ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE - 2 (3), BENGALURU vs. SHRI C J VISHWANTHA, CHICKAMANGALURU

The facts of the case stated are as follows: The assessee is engaged in the businesses of Liquor and Money Lending. The assessee in addition to the business income derived income from agriculture, house property and also income from other sources being interest on Fixed Deposits. The assessee is assessed before the Income-tax Officer, Chikmagalur, vide PAN ADAPV3014C. The assessee had filed Returns of Income regularly. A search u/s. 132 of the Act was conducted in the case of the assessee on 08.06.2012 both in the business premises and Residence. Consequent upon the assessee’s case was notified to the Office of the DCIT, Central Circle 2(3), Bangalore. Thereafter, a Notice u/s. 153A of the Act was issued on 28-01-2014 and called upon the assessee to file his Return of Income for the Assessment year 2008- 09. In response to the said notice, the assessee has filed his return of income on 29-10-2014 declaring total income of Rs.1,34,748/- besides agricultural income of Rs.14,70,170/-.

The AO has observed that the search conducted has revealed the fact that the assessee has held the following three Bank Accounts in his name and two Bank Accounts were held by his employee Miss. N. Pratibha. The details of the said bank accounts are furnished as under :-

The AO has also held that during the course of assessment proceedings one more Bank Account No. 479, held with HDFC Bank, Chikmagalur, jointly by the assessee and his employee Ms. N. Pratibha was found out. In the said bank account, the AO has noticed that a sum of Rs.1,11,124/- was found debited towards the payment made to J.J.M. Medical College, Davangere towards the fees payable by the assessee’s son for his studies and further noted that a sum of Rs.1,000/- per month has been paid since 05-09-2012 towards the Recurring Deposit held by the assessee. On the basis of the above transactions, the AO has held that the said

It is pertinent to mention that the amount of Rs. 1,11,124/- paid from the joint Bank Account towards the fees of the assessee’s son was in fact refunded by the assessee’s wife Smt. Pankaja to Ms. N. Pratibha and later, the assessee has repaid the said amount to his spouse and squared up the transaction. The AO has ignored several transactions of the said bank account, but selectively he has chosen only two transactions stated above to hold that the said joint Account of the HDFC Bank, Chikmangalur exclusively belongs to the Appellant.

The Ld. AO has held that the Appellant has not disclosed the following Bank Accounts held in his name prior to the date of Search :-

The Ld. AO has also held that the Appellant has not disclosed the following Bank Accounts held by his Employee Miss. N. Pratibha: a) Account No. 2386101005551 held with Canara Bank, Chikmangalur b) Account No. 276 held with Sri. Vasavi Multipurpose Co-operative Credit Society

The AO has held that the above Bank Accounts were detected during the course of search. The assessee submitted that during the course of search, the search team did not find any incriminating documents and any other material evidence in support of undisclosed income if any relating to the asst. year 2008-09.

The search team did not find any undisclosed properties, money, bullion or jewellery and therefore, the search was conducted on the basis of information which was not well founded. A Search was conducted merely on surmise, suspicion and guess work without any material evidence. The Bank Accounts said to have not been disclosed did not yield substantial income for the purpose of taxation and, therefore, the said Bank Accounts were not taken into consideration for the purpose of determination of income. The non-disclosures of the Bank Accounts was held by the AO as a sole ground for holding the cheque credits and the cash credits amounting to Rs. 2,06,72,127/- as income of the Appellant.

Similarly, addition for other asst. years as follows:-

Against this, the assessee went in appeal before the CIT(A). The CIT(A) observed that as follows:- “27. The facts of the case, the grounds of appeal, the Written Submissions, the AO's findings and various Judicial decisions are considered and found that the AO has made the addition only the basis of cash credits found in the Bank Account without considering the recycled deposits out of the periodical withdrawals. In the process the has not brought on record any sizable Cash Balance at the end of the year since it is found that the deposits and re-deposits are out of the same stock of Cash Initially invested. The frequent deposits and withdrawals were necessitated as a compulsion in the Money lending business where the cash would be drawn at the time of lending the Loan to the needy customers and after receiving back the loan amount so lent would be credited into the Bank and this cycling and recycling process was continued throughout the year. 28. It is seen from the Assessment Order that the addition was not based on any material evidence attributable to the detection of any undisclosed income/asset or incriminating documents, rather the addition was made merely on the basis of Bank Credits in the guise of an excuse that the two Bank Accounts mentioned above were not disclosed prior to the date of Search. In my opinion mere non disclosure of the Bank Account without finding any credible information as regards undisclosed income/asset or incriminating documents would not justify the additions merely on the basis of Bank Credits that- too without considering the periodical withdrawals

On the other hand, the ld.AR submitted as follows: The Appellant is engaged in the business of Money Lending and Liquor business Apart from the business the Assessee also owned agricultural lands extensively and

The Appellant submitted that a Search u/s. 132 of the Act was conducted on 08-06-2012 and the Appellant was called upon to file the return of income by issue of notice u/s. 153A of the Act for the assessment year 2008-09 which is a part of the Block Period. In response to the aforesaid notice the Appellant has filed his return of income on 29-10-2014 declaring income of Rs. 1,34,748/- as detailed below:-

The Ld. AO has completed an Assessment u/s. 143(3) r.w.s 153A of the Act dt: 26-03-2015 determining the total income at Rs. 16,04,918/- as against the declared income of Rs. 1,34,748/- besides agricultural income of Rs. 14,70,170 /-. The Ld. AO has made an addition of Rs. 2,06,72,127/- which was held as unexplained credits. The Ld. AO has held that the Appellant had owned the following bank accounts: Sl. Year Account Name of the Amount of Status of No. Ending No. and Account Credits (Rs.) Account name of the Holder holding Bank 1 31-03- 3966 - C.J. 50,84,312 Individual 2007 SBM Vishwanath 2 31-03- 226 – C.J. 1,55,87,515 Individual 2007 SVMCCS Vishwanath TOTAL 2,06,72,127

The Appellant submits that during the course of Assessment proceedings the Appellant has produced a

The Appellant begs to place reliance on the decision dt: 26-08-2014 of the Hon’ble Jurisdictional Karnataka

The Appellant placed reliance on the decisions of the Hon’ble Allahabad High Court in the case of CIT v/s. Adbul Haseeb Prop. M/s. JB Silk in ITA No. 213 of 2007, 214 of 2007, 215 0f 2007, 216 of 2007, wherein it has been held that : “The expression “any sum is found credited in the books of the assessee” means all entries on the credit side as well as on the debit side in the books of account. The word “credited” in relation to “any sum” does not mean an entry only on the credit side

In this view of the matter the Appellant submits that the Ld. AO was not justified only to consider the credit s of the Bank Account rejected the debits which served as a source of subsequent credits.

Further the Appellant relied upon the decision of the Hon’ble supreme Court in the case of Lalchand Bhagat Ambika Ram (1959) 37 ITR 288 wherein it has been held that “it was not therefore open to the Tribunal to accept the genuineness of these books of account and accept the explanation of the Appellant in part Rs. 1,50,000/- and reject the same in regard to the sum of Rs. 1,41,000/- and ultimately the Hon’ble Supreme Court held that “declining to take into consideration all materials which the Assessee wants to produce in support of the case constitutes a violation of the fundamental rules of justice and calls for interference”. In this view of the matter the

Reliance was placed upon the decision of the Hon’ble supreme Court in the case of Indore Malwa United Mills Ltd. V/s. State of Madhya Pradesh and others (1966) 60 ITR 41 (SC) wherein it has been held that “as the appellant produced before the assessing authorities all its registers, it was their duty to definitely come to one conclusion or the other in regard to the reliability of every one of the relevant accounts filed by the appellant, and in the absence of any such finding it was not open to them to pick and choose some of the registers, which were more favourable to the revenue”. In this view of the matter the Appellant submits that the AO has not considered the totality of the evidence as regards the agricultural receipts recorded in the cash flow statement and the Ld. AO was not justified to rely upon the undisclosed Bank accounts in respect of the credits without considering the debits which served as a source for re-credit (recycling) subsequently in the same previous year.

The Appellant relied on the decisions dt: 23-06-2010 of the ITAT Bangalore (2010) 5 ITR (Trib) 129 (ITAT/Bang) in the case of Dr. M. Somashekar v/s. ACIT, wherein it has been held as under;- “Repeated cash transactions of deposits, withdrawals, re- deposits and re-withdrawals made, time and again, from the same stock of cash resulting in huge cash turnover, had not been reconciled. Each and every item of deposit and withdrawal could not be treated as an independent item of undisclosed income and added severally. The unexplained cash and withdrawals need not be treated as independent amounts of undisclosed income. They could be accounted against the cash turnover out of the funds generated from unauthorized activities carried out by the assessee” in the block period. Therefore, the additions in respect of unexplained cash and unexplained withdrawals were deleted.”

The Appellant placed reliance on the decisions dt: 24-06-2016 of the Hon’ble ITAT Bangalore Bench in ITA No. 731/Bang/2015 in the case of S. Kiran Kumar v/s. ITO Ward - 9(2), wherein it has been held that : “Assessee had withdrawn money in cash and also deposited money in cash to his bank account. Assessee had already mentioned before the AO that he intended doing the real estate business. There was no reason why this explanation was disbelieved. It is a fact that withdrawals during the year 2007-08 were more than the deposits made by Rs. 37,88,190/-. Assessee could very well show it as a source for the deposits made by him in the succeeding year. I am of the opinion that the Assessee had produced

The Appellant placed reliance on the decisions dt: 29-04-2016 of the Hon’ble ITAT Bangalore Bench in ITA No. 612/Bang/2014 in the case of R. Nagendra v/s. ITO Ward – 8(1) wherein it has been held that : “Source of cash deposit has been explained by the assessee as business receipt, but it was not accepted by the AO. It is pertinent to note that the AO considered only deposit side of the bank account without considering the withdrawal. Further when the AO accepted the gross receipt from the business of studio, then to that extent the deposit in bank account can be considered as explained source if the expenditure incurred by the assessee from the corresponding withdrawal in the bank account has not been examined by the authorities below. Accordingly we set aside this issue to the record of AO to examine the same afresh by considering the deposit as well as explaining the withdrawals by matching the same with the business receipts and business expenditure of the assessee.”

The Appellant begs to place reliance on the decisions dt: 22-06-2015 of the Hon’ble ITAT Lucknow Bench in ITA No. 634/LKW/2014 in the case of ITO – 6(4) v/s. Vishan Lal wherein it has been held as under:-

The Appellant relied on the decision dt: 25-07-2014 of the Hon’ble Jurisdictional Karnataka High Court in the case of CIT v/s. Jayesh S Mehta, in ITA No. 545/2008,595/2008 wherein it has been held as under:- “The Assessee admits during the search that a portion of the profit is not accounted for and it is deposited in various banks. He submitted that he shall certificate the profit component of this under billed quantity for the block period and shall pay the tax accordingly. However, the Assessing Authority took that amount in deposit as profit and levied tax. On that basis the First Appellate Authority found fault with the way the Assessing Authority had calculated the undisclosed income and profit thereon. After carefully examining the turnover for 1996-97, 1997-98 and 1998-99 and comparing with the turnover of 1999- 2000, 2000-01, 2001-02, 2002-03 and also taking into consideration the profit earned by another firm M/s. SRV and Sons, he was of the view that 4% would be the gross profit of the firm and he wanted the tax to be levied on that basis. The Tribunal found fault with the said finding on the ground that when the First Appellate Authority is relying on Comparable cases, first there should be factual foundation showing the total turnover of that business and then the profit margin.”

The Appellant begs to place reliance on the decision of the Hon’ble Supreme Court in the case of Sumati Dayal

The assessee placed reliance on the decision of the Hon’ble Bombay High Court in the case of CIT v. Bhai Chand.H. Gandhi (1983) 141 ITR 67 (BOM), wherein it has been held that the Bank credits do not constitute income of the Appellant and provision of section 68 of the Act is not applicable since the Bank Pass Book does not constitute as the Books of the Assessee. The Ld. AO has made an addition of Rs. 2,06,72,127/- being the deposits found credited in the State Bank of Mysore amounting to Rs. 50,84,312/- and SVMCCS(Sri Vasavi Multipurpose Credit Co-operative Society) amounting to Rs. 1,55,87,515/- (Rs. 50,84,312/- + Rs. 1,55,87,515/- = Rs. 2,06,72,127/-). The Ld. AO has held that the deposits made into the Bank amounting to Rs. 2,06,72,127/- was unexplained and undisclosed credit and therefore the said amount was held as income of the Appellant without appreciating the fact that the Ld. AO has not considered the amounts withdrawn by way of debits which were re- deposited into the Bank Account. The Bank Account was

We have heard both the parties and perused the materials on record and also case laws cited by the parties.

In the present case, the AO made additions on the reasons that the assessee has not disclosed certain bank accounts to the department while filling the return of income. The AO considered the entire deposits made by assessee to various bank accounts as income of the assessee. Thus, the AO made additions for this asst. years as follows:-

The AO rates total amount deposited by the assessee into various bank accounts either in the name of the assessee or in joint name with his employee, Prathibha N. The assessee filed before the lower authorities details of transactions i.e., both deposits and withdrawals into various accounts and also fund flow statement. The AO not at all considered explanation offered by the assessee with regard to the source of deposits into various bank accounts.

On the other hand, the CIT(A) accepted the explanations of the assessee and observed that the deposits into various bank accounts is from reliable source of income i.e. from agricultural income as well as from money lending business. Further, it was observed by the CIT(A) that the assessee carried on the money lending business and received bank loan amount and the assessee deposited the same into various bank accounts.

Before us, the claim of the assessee is that purely all deposits are into bank account is duly accounted in the books of account of the assessee and there is no concrete adverse findings by the AO that a particular deposits in bank accounts is not explained by the assessee. In support of the claim, the assessee filed a paper book in the form of cash flow statement for the period from April 2006 to March 2007 i.e. from financial years 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13 and explained each deposits into various bank accounts. This cash flow statement was also filed before the lower authorities and it cannot be said that there is any unexplained deposits in bank account merely for the reason that total deposits into bank account exceeded the

The deposit into bank accounts may contain cash receipts from loan repayment portion which was advanced in earlier years, contra entries and receipts from agricultural and other business receipts. In our opinion, in the absence of any adverse finding by the AO with regard to availability of agricultural income or receipt of

Regarding the ld. DR’s argument to remit the issue to the AO for considering the peak credits, in our considered opinion, no second innings should be given to department to appreciation the same set of facts which are already before the AO. It is admitted fact that assessee filed the cash flow statement for all these asst. year before AO and explained each deposit into this bank accounts and all deposit and withdrawals are from the known source of income. When all the deposit are explained there is no question of considering the peak credits as income of the assessee. Being so, we are not in a position to agree with the contention of the ld.DR to remit the matter to tax the peak credit in these bank accounts, when the AO himself not exercised distinction to consider the peak credit in first innings as income of the assessee. In the present case, it is more so, for the assessee has explained each and every entry of deposits into bank account, which is from known source of income and there is no question of remitting the issue back to the file of AO to tax the peak credit which he failed to do so on earlier occasions when same set of facts were available on record. Further, in the case of M/s. Volvo Auto (India) Pvt. Ltd. In IT No.3431/Del/2016 dated 11.8.2020 it was held as under:-

Accordingly, all the grounds of the Revenue raised before us are dismissed in toto in all asst. year i.e 2008- 09 to 2012-13.

We have heard both the parties and perused the materials on record. In this asst. year 2013-14, the assessment is a regular assessment and not covering block period. Notice u/s 143(2) dated 30/10/2014 served on 3/11/2014 on one Smt. Pankaja, spouse of assessee. Relating to this, there is no dispute. In this case, the return of income for the assessment year 2013-14 has been filed by the assessee on 30/9/2013. The time limit to issue notice u/s 143(2) is within 6 months from the end of financial year in which the return is furnished. The contention of the AR is that this notice served on assessee on 3/11/2014 is time barred which should have been served within 6 months from the end of financial year 31/3/2014 i.e on or before 30/9/2014. Since notice u/s 143(2) was served on 3/11/2014, obviously barred by limitation of time. The Hon’ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. Ltd., 370 ITR 87 (Mad), where it has been held that the service of notice within the prescribed time is mandatory. Being so, the CIT(A) is justified in quashing the asst. by holding that

In the result, all the appeals filed by the Revenue are dismissed. Order pronounced in the open court on 29th Nov, 2021. Sd/- Sd/- (BEENA PILLAI) (CHANDRA POOJARI) Judicial Member Accountant Member