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Facts
The assessee, a sub-broker in commodity exchange, had four bank accounts unearthed during an inquiry. The total deposits in these accounts amounted to Rs. 1,46,11,400/-. The Assessing Officer treated these deposits as unexplained cash credits and added them to the assessee's income.
Held
The Tribunal held that the notice under Section 148 was invalid due to borrowed satisfaction of the Assessing Officer. It further held that the addition under Section 68 was not sustainable as bank statements are not books of account. The Tribunal also noted that the assessee's business nature as a commission agent was accepted in earlier years.
Key Issues
Whether the reassessment proceedings initiated were valid, and whether the additions made under Section 68 for unexplained cash credits were justified given the facts and the assessee's business model.
Sections Cited
147, 148, 68, 143(3), 69
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Income Tax Appellate Tribunal, LUCKNOW ‘B’ BENCH, LUCKNOW
A.Y. 2008-09 M/s Bajrang Lal Jindal, 140, vs. Asstt. Commissioner of Income Anandpuri, Kanpur, U.P. Tax-I, Kanpur PAN: AANPJ5660J (Appellant) (Respondent) Assessee by: Sh. P.K. Kapoor, C.A. Revenue by: Sh. Amit Kumar, DR Date of hearing: 27.08.2025 Date of pronouncement: 20.11.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A)- Kanpur, confirming the addition of Rs. 1,46,11,400/- made to the returned income of the assessee as unexplained cash credits by the Assessing Officer in his order dated 31.03.2016 for the assessment year 2008-09. The grounds of appeal are as under: -
1. THAT THE LD. CIT (A) I, KANPUR HAS ERRED IN CONFIRMING ADDITION OF Rs. 14611400.00 TO THE RETURNED INCOME OF THE ASSESSEE AS UNEXPLAINED CASH CREDITS.
2. THAT THE REASONS RECORDED FOR INITIATION OF PROCEEDINGS u/s 147 BY ISSUE OF NOTICE u/s 148 WERE BASED ON IMPROPER PREMISE AND ACCORDINGLY NO LEGAL AND FACTUAL LENGS TO STAND AND ACORDINGLY ALL SUBSEQUENT PROCEEDINGS ARE BAD IN LAW.
3. THAT THE OBSERVATION OF THE LD. CIT (A) I, KANPUR CONFIRMING VIEW OF LD. A O THAT M/s. MAA DEVASAR COMMODITY IS INEXISTANT IS FACTUALLY INCORRECT.
4. THAT LD. CIT (A) I, KANPUR HAS ERRED IN NOT APPRECIATING THE FACT THAT WHEN THE BENEFICIARY OF THE FUNDS ARE NOT THE ASSESSEE, THERE COULD BE NO ADDITION IN HIS HANDS.
M/s Bajrang Lal Jindal A.Y. 2008-09 5. THAT LD. CIT (A) HAS ERRED IN CONFIRMING THE OBSERVATION OF LD. A O THAT THERE IS CONTRADICTIONS IN STATEMENT ON OATH RECORDED ON 17.03.2016. IN FACT, IT WAS HIS INTERPRETATION OF STATEMENT ON OATH AND THERE WAS NO SUCH CONTRADICTION.
6. THAT LD. CIT (A) I, KANPUR HAS ERRED IN HOLDING THAT ASSESSEE FAILED TO GIVE PULSIBLE EXPLANATION OF CASH DEPOSIT IN BANK ACCOUNTS AS WELL AS ACCOUNTS MAINTAINED WITH HIS ADDRESS.
THAT LD. A O HAS ERRED IN HOLDING THAT ASSESSEE HAS FAILED TO PRODUCE THE BOOKS OF ACCOUNT.
THAT LD. CIT (A) I, KANPUR HAS ERRED IN NOT APPRECIATING THAT BY CIRCUMSTANTIAL EVIDENCE, ASSESSEE HAS GIVEN EVIDENCE RELATING TO VARIOUS ISSUES, WHICH OBSERVATION WAS MADE WITHOUT CONSIDERING THE ASPECT OF PRACTICALITY AND BUSINESS PRACTICE.
9. THAT LD. CIT (A) I, KANPUR HAS FAILED TO INVESTIGATE THE WHERE ABOUTS OF PERSONS HOLDING TWO BANK ACCOUNTS DSI-OWNED BY THE ASSESSEE.
10. THAT LD. CIT (A) I, KANPUR HAS ERRED IN NOT APPRECIATING THAT IF THE ENTIRE MONEY DEPOSITED IN BANK ACCOUNTS OF THE ASSESSEE, WHY ENTIRE MONEY WAS TRANSFERRED TO A SINGLE PERSON RATHER STATEMENT OF THE ASSESSEE THAT FUNDS WERE PAID TO MAIN BRAKER IS PULSIBLE EXPLANATION OF FUNDS BEING TRANSFERRED TO ONE ACCOUNT.
THAT THE ADDITION CONFIRMED BY LD. CIT (A) I, KANPUR WAS BECAUSE OF IMPROPER APPRCIATION OF FACTS WITH BIASED MIND AND FINDING IT DIFFICULT TO COME OUT OF INFORMATION FORWARDED TO HIM BY THE DIRECTORATE OF INVESTIGATION WING OF INCOME TAX DEPARTMENT.
THAT LD. CIT (A) I, KANPUR HAS ERRED IN NOT PROPERLY APPRECIATING THE SUBMISSIONS OF THE ASSESSEE AND ALSO FAILED TO PASS ON INSTRUCTIONS TO HIS SUBORDINATES TO ACT UPON ON THE SUGGESTATIONS OF THE ASSESSEE TO INVESTIGATE THE ISSUE BY DEPUTING THE DEPARTMENTAL OFFICIALS SO THAT ENTIRE PRICTURE MAY BE CLEAR.
THAT LD. CIT (A) I, KANPUR HAS ERRED IN NOT APPRECIATING THAT WHEN ASSESSEE WAS SAYING THAT MONEY DOES NOT BELONG TO THE ASSESSEE AND ALL FUNDS WERE TRF. TO THE ACCOUNT OF MAIN BROKER, M/S. MAA DEVASAR COMMODITY, AND INCOME TAX ACT ONY ALLOWS TO TAX REAL INCOME OF THE ASSESSEE, PROPER INVESTIGATION WAS NOT MADE RESULTING INTO UNJUSTIFIED AND ILLEGAL ADDITION MADE TO THE INCOME OF THE ASSESSEE.
THAT LD. CIT (A) 1, KANPUR HAS ERRED IN DRAWING INFERENCE THAT THE TWO BANK ACCOUNTS DIS-OWNED BY THE ASSESSEE ARE ASSESSEE'S BENAMI ACCOUNTS AND IN HOLDING THAT ASSESSEE IS INTRODUCER OF OTHER TWO BANK ACCOUNTS AND ALSO IN HOLDING THAT ENTIRE AFFAIRS OF THE ASSESSEE ARE COCK AND BULL STORY. HE HAS FERTHER ERRED IN TREATING THE OBSERVATIONS OF LD. A O AS CORRECT WHEN HE WAS INFORMED ABOUT THE COMPLETE FACTS.
THAT LD. CIT (A) I, KANPUR HAS ERRED IN AGREEING WITH THE OBSERVATION OF LD. AO THAT ENTIRE CASH DEPOSIT IS UNEXPLAINED CASH CREDIT u/s 68 AND LIABLE FOR ADDITION TO THE INCOME OF THE ASSESSEE.
M/s Bajrang Lal Jindal A.Y. 2008-09 WHICH OSERVATIONW AS MADE WITHOUT CONSIDERING THE SUBMISSIONS MADE BY ASSESSEE AND EVIDENCES PRODUCED BEFORE HIM. 16. THAT THE 1st APPELLATE PROCEEDINGS, 1st APPEAL ORDER, ASSESSMENT PROCEEDINGS AS WELL AS ASSESSMENT ORDER IS BAD BOTH IN LAW AS WELL AS ON FACTS AND DESERVES TO BE STRUCK DOWN. 17. THAT THE APPELLANT CRAVES LEAVE TO INTRODUCE WITHDRAW OR MODIFY ANY GROUND OF APPEAL
WITH THE KIND PERMISSIONS OF YOUR HONOUR.”
2. The facts of the case are that during enquiry proceedings in the case of one M/s Maa Sharda Traders, certain bank accounts were unearthed which were either in the name of Sh. Bajrang Lal Jindal or on the name of his firm M/s Bajrang Lal Jindal, or bore the same address as the assessee. It was observed that four such bank accounts existed at ICICI Bank Limited, Kanpur in which the total deposits were Rs. 1,46,11,400/-. The details of these accounts were as under:
Sl Name of the A/c No. Account held on Amount No. Bank the name of credit/deposited 1. ICICI Bank Ltd., 658805005488 Narendra Kumar Rs.73,68,000/- Kanpur Gupta C/o B.L. Jindal, 53/7 Naya Ganj, Kanpur 2. ICICI Bank Ltd., 628805005663 B.L. Jindal, 53/7, Rs. 6,00,000/- Kanpur Naya Ganj, Kanpur 3. ICICI Bank Ltd., 628805005672 M/s BLJ Rs. 12,63,900/- Kanpur Investment, 53/7, Naya Ganj, Kanpur 4. ICICI Bank Ltd., 628805005674 Garg Share Rs. 53,79,500/- Kanpur Investment C/o B.L. Jindal, 53/7, Naya Ganj, Kanpur Total Rs. 1,46,11,400/- The Investigation Wing also observed that most of the money deposited in these accounts was subsequently transferred to the bank account of M/s Maa Devasar Commodity. This firm could not be located during the enquiry conducted by the Investigation Wing and it was observed that the firm was located at the same address as that of the assessee i.e. 53/7 Nayaganj, Kanpur as per the bank statement and marked C/o Sh. B.L. Jindal. On this account, the Assessing Officer M/s Bajrang Lal Jindal A.Y. 2008-09 had reason to believe that the deposits in the above mentioned four accounts maintained at ICICI Bank, were nothing but the assessee’s own money which was being routed through these bank accounts. Accordingly, a notice under section 148 was issued on the basis of this information, that was received from the Investigation Wing. The assessee was required to explain the nature of his business activities and also explain the source of deposits made in the above mentioned four bank accounts alongwith supporting evidences. In response, it was submitted that the assessee was a sub-broker in commodity exchange under the main broker and that during the year under consideration, the assessee was operating in the business area of Nayaganj, Kanpur and nearby areas. Persons would come to the assessee’s office with business instructions for booking Sauda in commodity exchange and the assessee used to book the order and accept the margin for booking Sauda in cash only, since, persons were reluctant to issue cheques. Accordingly due to said business compulsions, the assessee had accepted cash from parties booking Sauda and the same was onward booked in the commodity exchange through the main broker. Since the main broker was not ready to accept cash at any point of time and insisted on cheques, therefore, to issue cheques to the main broker, the assessee used to deposit cash into his different bank accounts and issue the cheque to the main broker. On settlement of the Sauda, the assessee was either supposed to pay or receive the money in cash and whatever cash was left at the end of the day was deposited in different bank accounts maintained by the assessee. The assessee owned up to two of the bank accounts maintained with ICICI Bank Limited, Kanpur namely A/c No. 628805005663 and A/c No. 628805005672. However, he disowned the other two bank accounts. It was submitted that 53/7 Nayaganj, Kanpur was big compound in which over 50 shops were being operated and therefore, only on account of common address, the said bank accounts could not be stated to belong to the assessee. It was submitted that simply because the narration in the bank accounts has been given as C/o B.L. Jindal, no addition could be made in the hands of the assesse without showing that the assessee was the beneficiary of these bank M/s Bajrang Lal Jindal A.Y. 2008-09 accounts and therefore, treating these accounts as belonging to the assessee was neither legal nor proper. As regards, Maa Devasar Commodities, the assessee submitted that one Sh. Subhash Agarwal was looking after that firm and his last known address was 133/293, Ganeshganj, Lucknow. The said firm had closed down three years back and the assessee was not in communication with him. However, it was submitted that he was the broker through which the transactions of the assessee’s clients were executed and it was in that context that money was transferred to that account. However, the assessee expressed his inability to give a list of all persons for whom Saudas have been booked during the year or to furnish copies of booking documents. It was submitted that no record had been kept for cash deposit in client accounts because the assessee did not have any financial interest in those funds and they did not belong to the assessee. The assessee only has interest in his commission and that had been properly accounted for. The assessee expressed his inability to furnish details of amounts given by customers for booking and details of amounts given by customers for booking and details of the commodity profit / loss earned by them during the year and to give supporting evidences on account of the fact that he did not have this information in his possession. Further, he could not provide the details of payments made to the parties on settlement of Saudas. Further, the assessee submitted that this business had been closed more than two to three years back and therefore, did not exactly remember the date of closure of business. The assessee was also unable to supply party wise details of commission earned pointing out that he did not have this information. As on settlement of each Sauda, its accounts were not kept. Thus, the assessee was unable to explain the sources of deposit in the bank accounts with reference to any evidence. However, it was submitted that the cash deposit was so huge that by no stretch of imagination could it be said that the cash belongs to the assessee. Furthermore, there was no reason why the assessee would pass on such a huge amount to any single person other than the reasons cited by the assessee. Therefore, since the assessee was not the beneficiary of the amount deposited, no adverse inference should be drawn against the assessee on the basis of the M/s Bajrang Lal Jindal A.Y. 2008-09 amounts deposited in the two bank accounts maintained by the assessee. Furthermore, the assessee submitted that the reasons that have been recorded by the Assessing Officer were not proper because they had been recorded in the absence of an ITR as ascertained from the reasons.
The AO issued a summons to the assessee and recorded his statement in this regard. On going through the said statement, it is seen that the assessee reiterated the aforesaid points and also denied any association with the operator of the remaining two bank accounts i.e. M/s Garg Share Investment and Mr. Narendra Kumar Gupta by parrying the question posed to him and submitting that they used to visit 53/7 Naya Ganj, Kanpur but he had no business relation with them. The ld. AO observed various contradictions in the statement of the assessee. Firstly, the assessee had submitted that the clients were not willing to pay by cheque but later he had submitted that he was not willing to take cheque from his clients as he has no trust in them. In reply to question no. 9, he had submitted that he was maintaining books of accounts but in reply to question no. 27, he had submitted that he was not maintaining any books of accounts and had declined to produce them. In reply to question no. 15, he stated that he knew the persons related to M/s Garg Share Investment and Sh. Narendra Kumar Gupta but in question no. 17, he stated that he did not remember. In response to question no. 26, he had submitted that he was not maintaining any records pertaining to his clients as he did not maintain books of accounts but in response to question no. 28, he submitted that he was able to give summary of account at different stages to different clients because the same were noted down on a pad. The ld. AO also noted that the assessee had not been able to give any plausible explanation with regard to the two accounts maintained at his address i.e. 53/7 Nayaganj, Kanpur. He based his conclusion upon the fact that the addresses were the same; both bank accounts were marked C/o Sh. B.L. Jindal; the telephone number marked in both the bank accounts was the same as that of the assessee as well as his firm; none of these persons could be traced out; cash had been deposited in these accounts in a similar manner; the amounts from these accounts had also been transferred to Maa M/s Bajrang Lal Jindal A.Y. 2008-09 Devasar Commodity; the assessee had given contradictory statements in respect of these persons and in his reply dated 9.03.2016, the assessee had submitted that banks being reluctant to accept cash in bank accounts, the assessee was maintaining multiple bank accounts. From all these, the ld. AO concluded that the bank accounts have been maintained by the assessee. The ld. AO also held that these deposits in the bank account could not be treated as explained because the story told by the assessee that the amounts were out of cash received from customers was not supported by any confirmatory evidence. Further, there was no confirmatory evidence given by the assessee that any Sauda was onward booked in a commodity exchange through the assessee and the main broker; there was no confirmatory evidence given of any of the aspects of the so called sub- broking business given by the assessee and the assessee did not furnish any details of customers, names, addresses etc., on the grounds that no records have been maintained by him and this led the AO to conclude that these bank accounts were controlled by the assessee and that the sources of the cash deposited in the bank accounts was not explained by any documentary evidence. Accordingly, the ld. AO added back the sum of Rs. 1,46,11,400/- being the deposits maintained in these four bank accounts and brought them to tax accordingly.
Aggrieved by the said assessment order, the assessee went in appeals to the ld. CIT(A)-1, Kanpur. The ld. CIT(A)-1, Kanpur considered the submissions made by the assessee but observed that the assessee had created a story to explain cash deposits in his bank accounts for which there was no evidence of any kind. Hence, these purely speculative, unreasonable, unreliable & unverifiable evidences were being put forward by the assessee and his counsel. With regard to the ownership all four bank accounts, the ld. CIT(A) held, after considering the arguments of the assessee, it was obvious that the assessee had opened two accounts in his own name and that of his firm and two accounts in benami names as C/o accounts. The ld. CIT(A) held that it was unbelievable that the assessee could not have any recollection or knowledge of two bank accounts which had M/s Bajrang Lal Jindal A.Y. 2008-09 been opened by him as an introducer. In the circumstance, he agreed with the finding of the ld. AO and upheld his decision to tax the cash deposits in all four bank accounts totaling to Rs. 1,46,11,400/- as unexplained cash credit under section 68. Since the identity, source of funds, creditworthiness and genuineness of transaction with regard to all these deposits remained unproved. Accordingly, the ld. CIT(A) came to dismiss the appeal of the assessee.
The assessee is aggrieved at the dismissal of his appeal by the ld. CIT(A) and has accordingly come before us in appeal. Sh. P.K. Kapoor, C.A. (hereinafter referred to as the ld. AR) argued the case before us. It was submitted that the very reopening of the case was bad in law because it was based on the borrowed satisfaction of the Investigation Wing and the AO had not done any independent enquiries before coming to a conclusion of income escaping assessment. He drew our attention to the fact that two of the bank accounts i.e. bank A/c No.628805005488 and A/c No.628805005674 stood in the name of different individuals namely Sh. Narendra Kumar Gupta and Garg Share Investment. However, the Assessing Officer had concluded on the basis of the report of the Investigation Wing that the assessee was the beneficiary of these accounts, without any evidence being brought on record to suggest how the assessee had benefited from these accounts. It was pointed out in the report of the Investigation Wing, it had been concluded that the said accounts belonged to the assessee because of the fact that they were marked C/o of the assessee and displayed the address 53/7 Naya Ganj, Kanpur but the ld. AR pointed out that this was a hasty and erroneous conclusion because 53/7 Naya Ganj, Kanpur was not the assessee’s address but the common address of a number of businesses that were running from the market complex that bore that address. In evidence thereof, he took us through pages 69 to 79 of his paper book which showed various other trading establishments functioning from the same premises. The ld. AR pointed out that the Investigation Wing had concluded that the assessee was the beneficiary of these accounts on account of the fact that in the account opening form, the M/s Bajrang Lal Jindal A.Y. 2008-09 concerned persons had been marked C/o B.L. Jindal, but inviting our attention to the account opening forms that were placed on page 90 and 120, he demonstrated that the assessee was not the introducer of these accounts. The ld. AR, thereafter drew our attention to telephone bill in the name of Sh. Vinod Garg, proprietor of Garg Share Investment which showed his address at 53/7 Naya Ganj, Kanpur and the PAN card of the said person contained on page 118 of the paper book. It was submitted that a photocopy of the PAN card and telephone bill had been submitted by the said person while opening the said bank account and the assessee had nothing to do with it. Therefore, any conclusion drawn that he was the beneficiary of the said bank account without bringing any evidence on record was clearly and erroneous conclusion. With regard to the bank account open in the name of Sh. Narendra Kumar Gupta, it was again pointed out that the said account holder had submitted his PAN card and the said account had not been introduced by the assessee. Therefore, only the Branch Manager could clarify as to how the name of the assessee had been included in the account opening form as C/o B.L. Jindal. The Investigation Wing had not brought on record any evidence that the assessee had benefited in any way from the operation of any of these accounts and the AO had blindly accepted the report of the Investigation Wing and initiated proceedings under section 148 on the basis of this borrowed satisfaction which made the issue of the notice under section 148 itself invalid. For this proposition, the ld. AR relied upon the orders of the ITAT Delhi ‘F’ Bench in the case Udesh Sharma vs. ITO in dated 29.03.2022, wherein the Hon’ble Bench, after relying on the Hon’ble Delhi High Court’s decision in the case of CIT vs. SPLs Siddhartha Limited 345 ITR 223 Del and PCIT vs. Minakshi Overseas Pvt. Ltd. 395 ITR 677 had held that the authority issuing the notice under section 148 should apply his / her independent mind to record his / her satisfaction and that satisfaction should not be, ‘borrowed’ or ‘dictated’.
Containing his arguments on the validity of the notice, the ld. AR pointed out that the mere fact of deposits in a bank account did not give rise in themselves for reasons to believe and something more was required to be brought on record 9 M/s Bajrang Lal Jindal A.Y. 2008-09 so that there could be a live link between the deposits in the bank account and the belief of escapement of income. He submitted that this had been held repeatedly by various Benches of the ITAT and in this context, he drew our reference to the following judgments. i. Bir Bahadur Singh Sijwali vs. Income tax Officer, Ward-1, Haldwani (2015) 53 taxmann.com 366 (Delhi-Trib) ii. Ravindra Deo Tyagi vs. ITO-4(2), Kanpur (ITA No. 123 to 125/LKW/2017) dated 30.11.2018 iii. Munni Devi vs. ITO, Ward-2 Rewari (ITA No. 3534/DEL/2014) dated 15.09.2016 iv. Harmeet Singh vs. ITO, Ward-36(1), New Delhi (ITA No. 1939/DEL/2016) v. Hameeda Begum & Abdul Samad vs. ITO, (ITA Nos. 7403/DEL/2018 and 7404/DEL/2018) dated 1.08.2019. The ld. AR pointed out that there was no reason for the AO to come to the conclusion that the cash deposits in the bank account represented the escaped income from the assessee. In this context, he invited our attention to the copy of the assessment order dated 8.12.2006 passed by the ACIT, Central Circle-3, Kanpur for the A.Y. 2004-05 under section 143(3) of the Income Tax Act, wherein in similar circumstances, the ld. AO had accepted the fact of the assessee’s business of being a sub-broker and earning income from commission on investments made by clients. In that case, the ld. AO had estimated his commission at 2% of the total receipts of Rs. 45 Lacs (on estimated basis), since the AO did not maintain any books of accounts for commission. Subsequently, the assessee had agitated the addition made and the ld. CIT(A) had reduced the estimated commission to 1.1% of the total estimated receipts which had thereafter been confirmed by the ITAT on the ground that the assessee was not maintaining any books. The ld. AR submitted that even as far back assessment year 2004-05, the fact of the assessee doing Sauda business on behalf of the client had been examined by the Department and the Department had not found fit at that time to bring the entire receipts to M/s Bajrang Lal Jindal A.Y. 2008-09 tax, but had accepted the fact that the assessee was a sub-broker earning commission. In those circumstances, it was submitted that without any evidence to show that the money deposited in the said bank account represented anything but the money collected from clients to do Sauda on their behalf, the Department could not ignore its own earlier findings and come to a conclusion that the money represented the assessee’s escaped income. Since, there was no such evidence brought on record by the ld. AO, the ld. AR submitted that there were in fact no reasons to believe and this rendered the proceedings under section 147 as void ab initio in terms of the aforesaid judgments. Moving on to the merits of the addition, the ld. AR pointed out that the AO had made the addition of deposits in the bank account, under section 68 of the Income Tax Act. He submitted that additions under section 68 were predicated on entries into the assessee’s books of accounts. Deposits made in a bank account could not be the subject matter of additions under section 68 because the bank statement was not the assessee’s book but merely a statement of the assessee in the books of the bank. Therefore, the addition could not be made on this ground either. In support of this proposition, the ld. AR relied upon the following case laws: i. (1982) 11 taxman 59 (Bom), CIT vs. Bhaichand & Gandhi ii. (2013) 33 taxman.com 610 (Lucknow-Trib) ITO, Barabanki vs. Kamal Kumar Mishra iii. (2016) 73 taxman.com 68 (Mumbai) Manasi Mahendra Pitkar vs. ITO- 1(2), Thane iv. Harsh Saluja vs. ITO-3(2), Mathura (ITA No. 165/Agra/2016) dated 1.12.2017 v. (2023) 157 taxman.com 532 (Raipur-Trib) Kuldeep Jiwan Mahan vs. ITO The ld. AR further submitted that where the assessee did not maintain any books of accounts, the bank statement could not be construed to be a book of accounts maintained by him for the purposes of making additions under section 68 and for proposition, he relied upon the following case laws:
M/s Bajrang Lal Jindal A.Y. 2008-09 i. Mehul V. Vyas vs. ITO-23(2)(3) (2017) 80 taxman.com 311(Mum- Trib) ii. ITO-Ward-1(5), Faridabad vs. Om Parkash Sharma dated 13.05.2011. It was further submitted that in the case of Smt. Uma Jhunjhunwala vs. ITO, 1(5), Kanpur in ITA No. 455/LKW/2017. The ITAT Lucknow ‘SMC’ Bench had referred to the judgment of the Hon’ble Allahabad High Court in the case of Sarika Jain vs. CIT (2017) 84 taxman.com 64 (Alld) which had held that if the subject matter of the dispute before the Tribunal was only with regard to the addition of alleged amount received by the assessee as his unexplained income under section 68 of the Act, the Tribunal cannot consider it to make the addition under section 69. In view of the aforesaid submissions, the ld. AR submitted that not only was the initiation of the proceeding flawed, being based on borrowed satisfaction, incomplete appreciation of facts and insinuation, but there was in fact no reason to believe that any income had escaped assessment in the hands of the assessee even if the assessee had not maintained books of accounts. Furthermore, it was submitted that, without prejudice to the above, the addition had been made under an incorrect provision of law and therefore, could not be sustained. It was, therefore, prayed that the assessee may be granted relief on this account.
7. On the other hand, Sh. Amit Kumar, Sr. DR (hereinafter referred to as the ld. DR) invited our attention to the ld. CIT(Appeal’s) order and pointed out that the assessee had not provided any evidence of the fact that the amounts that were deposited by it the bank accounts belonged to his clients and that he was only earning commission out of the same. He took us through the findings of the ld. CIT(A) as contained on page 7 of the ld. CIT(Appeal’s) order in which the ld. CIT(A) had pointed out that the assessee had created this story (of doing sauda on behalf of the clients) to explain cash deposits in his bank accounts but there was absolutely no evidence of any kind to substantiate the story, hence these purely speculative, unreasonable, unreliable and unverifiable evidences were being put M/s Bajrang Lal Jindal A.Y. 2008-09 forward by the assessee and his counsel. He also pointed out that the ld. CIT(A) had considered the plea of the assessee that two of the bank accounts did not belong to him and rejected them on the grounds that both the bank accounts were of the same address as that of the assessee; in the case of both bank accounts, the address was C/o the assessee; the telephone number mentioned in the said bank accounts was the same as that mentioned in the account opening forms of the assessee and his investment company; that deposits had been made and cheques drawn from these accounts in exactly the same manner; that the assessee had given contradictory statements in respect of these accounts and that both these persons could not be traced out despite various efforts. The ld. Sr. DR pointed out that after considering this evidence, the ld. CIT(A) held that these were benami accounts and therefore, he had agreed with the findings of the AO that the deposits in the said bank accounts totaling to Rs.1,46,11,400/- were unexplained cash credit under section 68. Refuting the arguments of the ld. AR, the ld. Sr. DR pointed out that the AO had considered the report of the Investigation Wing which showed that all these accounts were functioning from the same premises and that the assessee was instrumental in the opening of these accounts and therefore, had come to the conclusion that the assessee was the true beneficiary of these accounts. There was no lack of application of mind in the action of the AO, as the AO had derived his reason to believe after looking at the return of the assessee and concluding that the deposits of cash in the said accounts were not commensurate with the turnover or income declared by the assessee in his return. In the circumstances, there was no reason to interfere with the order of the AO. Further, the ld. Sr. DR invited our attention to section 292B of the Income Tax Act, which he held, covered such situations and provided that no assessment would become invalid only because any mistake or defect in such assessment if it was otherwise in substance and effect in conformity with and according to the intent and purposes of the Act and since the intention was quite clearly to bring the unexplained deposits in the bank account to tax, the Tribunal could always sustain the same under section 69.
M/s Bajrang Lal Jindal A.Y. 2008-09 8. We have duly considered the facts and circumstances of the case and the arguments of both parties. We note that before a notice under section 148 can be issued, the ld. AO must form a reason to believe that income has escaped assessment and that the satisfaction must be that of the AO and not any other Investigating Agency. For this purpose, the ld. AO is required to apply his mind to any report received from other Agencies / Investigation Wing to determine whether a case is made out for income escaping assessment. We find from the narration of the report that is given in the assessment order, that other than to state that the said accounts operated from the same premises and bore the same telephone numbers as that of the assessee, the Investigation Wing has not brought any evidence on record to show that the assessee was the beneficiary of A/c No. 628805005488 & A/c No. 628805005674. It is observed that the assessee has not signed the account opening forms of those bank accounts as an introducer. It is also observed that the address in question is a common address of various traders operating from the same marketing complex and it is seen that no evidence was collected either from the Branch Manager where the accounts were opened or the persons in whose names, the accounts were opened to suggest that the assessee was in any way a beneficiary of the accounts. Therefore, in our opinion, there was no material on record from which the AO could have derived satisfaction that the assessee was the beneficiary of the deposits made in these two accounts. In the circumstances, it becomes evident that the satisfaction derived by the AO that income had escaped assessments in the hands of the assessee on account of deposits in these bank accounts, was not that of the AO but entirely that of the Investigation Wing. Therefore, as the reasons to believe are based on borrowed satisfaction, it is held that the notice under section 148 issued on the basis of such reasons to believe is vitiated in eyes of law. Furthermore, it is observed that numerous Courts have held that the mere fact of deposit of cash in a bank account does not in itself indicate escapement of income. For that, there must be something more to show that income had escaped assessments in the hands of the assessee. While we notice that the AO has arrived at a conclusion of escapement of income M/s Bajrang Lal Jindal A.Y. 2008-09 on a comparison of the amount cash deposited by comparing the same with the declared sales and purchases of the assessee. He has not considered the past history of the assessee’s case where the Department had considered the extent of deposits made in the assessee’s accounts and agreed that the assessee was only a commission agent earning a commission on transactions on behalf of clients. It is observed that the satisfaction has been drawn up considering the deposits to be Rs. 1,21,20,200/-, but the deposit in the two accounts actually operated by the assessee are only to the extent of Rs. 18,63,000/-. Thus, it is apparent that the satisfaction of income escaping assessment has been arrived at without considering the actual deposits made the assessee and therefore also the said satisfaction is defective.
While we agree with the ld. Sr. DR that the assessee has not provided any evidence to substantiate his claim of sauda trade on behalf of clients as a sub- broker. We observe that the Department has accepted his nature of business in the earlier assessment under section 143(3) for the assessment year 2004-05 and the fact of him being a commission agent, despite the fact that the assessee had not maintained accounts for this trade in previous years also. The said position has been accepted right upto the Tribunal where the only dispute was regard to what should be the extent of commission chargeable on such deposits. In the circumstances, considering the nature of the assessee’s trade, and the extent of income offered by him, deposits to the extent of Rs. 18,63,900/- cannot be said to be unexplained if sought to be explained out of money of clients received in cash and deposited in the account for forward payments to the broker M/s Maa Devasar Commodity. Therefore, no case of unexplained deposits are made out in the case of the assessee on this account. Finally, we observe that the addition could not be made under section 68 of the Income Tax Act as the deposit of cash into the two bank accounts controlled by the assessee was not a credit entry in the books of the assessee. Therefore, the provisions of section 68 would not apply to the facts of the case. The addition is therefore, bad in law in this count also and in view of the M/s Bajrang Lal Jindal A.Y. 2008-09 judgment of the Hon’ble Allahabad High Court in the case of Sarika Jain vs. CIT (2017) 84 taxman.com 64 (Alld), we are not inclined to sustain the addition under section 69 as the same is not an issue in appeal before us. Needless to say, since the Department has not been able to prove that the assessee exercised any control or derived any benefit from A/c No. 628805005488 in the name of Sh. Narendra Kumar Gupta and A/c No. 628805005674 in the name of Garg Share Investment, no addition can be made in the hands of the assessee on account of any deposits made in the said bank accounts. In the circumstances, we deem it appropriate to delete all the additions made by the AO and hold that the conclusions arrived at by the ld. CIT(A) are not based on evidences. In the circumstances, the additions are deleted.
In the result, the appeal of the assessee is allowed. Order pronounced on 20.11.2025 in the Open Court.