NILESH MANOHAR THOPATE,NANA PETH PUNE vs. INCOME TAX OFFICER, SWARGATE PUNE

Although a number of grounds have been raised by the assessee, however, these all relate to the order of the Ld. CIT(A) / NFAC in confirming the addition of Rs.76,30,760/- made by the Assessing Officer u/s 69A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

Facts of the case, in brief, are that the assessee is an individual and has filed his return of income on 30.01.2017 declaring total income of Rs.6,69,240/-. The return was processed u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny under CASS. Accordingly, statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee in response to which the assessee filed the requisite details from time to time.

During the course of assessment proceedings the Assessing Officer noted that the assessee has shown income by way of business and other sources. The assessee has shown receipts of Rs.85,00,000/- on which profit at the rate of 8.01% has been reflected i.e. Rs.6,80,650/-. He noted that the assessee has deposited cash of Rs.83,00,000/- in Punjab National Bank. He, therefore, asked the assessee to furnish the following details: “i) Nature of business activity carried out ii) shop Act licenses iii) Name, Address of persons to whom services rendered, nature of services rendered and confirmation from the said parties regard the cash receipts. iv) Nature and address of suppliers, labours, who have carried out work for you. Show cause as to why cash deposit of Rs.83 lakhs should not be treated as income from undisclosed sources and added to your income"

The assessee in response to the same submitted the details which the Assessing Officer has reproduced in the body of the assessment order and which reads as under: “07. The Authorized Representative of the assessee submitted the written reply on 26.12.2016. The contention of AR of the assessee is summarized as follows:- i. Assessee has constructed related work. The nature of work were related to various type of labour such as plumbing, flooring, tiles, fabrication, providing labour for different activities etc.

However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He noted that a perusal of the bank statement shows that the assessee has deposited cash and made payments to certain parties. After analyzing the various details furnished by the assessee, he noted that the assessee has utilized the cash deposits towards loan to Satish Sawant Group and Omkar Enterprises. According to the Assessing Officer, the assessee has utilized the entire cash deposits towards the loan. Further in case of contract as per the provisions of section 44AD of the Act, profit percentage may vary from 8% to 20%. The bank statements and receipts and payment account submitted by the assessee according to the Assessing Officer, clearly shows that cash deposited has been diverted by the assessee. According to the Assessing Officer there is no single withdrawal towards the labour payments, any material purchases, etc. He further noted that the assessee has deposited cash ranging from Rs.5 lakhs to Rs.20 lakhs in a day which is not small in amount and the assessee failed to give even a single name and address of person to whom services were rendered. In view of the above, the Assessing Officer rejected the explanation of the assessee that the profit should be estimated by invoking the provisions of section 44AD of the Act. He, therefore, held that the entire amount of Rs.83,00,000/- deposited by the assessee has to be treated as income u/s 69A of the Act. Since the assessee has already declared an amount of Rs.6,69,240/-, the Assessing Officer made addition of Rs.76,30,760/- (i.e. Rs.83,00,000/- - Rs.6,69,240/-).

In appeal the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer on the ground that the assessee failed to satisfactorily explain the source of cash deposit found in the bank account with necessary evidences.

Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal.

The Ld. Counsel for the assessee at the outset referred to para 8 of the assessment order and drew the attention of the Bench to the same where the Assessing Officer has reproduced the receipts and payments account. The Ld. Counsel for the assessee submitted that the assessee has received the following loan amounts which are clearly visible from the receipt and payment account reproduced by the Assessing Officer: Date Receipts Explanation Amount 16.06.2014 Sandeep Mahagavkar Loans 2,00,000 18.06.2014 Sandeep Mahagavkar Loans 1,00,000 12.08.2014 Sandeep Mahagavkar Loans 1,50,000 10.09.2014 Harsha Salunke Loans 20,00,000

He submitted that the assessee has given the loans to various parties immediately after receiving the loans from the loan creditors, the details of which are as per the receipt and payment account. Therefore, the finding of the Assessing Officer that the assessee has not explained the source of cash loans is incorrect and not as per the facts noted by him. He submitted that the Ld. CIT(A) / NFAC has blindly upheld the order of the Assessing Officer without going through the assessment order where the Assessing Officer has himself analyzed the bank account and mentioned the loans taken by the assessee. He submitted that the assessee has opted his income u/s 44AD of the Act and the loans given are out of the loans obtained and therefore no addition is called for.

The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. He submitted that even though the Assessing Officer has mentioned about the acceptance of loans by the assessee from different persons, however, their identity and creditworthiness has not been examined by the Assessing Officer. Therefore, he has no objection if the matter is restored to the file of the Assessing Officer with a direction to verify the identity and creditworthiness and the genuineness of the transactions.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We find the Assessing Officer in the instant case made addition of Rs.76,30,760/- u/s 69A of the Act being the difference between the cash deposit of Rs.83,00,000/- and the income of Rs.6,69,240/- declared by the assessee on the ground that the assessee could not give the details of the names of the persons from whom the assessee has received this money towards the services rendered and that the cash so deposited in the bank account has been diverted as loans to different parties without drawing a single rupee towards purchase of materials and labour. We find the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer on the ground that the assessee failed to satisfactorily explain the source of cash deposits found in bank with necessary evidences. It is the submission of the Ld. Counsel for the assessee that the Assessing Officer without due application of mind has made the addition since in para 8 of the assessment order itself the receipts and the payments account extracted by the Assessing Officer shows that loans were received from various parties which were given as loans to different parties and there are also cash withdrawals for expenses. It is his submission that the assessee has opted for the provisions of section 44AD of the Act on the amount of Rs.83,00,000/- received from various persons towards services rendered and the amount of loans has been given out of the loans obtained.

We find some force in the above arguments of the Ld. Counsel for the assessee. A perusal of para 8 of the assessment order clearly shows that the assessee has received various loan amounts on different dates from different parties which were subsequently advanced to different parties as loans. Further there are withdrawals which clearly show as expenses. Despite noting all the details in the body of the assessment order, the Assessing Officer proceeded to conclude that there are no withdrawals towards expenses and the assessee has utilized the cash deposits towards loans to Satish Sawant Group and Omkar Enterprises. Since the assessee has opted for the provisions of section 44AD of the Act on account of business receipts, we are of the considered opinion that the Assessing Officer should not have disturbed the same. We therefore, direct the Assessing Officer to accept the profit declared by the assessee as per provisions of section 44AD of the Act.

However, so far as the loans received by the assessee from various parties are concerned, it is the duty of the assessee to give the details of the persons who have advanced the loans along with their creditworthiness. Since only the names are appearing but neither their creditworthiness has been verified by the Assessing Officer nor given by the assessee, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate the identity and creditworthiness of the loan creditors who have given loans to the assessee which in turn has been utilized by the assessee by giving the loans to Satish Sawant Group and Omkar Enterprises and decide the issue as per fact and law. Addition, if any, can be made u/s 68 of the I T Act only in respect of loans received by the assessee for which assessee fails to substantiate the identity and creditworthiness of the loan creditors. The assessee is also hereby directed to appear before the Assessing Officer on the appointed date and make his submissions, if any, without seeking any adjournment under any pretext failing which the Assessing Officer shall be at liberty to pass appropriate order as per law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes.