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Facts
The assessee, Ms. Mamta Jain, filed her return declaring Rs.39,81,780/-. The Assessing Officer (AO) noted large credit transactions in her bank account and alleged that the assessee failed to substantiate her discounting business, estimating her income at Rs.2,15,99,185/-.
Held
The Tribunal held that the assessee had produced sufficient evidence for her discounting business, and the AO's rejection of books and estimation was based on conjectures. However, considering the lack of explicit regulatory approval for the LC discounting business, a partial addition was upheld.
Key Issues
Whether the assessee's discounting business activities were sufficiently substantiated to reject the AO's additions, and if not, what is the appropriate estimation of income.
Sections Cited
148, 147, 144B, 143(3)
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI LALIET KUMAR & SHRI MADHUSUDAN SAWDIA
Dy. Commissioner of Income Tax, Ms. Mamta Jain, Circle-1(1), Hyderabad. Vs. Hyderabad. PAN :AHQPJ0015R (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri Mohd. Afzal, Advocate रधजस् व द्वधरध/Revenue by:: Dr. Sachin Kumar, SR-DR सुिवधई की तधरीख/Date of hearing: 06/02/2025 घोर्णध की तधरीख/Pronouncement: 24/02/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.: This appeal is filed by the Revenue, feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), dated 22.01.2024 for the A.Y. 2016-17.
The brief facts of the case are that, Mamta Jain (“the assessee”) is an individual, filed her Return of Income (“ROI”) on 17.10.2016 declaring total income of Rs.39,81,780/-. The Learned Assessing Officer (“Ld. AO”) found that the assessee had credit transactions of Rs.3,26,38,65,273/- in her bank account during A.Y. 2016-17.
Therefore, he issued notice u/s.148 of the Income Tax Act, 1961 (“the Act”) on 29.03.2021 and in response to the notice, the assessee declared the same income as declared in ROI dated 17.10.2016. During the assessment proceedings, the assessee submitted that the total credit of Rs.3,26,38,65,273/- in bank account consist of Rs.1,06,40,40,426/- on account of receipt from steel trading business and the balance of Rs.2,19,98,24,847/- pertains to the receipt on account of LC discounting transaction (discounting business). Before the Ld. AO, the assessee filed revised computation of income by showing additional income of Rs.22 lakhs, to settle the litigation on account of credit found in the bank account. However, the Ld. AO was not satisfied with the submission of the assessee, that the balance of Rs.2,19,98,24,847/- was pertaining to the receipt on account of discounting business, contending that necessary evidences were not produced by the assessee in support of such claim. Finally, the Ld. AO rejected the book results and estimated the income of the assessee at Rs.2,15,99,185/-, making addition of Rs1,74,67,401/- u/s.147 r.w.s. 144B of the Act on 30.03.2022.
Aggrieved with the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) verified the bank documents related to discounting business on sample basis. The Ld. CIT(A) also found that in the very next year also the assessee had shown the discounting business in her ROI and the Ld. AO in the assessment u/s.143(3) of the Act accepted the discounting business of the assessee. The Ld. CIT(A) finally accepted the claim of the assessee and deleted the additions made by the Ld. AO. However, the Ld. CIT(A) sustained the addition of Rs.22 lakhs, which the assessee herself had offered before the Ld. AO.
Aggrieved with the order of Ld. CIT(A), the revenue is in appeal before us. The Learned Department Representative (“Ld. DR”) submitted that, the assessee failed to produce licence with regards to her discounting business, invoices raised for commission received from the said business and the contract / agreement with other entities to substantiate her claim. Further there was no TDS made by the other party on the commission income of the assessee. Hence, the assessee failed to substantiate her claim and there is no infirmity in the order passed by the Ld. AO. Therefore, the Ld. DR prayed before the bench to allow the appeal of revenue.
Per contra, the Learned Authorised Representative (“Ld. AR”) submitted that, no licence is required to carry on the discounting business. Further, he submitted that, no invoice is required to be issued for the said activity, as the customer make the payment through banking channel including their charges on account of bill discounted. He also submitted that, the charges received by them is in the nature of bill discount and not the commission, hence no TDS has been deducted by any customer. Finally, the Ld. AR vehemently relying on the order of Ld. CIT(A), prayed before the bench to uphold the order of Ld. CIT(A).
We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the order of Ld. CIT(A). The Ld. CIT(A) at para nos.5.7 and 5.8 has categorically given his findings and accepted the discounting business of the assessee which is to the following effect : “5.7 The appellant has been able to prove that the appellant did carry on the discounting activity by producing 6 Scheduled Bank documents pertaining to different periods of the FY 201-16 on a sample basis and also copy of the assessment order completed for the succeeding AY by the AO accepting that she was engaged in the LC discounting activity.These submissions of the appellant have substantial force and cannot be simply brushed aside, as done by the AO. No rebuttal was brought in by the Assessing Officer against these factual submissions of the appellant except harping on non-production of documents / evidences, which were either non-existent or were not required to be maintained. Thus, the very action of the AO of disbelieving and rejecting the claim that the appellant was engaged in bill discounting activity and also rejecting the books and applying the GP percentage of an altogether different business activity i.e. trading in steel on the bill discounting activity cannot be sustained.The AO's action is based on conjectures and surmises. As against this, the appellant has produced irrefutable Bank Documents of bill discounting for the clients to establish the factum of carrying out the business of discounting activity. Also, the very bank account statements of the appellant itself are strong evidence that the payments made / debits were against a co-relatable credits / receipts. In the process, the bank account of the appellant is initially debited and thereafter the credits come and the co-relation between the debits and credits was evident from the consolidated statement furnished by the appellant. From the consolidated debits and credits of the bank account, it is evident that transfers to the customers (debits) are well less than the transfers to the appellant bank account (credits) and the difference were offered to tax.Therefore, no adverse inference can be drawn, from the credits appearing in the bank account.
5.8 Even if AO's rejection of books and rejection and disbelief of everything claimed by the appellant as done by the AO is taken at face value, one thing cannot be lost sight of is the fact that as per the "Consolidated bank book of all the current accounts" submitted by the appellant, the total credits appearing in the 4 bank accounts are Rs. 513,78,97,703/- as against which the total debits are Rs. 516,61,28,629/-. Thus, after rejecting and disbelieving everything claimed by the appellant no adverse implication can be drawn on credits alone altogether ignoring the debits that too when the debits outweigh the credits.” 6.1 On perusal of above, we found that, before the Ld. CIT(A), the assessee produced six scheduled bank documents related to discounting business, pertaining to different periods of A.Y. 2016- 17 on sample basis and after verifying such documents, the Ld. CIT(A) arrived at the findings. Further, in A.Y. 2017-18 i.e. in the very next year, in scrutiny assessment, the Ld. AO did not raise any such objection related to the discounting business of the assessee and passed the order under section 143(3) of the Act accepting the discounting business of the assessee. The assessee has also accepted additional income of Rs.22 lakhs before the Ld. AO to settle the litigation on account of credit found in the bank account and the same has been sustain by the Ld. CIT(A) also. Accordingly, the assessee has already offered Rs.22 lakhs of additional income over and above her returned income on account her discounting business. Though it is correct that the assessee has offered the additional income of Rupees 22,00,000 before the AO however, the assessee has failed to prove to the satisfaction of the AO showing it was carry on LC discounting business after having approval for the regulatory authorities . In fact the SBI in its rates as applicable from 1/9/2019 is charging at 0.1% p.a. (excluding GST) of Export credit limit similar are rates for other banks/ NBFC. In the absence of any evidence produced by the assessee before the AO and failure on the part of AO to bring the comparable instance we deem it appropriate to compute the income of assessee from the business of LC discounting at Rs.32 lacs . As the assessee had already disclosed the income of Rs.22,00,000, we deem it appropriate to make the another addition of rupees 10 lakes in the hands of the assessee . In fact the 0.1% of the LC business for Rs.219 Crore would come to Rs.21.90 lakhs, however this is the amount the bank would be charging from any consumer and therefore in addition to this , we estimate additional sum of Rs10,00,000 as income from the LC discounting business . In the light of the above, the appeal of the revenue is partly allowed .