ARVINDBHAI PUNABHAI PATEL,AHMEDABAD vs. THE ITO, WARD-3(3)(1), AHMEDABAD

The brief facts, as emanating from the record, are that the assessee is an individual who had filed his original return of income for the A.Y. 2013–14 on 29.09.2013, declaring a total income of Rs. 13,42,700/-. The case was reopened under section 147 of the Act on the basis of information received in the case of Shri Chimanbhai Kalubhai Patel [PAN: ACTPP0989L], wherein it was revealed that the assessee had allegedly advanced an unsecured loan of Rs.9,80,75,000/- during the financial year 2012–13, which was not reflected in the books of account of the assessee. Accordingly, a notice under section 148 of the Act was issued on 27.05.2016 and served by RPAD. During the course of reassessment proceedings, the Assessing Officer issued several notices under section 142(1) of the Act along with detailed questionnaires, but the assessee failed to respond to most of the notices. Although it was claimed that the assessee’s representative, CAs Nipur Shah and later Mahesh Chhajed, had appeared on some occasions and sought time to submit documents, no detailed or substantiated explanation was filed. The AO also issued notice u/s 133(6) of the Act to the Branch Manager of the ICICI Bank Ltd. The AO proceeded to complete the reassessment ex-parte on 13.12.2017. In the reassessment order, the Assessing Officer made a substantive addition of Rs.16,94,93,035/- under section 68 of the Act, treating the said

The AO also referred to the contra confirmation received from Shri Chimanbhai Kalubhai Patel, who had disclosed the unsecured loan in his books. However, since no such loan was recorded in the books of the assessee, and the loan was allegedly funded out of the same cash deposits, the AO inferred that the assessee had introduced unaccounted money in the guise of loan transactions. Consequently, the total income was assessed at Rs.17,08,35,735/-, and penalty proceedings under section 271(1)(c) were separately initiated.

The assessee preferred appeal before CIT(A). The appellate proceedings were conducted through electronic platform. The assessee filed initial written submissions on 22.04.2021 and reiterated them on 25.08.2023, asserting that the reassessment was invalid and the cash deposits were duly explained as arising from business activities. However, when the CIT(A) issued detailed questionnaires under section 250 dated 19.04.2023 and 26.05.2023, seeking documentary evidence and explanations in support of the grounds raised, the assessee failed to file any response. This non-compliance was also admitted in paragraph 4 8 of the Statement of Facts, where the assessee attributed the lapse to inadvertence. The learned CIT(A), therefore, proceeded to dispose of the appeal by a speaking order, holding that despite being given multiple opportunities, the assessee failed to furnish any factual rebuttal or supporting documents. Relying on some judicial precedents the CIT(A) dismissed the appeal for want of prosecution, without adjudicating the legal and factual grounds on merits.

Being aggrieved, the assessee has preferred the present appeal before us and has raised the following grounds of appeal:

The learned Authorised Representative (AR) placed reliance on some judicial precedents including the judgement of Hon’ble High Court of Gujarat in case of CIT v. Mohmed Juned Dadani [(2014) 214 Taxman 38 (Guj.)] The consistent proposition emerging from these decisions is that where no addition is made on the very issue for which assessment was reopened, the reassessment fails the test of jurisdiction and is liable to be quashed.

Per contra, the learned Departmental Representative (DR) strongly objected to this contention and submitted that the addition made under section 68 is intrinsically linked to the reason recorded. In particular, reference was made to page 5 of the assessment order, wherein the Assessing Officer recorded that the unsecured loan to Shri Chimanbhai Kalubhai Patel was sourced out of the same cash deposits in the assessee’s bank 8 accounts, which were found to be unaccounted. The DR argued that the AO traced the source of loan to cash deposits, and since the assessee had not maintained books of account or shown any loan entries therein, the addition was ultimately made under section 68 treating the deposits as unexplained. Thus, the substance of the addition corresponds to the issue flagged in the reopening, and the reassessment cannot be said to be based on extraneous grounds.

We have given our thoughtful consideration to the rival submissions and examined the record. On perusal of the reason recorded for reopening as summarised in the assessment order, it emerges that the Assessing Officer had relied on information received from the case of Shri Chimanbhai Kalubhai Patel and found that an unsecured loan of Rs.9,80,75,000/- was claimed to have been received by him from the assessee, Shri Arvindbhai Punabhai Patel. However, the said loan was not reflected in the assessee’s return or books, leading to the belief that income had escaped assessment. The AR’s argument that no addition was made on this issue appears, at first glance, to have force. However, on a closer scrutiny of the reasoning recorded by the AO in the body of the assessment order, it becomes clear that the Assessing Officer linked the cash deposits in the assessee’s ICICI Bank accounts with the said loan transaction. In fact, the AO proceeded to observe that since the loan was not recorded in the assessee’s books, and the assessee had made large cash deposits in his bank accounts without explanation, the same should be treated as the real source of the loan advanced, and accordingly,

In our considered view, this is not a case where the AO has made addition on an entirely unrelated ground. Rather, the AO traced the funding of the loan to unaccounted cash deposits, and treated the latter as unexplained for want of books and records. The loan transaction served as the triggering event for the reopening, and the inquiry led to a connected addition on the same line of inquiry. It is now settled law that if the AO makes an addition on a matter which was examined as a result of or connected with the reason recorded, the reassessment cannot be invalidated merely because the form of the addition differs from the reason recorded. In this regard, the Hon’ble Gujarat High Court in Mohmed Juned Dadani (supra) indeed quashed reassessment where no addition was made on the issue of reopening. However, that decision is distinguishable on facts, as there was no nexus between the recorded reason and the ultimate addition in that case. In contrast, in the present case, the loan transaction and cash deposits are part of a single factual chain and cannot be viewed in isolation. Where the AO finds that the purported loan is fictitious and is backed by unaccounted cash, the addition of cash deposits falls within the ambit of the original reason, even if the section applied is different. It is also pertinent to note that the reassessment has been completed within the scope and spirit of section 147. The existence of tangible material, coupled with the enquiry into the source of loan and the linked cash deposits, supports the jurisdiction 10 assumed by the AO. The procedural compliance with issue of notice under section 148 and the recording of reasons is not in dispute. We therefore do not find merit in the assessee’s challenge to the validity of the reassessment. Accordingly, Ground No. 3 is dismissed.

Ground No. 4 challenges the addition of Rs.16,94,93,035/- made by the Assessing Officer under section 68 of the Act, treating the said amount as unexplained cash credits, being deposits in four ICICI Bank accounts held by the assessee. The assessee contends that the impugned cash deposits did not appear in his regular books of account, and therefore, section 68 has no application in law, since the section requires a credit entry in the books of the assessee as a foundational condition for invoking its provisions.

The learned AR submitted that the bank accounts in question were not forming part of any regular books of account maintained by the assessee, and that no entry relating to such deposits was found in the assessee’s audited financials. In such circumstances, it was argued that the bank passbook or bank statement is not “books of account” maintained by the assessee, and hence section 68 cannot be applied to make additions based solely on such deposits. The AR placed reliance on some judicial precedents in support. In particular, the decision of Co-ordinate Bench in case of Mahesh Subhash Shukla v. ITO [ITA No. 3919/Mum/2024]. Reiterated that unrecorded deposits in non- books cannot be taxed under section 68. On the other hand, the

The learned AR advanced an alternate plea seeking relief on the quantum of addition. It was submitted that even if the impugned cash deposits aggregating to Rs. 16,94,93,035/- made in the assessee’s ICICI Bank accounts are held to be unexplained, the entire amount should not be treated as income in the hands of the assessee. The AR contended that the assessee was not the beneficial owner of the funds deposited and was merely facilitating transactions on behalf of third parties. Accordingly, the only income element embedded in such deposits, if any, could be in the nature of commission or facilitation charges. To support this proposition, the learned AR placed reliance on the assessment framed in the assessee’s own case for the immediately preceding year, A.Y. 2012–13, wherein on similar facts, the Assessing Officer had not treated the full bank deposits as undisclosed income. Instead, the AO had accepted that the assessee was engaged in providing accommodation entries and estimated the income at 1% of the aggregate banking turnover. A copy of the assessment order under section 143(3) r.w.s. 147 dated 30.12.2019 for A.Y. 2012– 13 was placed on record. In that year, the AO found cash deposits of Rs.13.12 crore across multiple ICICI Bank accounts and, after examining the pattern of deposits and corresponding debits, treated the assessee as an entry provider and estimated total banking turnover (total of debit and credit) at Rs.26.24 crore. Thereafter, commission income was estimated at 1% of the 12 turnover, resulting in a net addition of Rs. 17.24 lakh after allowing for amounts already declared by the assessee. The AR submitted that the present year’s facts are materially the same. The assessee is again alleged to have rotated large sums of cash through the banking system and provided an unsecured loan of Rs. 9.80 crore, which the Revenue contends was sourced from such deposits. However, no specific verification or estimation was undertaken by the AO in the present year to identify the nature of the transactions or determine whether the entire cash deposits were retained by the assessee or represented pass-through funds. It was therefore pleaded that, following the principle of consistency and based on the department’s own past treatment, the addition in the present year may also be confined to an estimation of commission income at 1% of the total cash deposits.

We have carefully considered the rival submissions and examined the materials on record. It is not in dispute that the total cash deposits amounting to Rs.16,94,93,035/- were found across four ICICI Bank accounts maintained by the assessee. The assessee neither produced books of account nor offered any satisfactory explanation for the said deposits despite issuance of multiple statutory notices under sections 142(1), 133(6), and 148. The reassessment was initiated on the basis of information that the assessee had advanced an unsecured loan of Rs. 9.80 crore to Shri Chimanbhai Kalubhai Patel out of these deposits, which was not recorded in the assessee’s books of account. The legal question before us is whether section 68 can be invoked in 13 such circumstances. Section 68 applies where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered is not, in the opinion of the Assessing Officer, satisfactory. It is well settled that the presence of a credit in the assessee’s books is a condition precedent. However, we also take note of the specific factual context of the present case. The assessee is not a casual depositor or a salaried individual but a person who has consistently engaged in banking operations across multiple accounts, received contra confirmations, and has also faced similar scrutiny in A.Y. 2012–13, wherein he himself explained the cash deposits as turnover of finance/trading activity. There is also a linkage between these deposits and the unsecured loan alleged to have been given to Shri Chimanbhai Kalubhai Patel.

It is a settled position in law that whether or not books of account are maintained is a fact exclusively within the knowledge and control of the assessee. The deliberate omission to maintain books, or the failure to produce them despite having carried out voluminous banking transactions involving substantial cash flow, cannot be used as a shield to resist lawful inquiry. The principle that substance must prevail over form is particularly apposite to cases involving unexplained high-value transactions, where the totality of circumstances reveals concealment rather than mere technical omission. In the present case, the following undisputed facts are material:

These facts collectively demonstrate that the assessee’s conduct was not of a person unable to comply, but of one choosing not to comply, possibly with an intent to suppress material particulars of income. The assessee cannot approbate and reprobate, while admitting that the deposits funded an unsecured loan, he cannot simultaneously deny the existence of any records or obligation to explain the origin of funds.

In this backdrop, the assessee’s technical plea that section 68 is inapplicable loses much of its force. When the assessee fails to discharge the primary burden of explanation, and the undisputed facts clearly point to the existence of unexplained money, the mere mis-labeling of the section of law by the Assessing Officer does not vitiate the substantive addition. Tax adjudication must rest on realities of the transaction, and not on the appearance or technical characterisation alone. We also find that the reliance placed by the assessee on the decision of the Mumbai Bench of the Tribunal in Mahesh Subhash Shukla v. ITO [ITA No. 3919/Mum/2024] is factually and legally distinguishable. In that case, the addition under section 68 was made in respect of a single bank deposit of Rs.30.83 lakh in a limited scrutiny assessment involving a salaried assessee who had no books of account, no business activity, and no linkage to any third-party transactions. The Tribunal, in those circumstances, held that section 68 was not attracted. However, the facts of the present case are fundamentally different. The assessee has admitted to having advanced a loan of Rs. 9.80 crore not reflected in his records, operated multiple bank accounts with structured cash deposits over the year, failed to offer even a prima facie explanation or evidence and previously offered similar transactions as part of finance business. These 16 facts reflect a pattern of unaccounted activity, and cannot be equated with the isolated instance addressed in Mahesh Subhash Shukla (supra). Therefore, the legal ratio of that decision does not assist the assessee in the present factual scenario. Accordingly, we find no merit in the assessee’s contention that the addition should be deleted on the ground that section 68 was technically inapplicable. In our considered view, the addition is sustainable in substance under the broader provisions of the Act, including section 69 or section 69A, and the mere nomenclature employed by the Assessing Officer does not dilute the chargeability of the income under the Act.

Having dismissed the primary ground challenging the addition on legal grounds, we now proceed to consider the alternate plea advanced by the assessee during the course of hearing, whereby it was submitted that, even assuming the impugned cash deposits of Rs.16,94,93,035/- are to be brought to tax, the same ought not to be treated as the assessee’s undisclosed income in full. It was contended that the assessee was not the owner of the funds but merely acted as an intermediary in facilitating cash-based banking transactions on behalf of third parties, and thus the only real income assessable in the hands of the assessee would be commission or facilitation fee, embedded in the cash flow. The AR drew support from the assessment order passed under section 143(3) r.w.s. 147 in his own case for A.Y. 2012–13, wherein the Assessing Officer had accepted, on similar facts and pattern of banking activity, that the assessee was engaged in providing accommodation entries.

In such circumstances, while the alternative plea for estimation merits examination, we are not inclined to accept the same straightaway at the Tribunal stage without factual verification. However, in the interest of justice, and in keeping with the principle of consistency, we are of the considered view that the matter deserves to be restored to the file of the Assessing Officer with a specific direction to verify the nature and pattern of the cash deposits in light of the facts accepted in A.Y. 2012– 13 and to decide whether estimation of commission income is a. The AO shall verify the assessee’s bank statements, flow of funds, and any available evidence to ascertain the nature of cash deposits including repayment of such loan, if any, in part or full.

The assessee shall be afforded a reasonable opportunity of being heard and to furnish supporting evidence, if any. The alternative plea of the assessee for estimation of income is accordingly accepted in principle, and the issue is restored to the Assessing Officer for fresh adjudication in terms of directions above.

In the combined result, the appeal of the assessee is partly allowed for statistical purposes.