. In the course of assessment proceedings no evidence could be filed by the appellant to explain the sources of deposits and it was held by the AO that this bank account has not been disclosed by the appellant and therefore the total amount of deposits were held as unexplained income u/s. 69A of the IT Act.
4.2 In the course of appellate proceedings, it is explained that appellant is engaged in the retail business of purchase and sale of cloth. It is stated that regular books of accounts have been maintained and a turnover of Rs. 37,90,270 was declared in the return of income filed. It is stated that all the entries in the bank account are explained and are reflected in the cash book of the business.
4.3 The AO in the remand report has stated that no documentary evidence could be filed by the appellant to support or prove its contentions that all the deposits in the bank account are on account of business receipt. Further, no books of accounts were ever produced before the AO at the stage of assessment or in the course of remand proceedings. AO has also referred to the letters of the appellant wherein no mention has been made that books of accounts are being produced. It is also stated in the report that in the return of income filed by the appellant it is clear that no books of accounts were maintained as all the Columns of the return – balance sheet and P & L account have been left blank and no amount has been filled in.
4.4 Thus, it is clear from the above sequence of events that appellant was not maintaining books of account and therefore no column in the return of income was filled in. The income has been declared on estimate basis and in the course of assessment proceedings, no books of
4 ITA No. 79/Asr/2018 (AY 2009-10) Vikas Sharma v. ITO account were produced. The appellant has even in the counter comments filed stated that books of account may be allowed to be produced before your goodself. But appellant has still failed to produce the books of accounts both before the AO at the stage of remand proceedings and in the course of appellate proceedings (counter reply to the remand report).
4.5 The plea taken by the appellant is meant only to cover up the unexplained deposits made in the bank account. The appellant has not filed even a single bill for purchase of material or sale of goods and co-related the same to the deposits of cash in the savings account. The appellant has failed to file even a single printout of the ledger, cash book, purchase book etc. Therefore, I hold that the AO was justified in treating of the amount of cash deposits of Rs. 21,04,500 as unexplained income of the appellant.’
The appeal was accordingly dismissed.
2.2 Aggrieved, the assessee in appeal, raising the following grounds:
‘1. The order is perverse, arbitrary, and not based on proper appreciation of the facts and case law.
The learned CIT (A) erred to pass non-speaking order to reject application for admission of additional evidence in the form of books of account, etc. which were produced before the AO and also clear from para 2 of assessment order and application u/r 46A was filed as abundant precaution. It is prayed that additional evidence may be admitted and appeal may decided accordingly. 3. The learned CIT (A) erred to confirm addition of Rs. 21,04,500/- without taking in to consideration the explanation filed in the course of appellate proceedings and without examining the books of account which were produced before him and ignoring the fact that AO did not afford any opportunity to the assessee to produce the books of account. It is prayed that deposits in bank which are as per books of account may be treated as explained.’
The books of account, it was argued, were produced in the assessment proceedings. Even if not, the same ought to have been admitted by the ld. CIT(A) in evidence, considering the prime significance thereof. Thus was stated the assessee’s case before us by the ld. counsel for the assessee, Sh. M.R. Bhagat. The
5 ITA No. 79/Asr/2018 (AY 2009-10) Vikas Sharma v. ITO ld. Departmental Representative (DR) would refute, emphasizing the mandatory nature of rule 46A of the Income Tax Rules, 1962 (‘the Rules’ hereinafter). It is only where any of the exceptions listed u/r. 46A is attracted, he would submit, that the additional evidence could be admitted by the first appellate authority, placing reliance on ITO v. Rita Plastic Pvt. Ltd. (ITA No. 4159/Del/2011, dated 13.04.2017). The cash book being produced in the appellate proceedings stands prepared only later; the assessee having returned his business income on estimate basis, as noted by the ld. CIT(A).
We have heard the parties, and perused the material on record. The issue in principle is the explanation of the cash deposits in the assessee’s saving bank account during the year, toward which the assessee wishes to rely upon his books of account, principally the cash book which, as per the Revenue, is only an afterthought, with the requirements of rule 46A, mandatory in nature, being not met. Both in the first and second round, the assessee has failed to show that he had either produced the books of account of his business, stated to be of retail in cloth, during assessment proceedings or if any of the exceptions of rule 46A entitle him to do so nevertheless, as where he was prevented by sufficient cause for producing it before the Assessing Officer, or where he did not provide the assessee sufficient opportunity to adduce the same before him. The assessee has, however, maintained the source of the impugned cash deposits as his business receipt. A cash flow statement of his business for the year should therefore suffice, even if the day-to-day accounts are not maintained, as contended by the Revenue. In this regard, we note that the ld. CIT(A) has observed that not a single document for purchase and sale of goods has been produced. The income has, accordingly, been regarded as returned on estimate basis; the relevant details of the Profit &
6 ITA No. 79/Asr/2018 (AY 2009-10) Vikas Sharma v. ITO Loss Account as well as the balance sheet, i.e., in the return form, being also unfilled. At the same time, what cannot be lost sight of, is that the assessee, who has returned business income, is doing some business, income from which has been accepted as such, i.e., as returned. The cash generation thereof would therefore merit examination. The cash generation from operations; the assessee returning income at Rs.2.90 lacs, would normally be available for being deposited in bank, i.e., subject to the changes in the working capital (excluding cash). This is further of course subject to the cash withdrawals on personal account, claimed at Rs.2.52 lacs for the year. Further, even if day-to-day accounts are not available; the net cash generation can reasonably be regarded as accruing evenly during the year. This is, again, subject to the assessee evidencing some specific withdrawals and/or generation, or spike or downturn therein — as is in the case of a seasonal business, during the year. Then, again, the assessee claims the opening stock and opening cash-in-hand (for the relevant year) to be at Rs.13.06 lacs and Rs.12.77 lacs respectively, as against a closing balance of Rs.9.04 lacs and Rs.1.98 lacs respectively. Put together, the two yield a cash inflow, due to decline in the inventory levels thereof during the year, of Rs.14.81 lacs. That is, apart from operations, which yield a mere Rs. 0.38 lacs (2.90 lacs – 2.52 lacs), the substantial part of the cash available is ascribed to the existing (at the beginning of the year) level of liquid assets. The same would though need to be proved. We have already noted absence of any document evidencing trading in cloth. Why, for instance, should the assessee maintain cash for nearly Rs.13 lacs, i.e., an extremely huge level considering the cash requirements of his business. This is particularly so as he has assumed bank loans at a cost. That apart, admittedly the sales are in cash, as apparent from the absence of any trade debts in the assessee’s balance-sheet. Why should, then, he maintain such a disproportionate level of cash? The stock levels
7 ITA No. 79/Asr/2018 (AY 2009-10) Vikas Sharma v. ITO could only be proved on the basis of the purchase and sales bills, which we have found as conspicuously missing, and which only could establish the inventory level at the beginning and close of the year. Finally, the assessee claims to have incurred some non-cash expenditure while arriving at the net profit of Rs.2.90 lacs, being salary expenditure of family members who assist him in his business, and whose account/s is, accordingly, credited with the amount/s of the salary, which is stated at Rs. 3.48 lacs. The argument is valid in principle as non-cash expenditure, where so, would deflate the profit though not diminish the cash. So, however, the source of the said cash is thus, again, the assessee’s operations, which are largely unevidenced. How could it be said that the expenditure claimed is a genuine business expenditure? An examination of cash flow based on the assessee’s accounts, thus, reveal the following as the source/s of cash: (Amount in Rs. lacs) Cash Generation Amt.(Rs.) Remarks (a) from trading operations (net) 0.38 (b) inventory level of cash & stock 14.81 (c) non-cash expenditure (salary) 3.48 (d) change in bank balance 2.38 (a balancing figure) Total 21.05 The sum at (d) would stand to be easily proved with reference to the bank balances as at the beginning and at the end of the year. The figure at (a) is, again, largely proved in-as-much as income/s is admitted though the withdrawals, on account of non presentation of accounts, not examined. The other two components, i.e., (b) and (c), as afore-noted, would require being established on the basis of independent evidences. We are, at this stage, confronted with two options, i.e., either to close this case in-as-much as sufficient opportunity has already been allowed to the assessee, with no document for purchase and sale transactions being furnished. Why, the
8 ITA No. 79/Asr/2018 (AY 2009-10) Vikas Sharma v. ITO tribunal itself while remanding the matter in the first instance stated that it does so as a matter of abundant caution, at the risk and the peril of the assessee, who has not improved upon his case in any manner in the subsequent proceedings. The same, however, is largely in view of the impediment of rule 46A. In our considered view, a final opportunity must therefore be allowed to the assessee to substantiate his case. We opine so as the Revenue authorities, in our view, should have required the assessee to produce any document or evidence in support of his case. The books of account cannot be regarded as de hors or independent of the relevant documents, on which they are based. If, therefore, validly supported, as we presume, how could the books of account be an afterthought, or the income returned on their basis an estimate? The burden to prove his case is clearly on the assessee, including the incurring of the non-cash expenditure, i.e., for business purposes, as claimed, so that the same, as any other source of cash which has to be established, would be subject to examination and finding, and not merely follow in consequence in view of the assessee’s returned income having been accepted, which is only by regarding it as an estimate. The matter, accordingly, setting aside the impugned order, is restored to the file of the ld. CIT(A) for a decision on merits in accordance with the law. Needless to add, we do so only in the interest of justice, and fairness of procedure. The first appellate authority shall decide issuing definite findings of fact after hearing both the sides before him. He may at his option seek verification/comments of the Assessing Officer, i.e., apart from appraising the evidences and the assessee’s explanation himself. The matter having been already long delayed, he shall endeavor to do so in a time bound manner, preferably three months of the receipt of this order; the evidences required to be examined being already available with the assessee, who shall, we make clear, cooperate in the proceedings lest he invite an adverse inference/s.
9 ITA No. 79/Asr/2018 (AY 2009-10) Vikas Sharma v. ITO Before parting with our order, we may also address another argument advanced by Sh. Bhagat during hearing. He would submit that section 69A is not applicable to cash deposits, but section 69, so that the addition as made is not maintainable. Further, these provisions only apply where the deposit in the bank account is found during the course of search or survey. We find both the limbs of his argument as without basis in law. The cash deposits in bank are only money, squarely covered u/s. 69A. In fact, as long as the AO’s action is referable to a provision, mention of the section, or even mention of a wrong section, is immaterial (refer: Hazari Mal Kuthiala v. ITO [1961] 41 ITR 12 (SC); Namdev Arora v. CIT [2010] 389 ITR 434 (P&H) – the latter also referred to during hearing).. Two, the word ‘found’ in section 69A, etc. is not qualified to restrict its’ operation to the discovery of an undisclosed asset in search or survey. The assessee’s argument is accordingly rejected. We decide accordingly. 5. In the result, the assessee’s appeal is allowed for statistical purposes. Order pronounced in the open court on January 02, 2019 Sd/- Sd/- (N. K. Choudhry) (Sanjay Arora) Judicial Member Accountant Member Date: 02.01.2019 /GP/Sr Ps. Copy of the order forwarded to: (1) The Appellant: Vikas Sharma, WG-385, Niwan Suraj Ganj, Jalandhar (2) The Respondent: Income Tax Officer, W-3(2), Jalandhar (3) The CIT(Appeals)-2, Jalandhar (4) The CIT concerned (5) The Sr. DR, I.T.A.T. True Copy By Order