INCOME-TAX OFFICER, WARD-1, GODHRA, GODHRA vs. BIPINCHANDRA C THAKKAR, HALOL

Now, the Revenue is in second appeal before us. The following grounds of appeal have been taken in this appeal:

“1. Whether on the facts and in the circumstances of the case and is lows the Hon'ble CITIA) erred in reducing the addition from Rs. 3,82,99,436/- to 0.25% of total deposits or the profits from discounting business declared by the assessee whichever is higher, without appreciating the fact: (i) that during the assessment proceedings, the assessee failed to discharge the primary onus of identifying the depositors/beneficiaries with complete details in spite of the opportunities provided and thus source of all the deposits in his accounts remained unexplained ?

[ITO vs. Bipinchandra C Thakkar] A.Y. 2017-18 - 3 – (ii) that the books of account of the assessee is also questionable as there is difference in the details of cash deposits shown as per the ITR, books of account and submission made during the course of assessment proceedings? (2) Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) justified in reducing the addition from Rs. 3,82,99,436/- to 0.25% of total deposits or the profits from discounting business declared by the assessee whichever is higher, without calling for remand report on the evidences, if any, submitted during the appellate proceedings, thereby the genuineness, creditworthiness and identity of the cash depositors remains unverified defeating the very purpose of selection of the case for scrutiny? 3. The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.”

5. Shri V Nandakumar, Ld. CIT.DR submitted that the assessee did not furnish any explanation before the AO for difference in cash deposit of Rs.1,85,96,951/- as per bank accounts and as per the books of assessee. The contention of the assessee that the cash deposits in the bank account of the assessee was made by third parties was not supported with any documentary evidence. The name, address and PAN no. of the persons who had deposited the cash in the bank account of the assessee was never furnished. He, therefore, submitted that the observation of the Ld. CIT(A) that no enquiry was made in respect of cash deposits by the AO was not mature, as no enquiry could have been made in the absence of any particular of the persons who had made the cash deposits. The Ld. CIT.DR further submitted that the onus was squarely on the assessee to explain the credits appearing in the bank account in the form of cash deposits with supporting evidences. Further that, the Ld. CIT(A) was not correct in estimating the income @ 0.25% of the cash [ITO vs. Bipinchandra C Thakkar] A.Y. 2017-18 - 4 – deposits when the source of the cash deposits and the difference of Rs.1,85,96,951/- in the cash deposits was not explained.

6. Per contra, Shri Palak Pavagadhi, the Ld. AR of the assessee submitted that the AO was not correct in treating the entire cash deposit of Rs.3,82,99,436/- as unexplained income of the assessee when the difference noticed was to the extent of Rs.1,85,96,951/- only. He further submitted that assessee was engaged in the business of discounting and was receiving only commission for the cash transactions. According to the Ld. AR, the AO had not considered the transactions in the bank account in entirety and, therefore, the addition as made by the AO was not justified. The Ld. AR supported the order of the Ld. CIT(A) and submitted that the commission as disclosed by the assessee was slightly higher than 0.25% as directed by the Ld. CIT(A).

7. We have considered the rival submissions. The assessee had shown gross receipt of Rs.1,97,02,485/- only. The AO, on the other hand, had found total cash deposit of Rs.3,82,99,436/- in the bank account. Thus, the difference in the receipts as disclosed by the assessee was to the extent of Rs.1,85,96,951/- only. The AO was not correct in treating the entire cash deposit of Rs.3,82,99,436/- as income of the assessee without considering the debit transactions in the bank account. There is no dispute to the fact that the assessee was engaged in the business of discounting and he was receiving only commission income. Therefore, the AO should have examined whether the income of Rs.6,50,450/- as disclosed in the return was only in respect of gross receipt of Rs.1,97,02,485/- as recorded in the [ITO vs. Bipinchandra C Thakkar] A.Y. 2017-18 - 5 – books of accounts. The Revenue has raised objection that the CIT(A) had suo motto restricted the addition to the extent of 0.25% of the total cash deposits without obtaining any remand report from the AO. The contention of the assessee was that the cash book and all other evidences were filed before the AO and no fresh evidence was brought on record before the Ld. CIT(A). The assessee had produced the cash book filed before the Revenue authorities in the course of hearing on 15th October, 2024. On going through the cash book, certain discrepancies were noticed and the assessee was required to clarify the same. The order sheet entry dated 15th October, 2024 in this regard is reproduced below:

“The present appeal has been filed by the Department against the order passed by the id. CITIA) who has restricted the addition made by the Assessing Officer on account of cash found deposited in the bank account of the assessee to the extent of 0.25% of the same, treating the amounts received to be on account of financing business of the assessee. The ld. DR pointed out that, before the Assessing Officer, no explanation was furnished by the assessee of the cash deposits: that whatever explanation furnished was done before the ld. CIT(A) who, without seeking a remand report from the Assessing Officer, has restricted the addition to the extent of 0.25% of the total cash deposits in the bank. During the course of hearing before us, ld. Counsel for the assessee countered by drawing our attention to the various evidences which he stated were filed to the Assessing Officer also. He drew our attention to the cash book filed to the Revenue Authorities below and pointed out there from that it clearly reflected the receipt of cash in the bank account of the assessee from various persons from locations outside Ahmedabad which was given back to them immediately thereafter by way of cash/cheque, which was also reflected in the cash book. On going through the entries in the cash book, it was noted that the accounting treatment of the cash deposited in the bank by outside parties and their return to those parties were not in accordance with the accounting principles. For example, the assessee explained a credit entry in the cash book of cash deposit as being as cash deposited in the bank account of the [ITO vs. Bipinchandra C Thakkar] A.Y. 2017-18 - 6 – assessee by a person availing financing facility from the assessee. In our understanding, any cash deposited by a third party in the bank account of the assessee cannot be reflected in any manner in the cash book of the assessee. The entry to be passed is debit the bank and credit the party depositing the cash in the bank account of the assessee. The assessee, on the other hand, has debited the bank account and credited the cash account. All such receipts of cash from various parties were found to be so reflected in the cash book of the assessee which according to us was incorrect accounting. When this was pointed out to the ld. Counsel for the assessee, he sought some time to clarify these accounting entries. Further, the ld. CIT (A) noted the fact that the assessee had obtained a license to operate as a financier/angadia. When the ld. Counsel for the assessee was asked to point out the relevant certificate, it transpired that the certificate was issued in Gujarati language and the ld. Counsel for the assessee translated it for the benefit of the Bench. The translation read as the license being issued year-wise for every year, but there was no copy of license issued for the relevant assessment year before us, i.e. AY 2017-18 pertaining to FY 2016-17. The ld. Counsel for the assessee fairly admitted that the copy of license for the impugned year was not there before the ld. CIT(A) also, but he stated that the assessee is in possession of the said certificate and is ready to furnish the same before us. The ld. Counsel for the assessee was asked at Bar as to how then did ld. CIT(A) note the fact of the assessee being licensed angadia/financier. Ld. Counsel for the assessee sought some time to submit his rejoinder to the discrepancies pointed out by the Bench. Also the ld. Counsel for the assessee is directed to explain the purpose for which license was issued to the assessee. Considering the same, the case stands adjourned to 13th November, 2024.”

7.1 The assessee had filed a rejoinder in this regard which is reproduced as under:

“Assessee is into the business of cheque discounting/money transfer in the name of Shree Jalaram Finance & he had filed his return of income on 23/02/2018 declaring total income of Rs. 6,50,450/- vide Ack. No. 40840282030218. It is observed that the accounting principles are not fully complied/followed in maintaining the cash books. It is respectfully submitted that neither the Learned Assessing Officer during the assessment proceedings nor the Ld. CIT(A) during the appellate proceedings has specifically rejected the books of accounts maintained by the assessee. The assessee would beg to submit as follows: The assessee has not recorded the amount received from Customer and amount given back to the customer in his books of accounts. The [ITO vs. Bipinchandra C Thakkar] A.Y. 2017-18 - 7 – same in not in parity with the accounting principles but we beg to submit that during the year under consideration or in previous year, nowhere the cash balance in negative even if amount received from the customers is not recorded in his cash books. The assessee further submits that the list of customers and commission earned was provided separately in the paper book. Additionally, it is important to highlight that the assessee has been in business for several years, and in all previous years, the books of accounts maintained by him have been accepted by the assessing officers without any adverse remarks or addition. The assessee is not attempting to conceal income or evade tax. The entry error was a genuine mistake and does not result in any understatement of income or misrepresentation of the financial position. Assessee has also provided the comparative analysis of opening and closing balance of deposit and withdrawal for PY 2015-16 & PY 2016-17 which is almost similar. The assessee hereby submits that he conducts a finance business under the name Shree Jalaram Finance, a proprietary concern, and has secured a registration certificate from the Assistant District Registration Office, Godhra, Panchmahal for the conduct of business regarding the discounting and commission. This certificate was previously furnished to the Assessing Officer for the earlier previous year. Generally, the certificates are renewed annually, with the renewal period being mentioned on the existing certificate rather than issuing a new one. In support of this submission, the assessee provides a copy of the certificate for the financial year 2016-17 also, which was held by the assessee but under the different trade name called Parth Finance. This document is attached herewith vide Exhibit-1 for your reference.”

7.2 We have considered the explanation of the assessee. The contention of the assessee is that the books of accounts maintained by the assessee was not specifically rejected by the lower authorities. The assessee has admitted that the amount received from the customers and amount given to the customers was not recorded in his books of accounts. Further that the books [ITO vs. Bipinchandra C Thakkar] A.Y. 2017-18 - 8 – were maintained in the same manner in the earlier years, which was all along accepted by the department. The assessee has submitted that by this omission no income was concealed, that it was only a genuine mistake of entry error and doesn’t have any result on the income or final position of the assessee. The assessee has submitted that the even if the accounting principle was not correctly followed by him, this omission has not resulted in any understatement of income or misrepresentation of the financial position.

7.3 We have carefully considered the explanation of the assessee. The AO had found that there was suppression of gross receipts vis-à-vis total cash deposit in the bank account to the extent of Rs.1,85,96,951/-. The assessee has admitted that the amount received from the customers and amount given to the customers was not recorded in his books of accounts. Whether there was any suppression of income or not, due to the error on the part of the assessee in recording all the cash transactions, is required to be examined. The assertion of the assessee that this omission didn’t result in any understatement of income, can’t be accepted in the absence of any independent report of the Auditor in this respect. We, therefore, deem it proper to set aside the matter to the file of the Jurisdictional AO with a direction to examine whether there was any suppression of income due to mistake on the part of the assessee in not correctly recording the cash deposit transactions. It should also be verified whether the commission of Rs.6,50,450/- disclosed by the assessee in the return was in respect of disclosed gross receipt of Rs.1,97,02,485/- only. If yes, then the income in respect of [ITO vs. Bipinchandra C Thakkar] A.Y. 2017-18 - 9 – unrecorded cash deposits of Rs.1,85,96,951/- should be estimated by adopting the same profit ratio as disclosed in respect of recorded transactions. The AO is also directed to allow a proper opportunity of being heard to the assessee.

This Order pronounced on 29/04/2025

Sd/- Sd/- (SANJAY GARG) (NARENDRA PRASAD SINHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 29/04/2025 S. K. SINHA True Copy आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. संबं�धत आयकर आयु�त / Concerned CIT 3. 4. आयकर आयु�त(अपील) / The CIT(A)- �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,