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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI WASEEM AHMED
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the assessee against the appellate order of the Commissioner of Income Tax(Appeals)-2, Rajkot [CIT(A) in short] vide appeal no.CIT(A)- 2/0169/13-14 dated 31.12.2014 arising in the assessment order passed under s.143(3) r.w.s. 263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 14.02.2014 relevant to Assessment Year (AY) 2008-09.
ITA No.45/Rjt/2015 Shri Jignesh Chandubhai Hirpara vs. ITO Asst.Year –2008-09 - 2 -
The grounds of appeal raised by the assessee are as under:- “1.0 The grounds of appeal mentioned hereunder are without prejudice to one another. 2.0 The learned Commissioner of Income-tax (Appeals)-2, Rajkot [hereinafter referred to as the CIT(A)] erred on facts as also in law in retaining addition of Rs.5,88,738/- out of the total addition of Rs.18,07,140/- made by the AO u/s.69A of the Income-tax Act, 1961 on account of alleged unexplained cash deposits in the bank account held with ICICI Bank Ltd, Rajkot. The addition retained is in total disregards to the facts of the case and appellant's submission and is unjustified on facts as also in law and deserves to be deleted and may kindly be deleted. 3.0 The learned CIT(A) erred on facts as also in law in retaining addition of Rs.33,000/- on account of alleged low household withdrawals. The addition may deleted. 4.0 Your Honor's appellant craves leave to add, amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.” 3. The first issue raised by the assessee is that ld CIT(A) erred in restricting the addition made by the AO for Rs.18,07,140/- to Rs.5,88,738/- u/s 69A of the Act on account of a cash deposit.
Before coming to the specific issue, the background of the case as follows briefly. The assessee is an individual and has drawn his salary from ICICI Prudential Life Insurance Company Limited as Unit Manager and ING Vysya Life Insurance Company Ltd. as Sales Manager for Rs.1,07,051 and 44,640/- respectively during the year. The assessee besides the above was also engaged in the business of trading in share
ITA No.45/Rjt/2015 Shri Jignesh Chandubhai Hirpara vs. ITO Asst.Year –2008-09 - 3 - and derivatives. The assessee during the year also derived business income from Mother Dairy from the sale of milk pouch.
However, the assessee declared income only under the head salary in his income tax return. There was no income furnished by the assessee from the trading in share and selling of milk pouch. The assessee during the assessment proceedings explained that he had incurred a loss in share trading business for Rs.4,17,050 only. Similarly, the assessee on the sale of milk pouch has earned an income of Rs.0.25 per pouch only, which is aggregating to Rs.20,000 to 21,000 approximately. As such the loss was greater the in share trading business than the amount of commission income from the sale of milk pouch, therefore, the commission income was not declared in the income tax return. Similarly, the loss in the share trading business was not declared.
Now coming to the issue of the cash deposited by the assessee in his saving bank, ICICI Bank vide account No.015301518915 during the year, it was explained that an amount of Rs.12,18,402 was paid to Mother Dairy for the purchase of milk pouch. Therefore, an amount of Rs.12,18,402/- approximately was deposited in cash out of the sale proceeds of milk pouch.
The AO during the assessment proceedings called for the confirmation from Mother Dairy vide letter dated 19.12.2013 issued u/s 133(6) of the Act, but the Mother Dairy denied to have any transaction during the year
ITA No.45/Rjt/2015 Shri Jignesh Chandubhai Hirpara vs. ITO Asst.Year –2008-09 - 4 - with the assessee. Therefore, an amount of Rs.18,07,140/- was treated as unexplained money u/s 69A of the Act. Accordingly, same was added to the total income of the assessee.
Aggrieved, assessee preferred an appeal to ld.CIT(A). The assessee before the ld CIT(A) submitted that the trading business of milk pouch of Mother Dairy was carried out by his friend namely Shri Himanshu Kantilal Makadiya (HKM). Therefore, the assessee during the year received a sum of Rs.12,18,390/- which was paid to Mother Dairy by way of issuing a cheque. The assessee in support of his claim filed the copy of affidavit of HKM.
The assessee for the remaining amount of Rs.5,88,738/- (18,07,140 – 12,18,390) submitted that it was received from the friends and relatives. It was also submitted that such money received from the friends and relatives was invested in the share business. The assessee has incurred loss in his share business for Rs.4,17,050/- therefore he could not take the confirmation from his friend and relatives for the receipt of Rs.5,88,738.00.
A remand report was called by the ld CIT(A) from the AO on the explanation furnished by the assessee. The AO in his remand report admitted the source of cash of Rs.12,18,390/- only. Therefore, the ld CIT(A) after considering the submission of the assessee and remand
ITA No.45/Rjt/2015 Shri Jignesh Chandubhai Hirpara vs. ITO Asst.Year –2008-09 - 5 - report of the AO deleted the addition made by the AO in part by observing as under: “5.3 I have perused the assessment order and the written submission filed by the AR of the appellant. I have also gone through the bank statement in which the said cash was deposited. On verification of the bank statement, it is seen that, pursuant to the cash deposits, periodically cheques in favour of Mother Dairy were issued. According to the appellant, during the year under consideration, his friend had carried out retail sale of milk pouches and cheques were issued. It is also seen from the original assessment order that the AO had recorded his satisfaction of having verified the books of the appellant vis-a-vis the deposits made into his bank account and the issue of cheques to Mother Dairy. In fact, the AO in the original assessment order did not accept the contention of the appellant to the extent that, his friend had carried on the business of milk and that the appellant had not gained anything. It was on this count that the AO in the original assessment order had made an addition of Rs 20,000 being commission on sale of milk.
5.4 The AR of the appellant submits that, the very fact cheques were periodically issued to Mother Dairy, proves the fact that either the appellant or his friend had carried on the business of milk trading and hence, the entire cash deposit does not represent the income of the appellant. This contention of the AR is verified and found to be correct. The AR has also filed a copy of bank statement, copy of cash book from which such retail sales of milk was credited which was deposited into the bank account, from which cheques were issued to the principals, M/s. Mother Dairy, This has also been verified.
5.5 With regard to the AO's finding that no TDS was deducted from the commission income is concerned, there is substantial force in the contention of the AR that, the retailer charges printed price from the end user, whereas, the amount net of commission is remitted back to the principals. Hence, this is pure trading activities and hence, no TDS was deducted. So far as the finding of the AO that when he inquired with Mother Diary, they informed that no financial transactions were undertaken by them with the appellant is concerned, the AR submits that, this is so because, the retail trading of milk was carried out by his friend Makadia. Though from the statement of mother dairy furnished in
ITA No.45/Rjt/2015 Shri Jignesh Chandubhai Hirpara vs. ITO Asst.Year –2008-09 - 6 - case of Umia Dairy i.e, Makadia's proprietory concern, transactions under question tallies.
5.6 Having perused the assessment order and the written submission filed by the AR of the appellant and having considered the facts and circumstances as emerging supra, I find that the appellant did carry out milk business, which were sold in retail and the cash was deposited into his bank account which was remitted back to the principals, M/s. Mother Dairy, Pursuant to cash deposits, cheques were issued to the principals. Therefore, the money deposited to the extent of cheques issued to M/s. Mother Dairy cannot be termed as unexplained and this is nothing but proceeds from retail sales of milk. Hence, addition to the extent of Rs. 12,18,402/- stands explained, and the same is directed to be deleted.
5.7 However, I decline to accept the fact that the appellant would not have earned any commission. Therefore, the addition made by the AO in the original assessment of Rs.20,000 being commission income earned from retail sale of milk pouches, is upheld.
5.8 So far as the remaining amount of Rs.5,88,738/- is concerned, the AR of the appellant submits that, this was the initial capital of the appellant which was raised from friends and relatives. With this fund the appellant carried out business of trading in shares on intra day basis, without taking the delivery of the shares through the authorised broker M/s Angel Broking Ltd, for which the data related to sale and purchases are on record (copies are attached). Since he incurred loss in share transactions of Rs 4,17,050/- as per the account of M/s Angel Broking Ltd, he did not disturb the relatives to give confirmations and owned up deposits made in the bank account and claimed adjustment of loss against the same. Thus, after adjustment of loss of Rs 4,17,050/- there hardly remains anything unexplained.
5.9 I have perused the assessment order and the written submission of the AR with all the supporting evidences in respect of appellant's dealing in shares and the loss incurred there from. There is no doubt that the appellant could not explain the sources of the balance cash of Rs.5,88,738/- properly. The appellant's contention that this cash was raised from his friends and relatives, which formed his capital to make investment in share trading business is not supported by any
ITA No.45/Rjt/2015 Shri Jignesh Chandubhai Hirpara vs. ITO Asst.Year –2008-09 - 7 - documentary evidence. No confirmation in this regard has been produced. Hence, the same is treated as the unexplained income of the appellant. It is also submitted that the appellant had incurred loss from share trading business and urged that this loss has to be allowed from the income earned from unexplained sources to the tune of Rs.5,88,738/-. I also find that, this issue has been discussed by the AO in the assessment order, but did not allow the loss on the ground that the loss was from speculation business. 1 fully agree with the observation of the AO and therefore concur with the finding of the AO. Accordingly the addition to the extent of Rs.5,88,738/- is confirmed. 5.10 To sum up, out of the total addition made of the entire cash deposit of Rs.18,07,140/- addition to the extent of 5,88,738/- is confirmed, therefore remaining addition of Rs.12,18,402/- is directed to be deleted. This ground of appeal is partly allowed.”
Being aggrieved by the order of ld CIT(A) assessee is in appeal before us. The ld AR before us submitted that the amount was received in cash from the relatives and friend of the assessee. Such amount was lost in the share trading business amounting to Rs.4,17,050/- only. Therefore the loss should be set off against the income determined u/s 69A of the Act. On the other hand, ld DR vehemently supported the orders of authorities below.
We have heard the rival contentions and perused the materials available on record. In the instant case, the assessee has deposited a sum of Rs.18,07,140/- in his saving bank account out of which the assessee explained to have deposited a sum of Rs.5,88,738/- out of the loan received from his friends & relatives. But the assessee failed to substantiate his argument with documentary evidence. Therefore, the
ITA No.45/Rjt/2015 Shri Jignesh Chandubhai Hirpara vs. ITO Asst.Year –2008-09 - 8 - addition was made for u/s. 69A of the Act as unaccounted money. The assessee also requested for set off the loss of share trading business with the income determined under section 69A of the Act, but the same was rejected. The grievance of the assessee is that the income on account of such unexplained credit should be set off against the loss incurred by him on account of share trading business. From the submission of the assessee before the ld CIT(A), we note that the impugned loss of Rs.4,17,050/- is representing speculation loss. Thus the same cannot be allowed to be set off against any other income. As per the provision of Section 73 of the Act, the amount of speculation loss can only be set off against the speculation income as there is no dispute about the impugned loss of Rs. 4,17,050/- which is speculative in nature. Thus, in our considered view such loss cannot be allowed to set off against the income of unexplained money u/s 69A of the Act thus, we do not find any reason to interfere in the finding of ld. CIT(A). Hence the ground of appeal of the assessee is dismissed.
The next issue raised by the assessee is that ld CIT(A) erred in confirming the addition of Rs.33,000/- on account of low household withdrawals.
The AO during the assessment proceedings observed that the assessee had shown low withdrawals on account of household expenses. Therefore, the AO estimated the household expenses of Rs.8,000/- per
ITA No.45/Rjt/2015 Shri Jignesh Chandubhai Hirpara vs. ITO Asst.Year –2008-09 - 9 - month aggregating to Rs.96,000/- for the year under consideration. As the assessee has shown household expenses for Rs.63,330/- only, therefore the AO made the addition of Rs.33,000/- to the total income of the assessee on account of low house hold drawing.
Aggrieved, assessee preferred an appeal to ld. CIT(A). The assessee before the ld CIT(A) submitted as under: i. The AO has already added an income of Rs.21,600/- on account of difference in salary income. ii. The AO has made an addition on his surmise and conjecture. There was no documentary evidence available with the AO suggesting that the assessee has incurred more expenses then shown in the books of accounts. However, the ld CIT(A) disregarded the contention of the assessee and confirmed the order by observing as under: “6.1 I have perused the assessment order and the written submission filed by the AR of the appellant. I find that the addition has been made on reasonable ground that the appellant did not have sufficient disposable income to meet his household expenses. The AO had made addition of Rs 33,000/- being deficit funding for meeting household expenses. Assessing Officer has mentioned in the assessment order that the appellant has earned net salary amount of Rs.111750, out of which, he has paid loan installments aggregating to Rs.48,420 to ICICI Bank and thus only Rs.63,330 has been remained with the appellant for domestic expenses. Keeping in view the cost of inflation, etc., the A.O. has estimated Household expenses @Rs.8,000 p.m. which resulted into difference of Rs.33,000/-. In view the fact that the cost of inflation, the estimation at Rs.96000/- per annum made by the A.O. is found reasonable to estimate the household expenses of appellant. Therefore,
ITA No.45/Rjt/2015 Shri Jignesh Chandubhai Hirpara vs. ITO Asst.Year –2008-09 - 10 - the addition of Rs.33000/- made by the A.O. is upheld. This ground of appeal is dismissed.”
Being aggrieved by the order of ld CIT(A) assessee is in the second appeal before us. The ld AR before us reiterated the submission as made before the ld CIT(A). On the other hand, ld DR vehemently supported the order authorities below.
We have heard the rival contentions and perused the materials available on record. The basis of the addition of Rs.33,000/- is that the assessee has shown less amount of drawing. However, we note that this inference of the AO was based without any documentary evidence suggesting that the assessee has incurred more expenses than the drawing shown in the books of accounts. Thus we are of the view that the addition was made on the surmise and conjecture. Hence, we disagree with the addition made by the AO and subsequently confirmed by the ld CIT(A) for Rs.33,000/- on account of less drawing without bringing any supporting evidence. In this regard, we find support and guidance from the order of this Hon’ble Tribunal in the case of Shri Pradip C. Patel vs. DCIT reported in 58 TTJ 409, wherein it was held as under: “There was no finding by the Assessing Officer about the assessee having any personal domestic servant, any extraordinarily high electric bills, huge payments such as membership of any clubs, etc., which could justify the estimate of expenditure made by the Assessing Officer for the different assessment years included in the block period. In the absence of such a finding, the only course left for the Tribunal was to delete the addition as the same could not be sustained for want of adequate
ITA No.45/Rjt/2015 Shri Jignesh Chandubhai Hirpara vs. ITO Asst.Year –2008-09 - 11 - supporting material. Accordingly, the addition was directed to be deleted.”
From the above facts, it is clear that the addition was made on account of low drawing Act without having any reliance on the material evidence. Therefore, we are inclined to reverse the orders of authorities below. Hence, the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is partly allowed. This Order pronounced in Open Court on 08/08/2018
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