SRI. N N CHANDRASHEKAR,MADIKERI vs. ITO, MADIKERI

These are appeals filed by assessee against 2 orders both dated 09.06.2015 of CIT(A), Mysuru, relating to Assessment Years 2007-08, 2008-09.

These appeals were filed beyond the period of time within which they had to be filed. The assessee filed application for condoning the delay in filing the appeals. However, the Tribunal refused to condone the delay in filing appeals and dismissed the appeals as unadmitted. The Hon’ble High Court in its order dated 16.01.2021 in condoned the delay in filing the appeals and directed the Tribunal to decide the appeals of the assessee on merits. , 844/Bang/2016 Page 2 of 7 3. In both these appeals, the only issue to be adjudicated and which was argued by the learned Counsel for the assessee was the addition of Rs.7,70,000/- in Assessment Year 2007-08 and a sum of Rs.7,36,754/- Assessment Year 2008-09. The facts and circumstances under which the aforesaid addition was made by the AO in AY 2007-08 was that the assessee who is assessed in the status of an individual, filed his return of income for Assessment Year 2007-08, declaring a total income of Rs.1,67,206/- besides Agricultural income. The assessee offered commission income derived from coffee commission agency business. The AO, on perusal of the assessee’s bank account in Karnataka Bank Ltd., Suntikoppa, noticed that there were cash deposits in bank account running into lakhs of rupees. When the assessee was asked to explain the source of funds out of which the cash deposits were made, the assessee explained that he was an agriculturist and was cultivating ginger and potato on leased land and that his wife also owns agricultural land. His wife also was in the business of acting as commission agent for sale of ginger and pepper. The assessee explained that agricultural income and commission business income was deposited in the bank accounts and the assessee was unable to give a bifurcation of the transactions. Assessee also pointed out that Kodagu District was bordering Kerala State. There was a prevalence of fake currency notes in coffee business. Because of this reason, the agriculturist insisted on money being deposited in bank accounts to avoid fake notes. The assessee in the matter of running is commission business on sale of coffee was also requesting the money to be deposited in the bank account. Besides the above, the agriculturist who grow coffee take money in advance before sale of coffee grown by them and return the money in the form of cash. All these go into the bank account.

The AO did not accept the explanation offered by the assessee for the following reasons: , 844/Bang/2016 Page 3 of 7 “6. First and foremost, the explanation offered by the assessee that, the cash deposit to herein are made out of the salt proceeds of the agricultural produce of the assessee wife is unacceptable in the instant case as the land holdings of the assessee and his wife put together and the net agricultural income earned by the assessee and his wife is far too little to substantiate such huge deposits. 7. Secondly, the assessee is into the profession of coffee commission, wherein the withdrawals made are carefully utilized to make payments to the coffee growers. In fact, the cash is withdrawn only when there arises a situation to make such payments. Till such time no withdrawals are made. The nature of business and the local environment of the region is such that, no reasonable man would withdraw cash either to keep it at his residence or to carry another station. 8. In the above circumstances, there cannot be any possibility of creating a nexus between the withdrawals made in one bank in one station and deposits made in another bank in another station or for that matter, withdrawals made on one day and utilizing the same to make deposits on another day. As such the explanations offered by the assessee are rejected as baseless and unreasonable. In wake of the above findings and discussions, the cash credits in the Karnataka Bank account of the assessee stand unexplained and needs to be treated as unexplained investment of the assessee for the year under assessment. However, to be fair and reasonable to the assessee, the peak cash credit in this bank accounts was worked out and the same was considered for adding to the returned income as unexplained investment u/s 69 of the Aet. The same is worked out to Rs.7,70,000 on 10.06.2006.”

In the proceedings before the CIT(A), the remand report was called by the CIT(A) from the AO and AO in his remand report dated 16.12.2014 admitted that there was a prevalence of fake currency circulation which was being paid to the coffee growers and therefore it was probable that the growers and dealers insisted on cash remittance to bank account. The assessee had also taken a plea that the withdrawals from the same bank account is a source of funds for deposit of cash in , 844/Bang/2016 Page 4 of 7 bank account. In this regard the Assessee pointed out that on 22-02-2007 there was a self withdrawal of Rs. 5,87,000 by the Assessee from Bank Accunt maintained by the Assessee with Karnataka Bank (Current Account). The same has not been deposited to any other bank accounts till 31st March 2007. The same was brought to the notice of the AO but he rejected the plea on the basis that cash was withdrawn from Current Account and the same cannot explain deposit in Savings Bank Account. On the above submission, the AO accepted that such availability is possible but there was no conclusive evidence to prove the claim of the assessee. The AO accepted the fact that assessee was in Hassan and the agricultural land was in Suntikoppa cannot be a reason for disbelieving carrying on agricultural operation and that such practice was prevalent in the area.

The CIT(A), after considering the remand report, came to the conclusion that the assessee should be given the benefit of withdrawal of cash from the Current Account after calculation of peak credit. He refused to allow any credit for agricultural income. The AO passed an order dated 2.6.2015 gving effect to the order dated 9.3.2015 of CIT(A) wherein he gave credit for Rs.5,87,000 and thus the addition made on account of peak credit was reduced from Rs.7,70,000 to Rs. 1,83,000 (7,70,000 – 5,87,000). Aggrieved by the action of the CIT(A), the assessee is in appeal before the Tribunal.

As far as AY 2008-09 is considered the facts almost identical and the addition was made by the AO on identical basis except for the change in the quantum and the CIT(A) did not give any relief as was given in Assessment Year 2007-08.

I have considered the submissions. I find that the AO has not disputed the fact that the assessee was coffee commission agent. In the remand report of the AO filed in the proceedings before the CIT(A), the AO has virtually accepted the plea of the Assessee regarding the manner in which the business of acting as commission agent in sale of coffee. There is always a discretion , 844/Bang/2016 Page 6 of 7 the AO has when making addition u/s.69 of the Act and such discretion has to be made keeping in mind all facts and circumstances of a case. The business realities and circumstances cannot be ignored. The discretion has to be exercised by keeping in mind the probability of the assessee having earned income that is sought to be treated as deemed income of the assessee. In the facts and circumstances of the case and keeping in mind the business mode as explained by the assessee, I am of the view that the estimation of income @ 0.55% as income from the coffee commission business would meet the ends of justice in the facts and circumstances of the present case. The entire deposits in the bank account has to be regarded as receipts from coffee commission business and the admitted percentage of 0.55% which is the commission earned by the assessee in respect of the corporate client M/s. Net Commodities Ltd., which is the highest commission rate is just and fair estimate of the assessee’s income from coffee commission business. I hold and direct accordingly and allow the appeals of the assessee in part.

In the result, the appeals of the assessee are partly allowed.