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Facts
The assessee is an individual and proprietor of M/s MurlidharImpex. For AY 2017-18, the AO made additions based on information received from a search conducted in the case of a third party, Shri Rahul Choudhary. The AO alleged that the assessee received accommodation entries and commissions, treating them as income from undisclosed sources.
Held
The Tribunal noted that the CIT(A) had partly allowed the assessee's appeal. The Tribunal, after considering the case laws and submissions, dismissed the revenue's appeal. The additions made by the AO were found to be based on assumptions and presumptions without sufficient corroborative evidence.
Key Issues
Whether the assessment proceedings were correctly initiated under section 153C and whether additions made based on third-party information without proper verification are sustainable.
Sections Cited
143(3), 144, 153C, 69A, 69C, 153A
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 533/JPR/2024
4. Aggrieved by the above order of the Assessing Officer the assessee preferred an appeal before the ld. CIT(A). After perusing the submissions of the assessee and apropos to the grounds raised by the assessee the ld. CIT(A) has partly allowed the appeal of the assessee. The relevant finding of the ld. CIT(A) is as under:-
“3.4 Adjudication of Ground no.1; Section 153C states that (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,- (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, A person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A: 3.4.1 As per this section the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A. Therefore, if during the search any incriminating material was found the Assessing Officer would have the jurisdiction to assess or reassess the total income under section 153C taking into consideration the incriminating material collected during the search. However, in case during the search rio incriminating material was found, there is no scope for assessment u/s 153A/153C. In this case during the search no incriminating material, document or books of accounts belonging to the appellant was found during search u/s 132. In the entire assessment order, the AO has not referred to any seized material or other material belonging to the appellant, having been found during the course of search. No document was requisitioned u/s 132A also. It is true that information regarding accommodation entry was received from central circle. However, additions u/s 69A was based on the information collected by the AO u/s 133(6) from Axis bank. In all the case laws relied by the appellant the assessment was completed on the basis of incriminating seized material. But in the instant case assessment was not based on any specific seized material pertaining to the appellant. 3.4.2 In the case of Sidhi Vinayak Aromatics Pvt Ltd (ITA 251/2019, ITA 265/2019) Delhi High Court held that additions made by the AO are beyond the scope of section 153C of the Income Tax Act, 1961, because no incriminating material or evidence had been found during the course of search so as to doubt the transactions. It was noted that in the entire assessment order, the AO has not referred to any seized material or other material for the year under consideration having being found during the course of search in the case of assessee, leave alone the question of any incriminating material for the year under appeal. In recent case of Abhisar Buildwell (P.) Ltd [2023] 149 taxmann.com 399 (SC), the Supreme Court held that object of section 153A is to bring under tax undisclosed income which is found during course of search or pursuant to search or requisition; therefore, only in a case where undisclosed income is found on basis of incriminating material, Assessing Officer would assume the jurisdiction to assess or reassess total income for entire six years block assessment period even in case of completed/unabated assessment. In respect of completed assessments/unabated assessments no addition can be made by Assessing Officer in absence of any incriminating material found during course of search under section 132 or requisition under section 132A. Completed/unabated assessments can be reopened by Assessing Officer in exercise of powers under section 147/148 subject to fulfilment of conditions as envisaged/mentioned under section 147/148 and those powers are saved. As per these decisions the assessing officer cannot invoke section 153A or 153C in the absence of any incriminating material pertaining to the appellant found during course of search under section 132 or requisition under section 132A. However third party information from sources other than seized material belonging to the appellant, shall be relied upon by the assessing officer to complete assessment u/s 143 rws 144. As a result, ground no 1 raised by the appellant is dismissed. 4.2 Adjudication of Ground no. 2 4.2 Adjudication of ground no 2; The assessing officer received information from Central Circle that one Mr. Rahul Chowdhary has received accommodation entry from Divyanshi Corporation and Shiv Trading Company with whom the appellant also have transactions. Hence credits of Rs.1,57,50,000 received from Divyanshi Corporation and Shiv Trading Company found in the Axis bank account was added u/s 69A. In the sworn statement of Rahul Choudhary the appellant's name was not mentioned. Rahul Choudhary ststed that he had no direct connection with M/s Divyanshi Sales Corporation and M/s Shiva Trading Company other than obtaining accommodation entry from them. The books of accounts of the appellant and audit report were verified along with sales register. Entries recorded in sales ledger were tallied with ledger accounts of Divyanshi Sales Corporation and M/s Shiva Trading Company. Rs.1,57,50,000 received from Divyanshi Sales
Corporation and M/s Shiva Trading Company are part of total sales of Rs.7,80,85,000 appearing in the audit report and trading & profit & loss account. The Assessing Officer has neither doubted purchases made against these sales nor rejected appellant's books of accounts. 4.2.1 Section 69A stipulates that, Where in any financial year the assessee is found to be the owner of any money, bullion jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. In this case all receipts and expenses incurred by the assessee have been duly incorporated in the books of accounts. One of the essential conditions in Section 69A of the Act is that the assessee should be the owner of the money and it should not be recorded in his books of accounts. In this case the appellant has recorded sales in his books of accounts and offered explanation that the receipts are from his business. Supreme Court in the case of Laxmichand Baijnath vs CIT in 35 ITR 416 held that, amount credited in business books can normally be presumed as related to business. Payments received from various customers cannot be doubted until contrary material is brought on record. To treat a receipt as unexplained income the AO needs to be in possession of some material indicating that the assessee has received certain amounts which have not been reflected in the books of account. Receipts recorded in the books of accounts were already part of the income which was already credited in P&L account. Details of payees are included in appellant's books and A.O. has not given any specific finding regarding any bogus sales made to Divyanshi Sales Corporation and M/s Shiva Trading Company. In the case of Aurobindo Sanitary Stores v. CTC (2005) Reported in 276 ITR 549 Orissa High Court held that, for applying Section 69, the Assessing Officer must first come to a finding that the assessee made investments which are not recorded in the books of account and thereafter call for an explanation from the assessee about the nature and source of the investments and if he finds that no such explanation was furnished by the assessee firm or the explanation offered by the assessee was not satisfactory, he could treat the value of the investments to be the income of the assessee-firm of the financial year in which it has made the investments. Hence it is held that receipts which were shown as turnover of business and is duly entered in the regular books of accounts cannot be taxed under section 69A. As a result, ground no 2 is allowed.
5. Ground No.3 is raised against the addition of Rs.3,93,750 u/s 69C of the Income Tax Act, 1961. The assessing officer held that a commission of Rs.2.5% has been paid to obtain the accommodation entries by the assessee and the commission on accommodation entries was worked out to be Rs.3,93,750/- (1,57,50,000 x 2.5%) and treated as income from undisclosed sources. It is clear from previous paragraphs that there is nothing on record to prove the accommodation entries. These amounts are recorded as sales and reflected in audited books of accounts. In this scenario the question of any commission payment does not arise. As a result, ground no 3 is allowed.
6. Ground No.4 is raised against the addition of Rs. 11,76,18,090 u/s 69A of the Income Tax Act, 1961. As per Bank account obtained u/s 133(6) from the Axis Bank, it was noticed that the bank account was opened on 30.08.2016. The total of credit entries is worked out at Rs. 13,33,68,090/- for the year under consideration. Since the appellant did not offer any explanation, Rs. 11,76,18,090 (Rs. 13,33,68,090 minus Rs.1,57,50,000) was treated as income from undisclosed sources and added to the income of the assessee u/s 69A of the Income tax Act, 1961. The appellant submitted that the firm was maintaining two bank accounts during the year under consideration one is with Axis Bank and another one is Indusind Bank Limited. Total credits in Indusind Bank amounts to Rs.1,12,16,408. Total credits in both accounts amount to Rs. 14,45,84,498. The assessee had shown total turnover of Rs.7,80,85,000 during the year under consideration which was reflected in the P&L account. 6.1 Regarding the balance amount of Rs.6,64,99,498, the appellant submitted that it relates to the realization of debtors. However, no further details were provided regarding realization of debtors. As per the balance sheet, current assets and advances amounts to Rs. 18,53,600 only. The audited books of accounts and ledgers submitted by the appellant do not reveal any details regarding credits in bank account which are not part of PnL account. The appellant has failed to bring on record any evidence to establish his claims that the excess deposits in bank accounts were out of receipts connected with his business transactions. The law is settled that bank statement do not constitute books of accounts. So it is clear that the balance receipts of Rs.6,64,99,498 are not recorded in books of accounts. In the case of Karan Sharma (ITA No.465/Bang/2018), ITAT Bangalore held that, (para 4) there is no rule that when an amount is credited in the Bank Account, it must be taken as receipt from the business. Whether the amount of deposit added u/s. 68 or 69 is income from business or income from other sources depends on the evidence and explanation furnished by the assessee. If the deposits are found in the Bank account of the assessee and the explanation as to the nature and sources of the amount is rejected by the Assessing Officer, in such an occasion, the Assessing Officer is entitled to treat the deposit as income from other sources and not as business income. It is merely because the assessee is running a business in which found certain unexplained deposit, it does not necessarily show that such deposits represented the suppressed business receipts and there would be no error of law in regarding unexplained deposits as income of the assessee from other sources. Unless there are strong reasons for connecting unexplained deposits with known source of income of the assessee, there will be no alternative to treating them as income from other sources, Hence these deposits are to be considered as from unexplained sources to bring into taxation. Therefore, deposits of Rs.6,64,99,498 is to be considered as unexplained deposits under sepljon 69A. As a result, ground No. 4 is partly allowed.”
Aggrieved from the above order of the ld. CIT(A), both assessee and revenue prefer the appeal before this tribunal on the grounds as reiterated herein above. First, we take up the appeal of the assessee in ITA No. 533/JPR/2024. Apropos to the ground so raised by the assessee the ld. AR of the assessee in support of the grounds taken has filed the following written submission : “BRIEF FACTS OF THE CASE�
The assessee is an individual and proprietor of M/s MurlidharImpex. For the assessment year 2017-18, return declaring total income at 3,81,510/- was filed on 18.12.2019. Copy of return of income along with computation of income is available on Paper Book Page No. 1-3. The books of account of the assessee are audited and audit report along with audited accounts are available on Paper Book Page No.4-15. The Learned Assessing Officer completed assessment u/s 144 on 18.12.2019 determining total income at Rs. 13,41,43,350/-, inter-alia making,the following additions – (i) Rs. 1,57,50,000/- u/s 69A of the Income Tax Act, 1961 received against sales made by the assessee to various parties recorded in the books of accounts. (ii) Rs. 3,93,750/- u/s 69C of the Income Tax Act, 1961 on account of commission expenditure on the basis of assumption and presumption. (iii) Rs. 11,76,18,090/- u/s 69A of the Income Tax Act, 1961 on account of credit entries appearing in the bank account of the assessee which are duly recorded in the books of accounts of the assessee. Aggrieved with the order of the learned Assessing Officer the assessee filed appeal before the Learned CIT(A). The assessee had filed a detailed submission before the Learned CIT(A), copy of which is available on Paper Book Page No16-40.The Learned CIT(A), vide order dated 19/04/2024 partly allowed the appeal of the assessee as under :-
S.No Addition made by Learned AO Decision of Learned CIT(A) Addition of Rs. 1,57,50,000 Deleted 1 made u/s 69 A Addition of Rs. 3,93,750/- Deleted 2 u/s 69 C Addition of Rs 11,76,18,000/- u/s 69 A Addition restricted to 3 Rs.6,64,99,498/-
Aggrieved with the order of the Learned CIT(A), the assessee is in appeal before the Hon'ble Tribunal. It is submitted that while filing appeal in the case of the assessee on 02/09/2024, certain grounds of appeal could not be taken due to inadvertence. These grounds of appeal now taken are purely of legal nature and go to the root of the matter. These grounds of appeal do not require any additional evidence and arise out of the order of the Learned Assessing Officer/Learned CIT(A). A separate application has been submitted before the Hon'ble ITAT with a humble request for admission of the additional grounds. Now the assessee first discusses the additional ground as under :- Additional Ground On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in rejecting the plea of the assessee that the Learned Assessing Officer erred in completing the assessment u/s 143(3)/144 of the Income Tax Act, 1961 whereas the assessment should be framed u/s 153C of the Income Tax Act, 1961 as the additions are based on basis of documents found and seized/information received from DCIT, Central Circle-Gaziabad , which emanated from the search conducted in the case of third party, Shri Rahul Choudhary and others.
It is submitted that during the course of appellate hearing before the Learned CIT(A), the assessee has made a detailed submission regarding this ground. The same is quoted below :- ”In this case the Learned Assessing Officer has completed the assessment on the basis of information received from Dy. Commissioner of Income Central Circle, Ghaziabad vide letter No.DCIT/CC/GZB/Rahul Choudhary/2019-20/183 dated 18.04.2019. The information was based on the search in the case of Shri Rahul Choudhary and others. The relevant para of the assessment order appearing on page 1 and 2 of the assessment order are quoted below: -
“A specific information was received from Dy. Commissioner of Income Central Circle, Ghaziabad vide letter No. DCIT/CC/GZB/Rahul Choudhary/2019-20/183 dated 18.04.2019, that a search and seizure operation was conducted in the presmises of Shri Rahul Choudhary& Others at C-133, II Floor, New Panchwati Colony, Ghaziabad on 18.01.2017 based on the information regarding cash deposits in three accounts (0519010100000772, 0519010100000665 and 051900100000698) maintained in J&K Bank, Ghaziabad. These three accounts were in the name of M/s Shiva Trading Company Prop Pankaj Kumar M/s Diyanshi Sales Corporation Prop VikashRathi and M/s Shyama Trading Company Prop Ghanshyam respectively. With this information copy of assessment order in the case of Rahul Choudhary, Rankaj Kumar, VikashRathi&Ghanshyam for AY 2017, copy of statement of Shri Rahul choduhary recorded on 18.01.2017 & 08.05.2017, and relevant pages of appraisal report were also provided on mail on 15.12.2019.
Shri Rahul Choudhary in his statement recorded during the course of search accepted that he controlled and operated the above three accounts and earned commission at the rate of 1.5 to 2.5% on deposits. From the perusal of the bank accounts, it was found that the funds were transferred to various bank account through RTGS/NEFT from above three bank account and out of these funds, and amount of Rs.1,00,00,000/- was transferred to bank account of M/s MurlidharImpex Prop Bhaskar Chauhan through NEFT/RTGS from M/s Shiva Trading Co Prop Shri Pankaj Kumar M/s Diyanhi Sales Corporation Prop VikashRathi and M/s Shyam Trading Company Prop Ghanshyam during FY 2016-17 relevant to AY 2017-18. Shri RuhalChoudhary in his statement, has accepted that he has done the work on commission basis and no actual transactions was made by him. In other words the assesseeBhaskarChouhan Prop M/s MurlidharImpex has taken accomodationentires from M/s Shiv Trading Co Prop Shri Pankaj Kumar, M/s Diyanshi Sales Corporation Prop VikashRathi and M/s Shyama Trading Company Prop Ghanshyam controlled and managed by Shri Rahul Choudhary.”
The paras cited reveal the following things –
(i) That a search was conducted u/s 132 of the Income Tax Act, 1961 in the premises of Rahul Choudhary and others at C-133, II Floor, New Panchwati Colony, Ghaziabad on 18.01.2017.
(ii) During the course of search it was found that a sum of Rs. 1 Crore was transferred during FY 2016-17 relevant to AY 2017- 18 (Rs.35,00,000/- on 16.11.2016, Rs.30,00,000/- on 15.11.2016 and Rs.35,00,000/- on 16.11.2016) to the bank account of M/s MurlidharImpex. Prop. BhaskarChouhan through NEFT/RTGS from the following concerns-
(a) M/s Shiva Trading Co Prop Shri Pankaj Kumar (b) M/s Diyanhi Sales Corporation Prop VikashRathi and (c) M/s Shyam Trading Company Prop Ghanshyam
(iii) During the course of search statements were recorded u/s 132(4) of Shri Rahul Choduhary recorded on 18.01.2017 & 08.05.2017 who admitted that the accounts of the above three concerns were operated and controlled by him.
(iv) Shri Rahul Choudhary further deposed that M/s MurlidharImpex Prop. Shri BhaskarChouchan was transferred a sum of Rs. 1,00,00,000/- as accommodation entry and commission @ 1.5 to 2.5% was earned.
(v) Copies of statements of Shri Rahul Choudhary recorded on 18.01.2017 and 08.05.2017 were forwarded to the Learned Assessing Officer.
Applicability ofProvisions of section 153A/153C – It is on receipts of the information that further enquiries were made by the Learned Assessing Officer on the Axis Bank where the assessee was maintaining account number 916020049304891 and it is on the basis of this bank account that additions of Rs. 11,76,18,090/- has been made. Further addition has been made on account of accommodation entry and payment of commission thereon of Rs. 1,57,50,000/-. Thus the entire additions have been made with reference to information gathered and received from DCIT, Central Circle-Gaziabad. The entire information has originated from the search conducted in the case of Rahul Choudhary and others. In the facts and circumstances of the case the assessment in the case of the assessee required to be completed u/s 153C. The assessments relating to search material are governed by provisions of section 153A/153C. The relevant provisions of section 153A and 153C are quoted below: - Assessment in case of search or requisition.
153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and for the relevant assessment year or years : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years and for the relevant assessment year or years : Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this sub- section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate : Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years:
Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless— (a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years; (b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years; and (c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017. Explanation 1.—For the purposes of this sub-section, the expression "relevant assessment year" shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. Explanation 2.—For the purposes of the fourth proviso, "asset" shall include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank account. (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Principal Commissioner or Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside. Explanation —For the removal of doubts, it is hereby declared that,— (i) save as otherwise provided in this section, /////section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section;
(ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year. Assessment of income of any other person. 153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A: Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person : Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year— (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A. The perusal of the aforesaid provisions reveal the following – (i) The provisions of section 153A/153C override section 139, 148, 148, 149, 151 & 153. (ii) These provisions are applicable in a case where search is conducted u/s 132 or requisition made u/s 132A on and after 31.05.2003. (iii) The provisions of section 153A are applicable in a case where search is conducted. (iv) The provisions of section 153C are applicable where the Assessing Officer is satisfied that “ (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than the person referred to in section 153A, then, …. and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A.”
Initiation of proceedings u/s 153C – In view of the above position the above parameters stand fulfilled in the case of the assessee. In this case the information has been received from DCIT, Central Circle-Gaziabad who intimated the Learned Assessing Officer that the search conducted in the case of Rahul Choudhary and others has resulted in material which contained information pertaining to the assessee i.e. amount of Rs. 1,00,00,000/- stood transferred to the proprietary concern of the assessee M/s MurlidharImpex. The information contained that these funds were transferred as a matter of accommodation entry. In view of this information the Learned Assessing Officer was under an obligation to complete the assessment u/s 153C of the Income Tax Act, 1961. The same is apparent from the provisions quoted above of section 153C r.w.s. 153A. This section very specifically mentions that “where the Assessing Officer is satisfied that the material found in search contains information pertaining to persons other than the searched person and has a bearing on the determination of the total income of such other person”. In this case the DCIT-Central Circle, Gaziabad has intimated that search in the case of Shri Rahul Choudhary and others has resulted in information pertaining to the case of Shri BhaskarChouhan which has bearing in the determination of his total income. The information is very specific that the assesse got money transferred to his bank account maintained in the Axis Bank Ltd A/c No. 916020049304891 in the name of MurlidharImpex Prop. BhaskarChouhan. Thus these facts warranted assessment of the assessee u/s 153C r.w.s. 153A. The completion of assessment u/s 144 is unlawful, illegal and therefore deserves to be quashed.
Favourable case laws: - The decisions quoted below lay down that in the case of search assessments are required to be completed u/s 153A/153C. In a case where the assessment is required to be completed of a person other than the searched person on the basis of material found during search, proceedings have to be initiated u/s 153A/153C. No proceedings can be initiated u/s 148. It is submitted that for completion of assessment the proceedings u/s 143(3)/144 are at par with completion of assessment or re-assessment u/s 148. Therefore the ratio laid down in the cases cited below squarely is applicable to the facts of the present case. (i) Arun Kumar Kapoor (2011) 140 TTJ 249 (Amritsar) “Head Noted : Section 153C read with section 148, of the Income Tax Act, 1961 – Search and seizure – Assessment of income of any other person – Assessment year 2006-07 – A search was conducted under section 132 in case of ‘T’ Ltd, during the course of which certain incriminating documents were allegedly seized – Deputy commissioner intimated Assessing office r of the assessee about seizure of certain documents pertaining of assessee during search and enclosed copy of those documents requesting him to take appropriate action under section 153C/148 – Thereupon, Assessing officer having initiated reassessment proceeding under section 148 passed an assessment order – Assesee took an additional ground of appeal to effect that reassessment proceedings initiated by Assessing officer under section 148 were illegal and void above said-initio- Commissioner (appeals) held that Assessing officer should have issued notice under section 153C and should have framed assessment under section 153C, read with section 153A – He further held that since Assessing officer had not followed procedure laid down under section 153C, notice issued under section 148 and reassessment proceedings became illegal and void above said-initio. Whether on facts, Commissioner (Appeals) was justified in setting aside reassessment proceedings – Held yes (in favour of assessee). The above decision has been followed in the following cases- (ii) G. Koteswara Rao (2015) 64 taxman.com 159 (Visakhapatnam – Trib)
Considering the facts and circumstances of the case and also applying the ratios of the above mentioned decisions, we are of the considered options that the Assessing officer has no jurisdiction to issues notice u/s 148 of the Act to reopen the assessment in respect of those six assessment year immediately proceedings the assessment year in which search is conducted or requisition is made. The period under consideration falls within the exclusive domain of section 153A. In the instant case, since the assessment made consequent to search in another case, the Assessing officer is bound to issue notice u/s 153C and thereafter proceed to assess or reassess total income under section 153A/153C of the Act. The Assessing officer, instead of complying with the provisions of section 153C, proceeded with the reassessment under section 147/148 which is not applicable to search cases. Therefore, the impugned assessment order passed u/s 143 (3), r.w.s. 147 of the Income Tax act, 1961 is illegal, arbitrary and without any jurisdiction. Hence, the assessment order dated 31-12-2010 passed u/s 143 (3) r.w.s. 147 is quashed…” (iii) Rajat Shubra Chatterji. Income Tax Act, 1961 No. 2430/Delhi/2015, ITAT Delhi Bench “….On having gone through the decisions cited above especially the decision of Amritsar Bench in the case of I.T.O. Vs. Arun Kumar Kapoor (supra), We find that in that case as in the present case before us, reassessment was initiated on the basis of incriminating material found in search of third party and the validity of the same was challenged by the assessee before the Learned CIT (Appeals) and the learned CIT (Appeals) vitiated. The same was questioned by the revenue before the ITAT and the ITAT after discussing the cases of the parties and the relevant provisions in details has come to the conclusion that in the above situation, provisions of sec. 153C were applicable which excludes the application of sections 147 and 148 of the Act. The ITAT held the notice issued under sec 148 and proceedings under section 147 as illegal and void ab-initio. It was held that assessing officer having not followed procedure under section 153C, reassessment order was rightly quashed by Learned CIT (Appeals), In the present case before us, it is an admitted fact, an also evident from the reasons recorded and the assessment order that the initiation of reopening proceedings was made by the Assessing officer on the basis of information received from the Directorate of Income Tax (Inv). On the basis of search & seizure operation conducted at the premises of rock land group of cases and the documents related to the assessee found during the course of search were made available to the Assessing officer of the present Assessee. We thus respectfully following the decision of co-ordinate Bench of ITAT in the case of the ACIT vs Arun Kumar – 140 TTJ 249 (Amritsar) hold that provisions of sec 153C of the Act are applicable in the present case for framing the assessment, if any, which excludes the application of sec. 147 of the Act, hence, notice issued under section 148 of the Act and assessment framed in furtherance thereto under sec. 147 read with section 143(3) of the Act are void ab-initio….” (iv) The assessee also replies on the recent judgement of Hon’ble ITAT, Jaipur Bench in case of Navratan Kothari Vs. ACIT (Income Tax Act, 1961 NO. 425/JP/2017) order dated 13.12.2017 wherein exactly same facts were involved and after considering the various judicial pronouncements on the issue held as under :-
“Therefore , in conjoint reading of provision of section 153A, 153C and 147/148 of the Act as well as a consistent view taken by this tribunal in a series of decision cited (supra) we hold that the assessment or reassessment of income of the person other than search persons based on seized material can be only be made u/s 153C r.w.s. 153A and the provisions of section 147/148 of the Act are not applicable in such cases. No contrary decision has been brought to our notice. Accordingly, we hold that initiation of proceedings u/s 147/148 by A.O. to reassess the income is illegal being without jurisdiction and consequently the reassessment order passed u/ s 147 r.w.s. 143(3) is also illegal and void above said initio and is liable to be quashed.” In view of above facts and judicial pronouncements the completion of assessment u/s 144 of income tax act 1961 is ab-initio void. The assessment so framed may kindly be quashed. " Decision of the Learned CIT(A)
The Learned CIT(A) has discussed the issue in para 3 on Page 6, 7 & 8 of the appellate order. The Learned CIT(A) has dismissed this ground with the observation that in this case, no incriminating material was found in search in the case of Shri Rahul Choudhary, as such, there was no scope for assessment u/s 153A/153C. Further, it has also been observed by the Learned CIT(A) that in this case, addition has been made by the Learned Assessing Officer by calling information u/s 133(6) from Axis Bank. The Learned CIT(A) has further quoted the decision of the Hon'ble Supreme Court in the case of AbhisarBuildwell P. Ltd (2023) 149 taxmann.com 399 (S.C.). It is submitted that the decision of the Learned CIT(A) is not in accordance with law. He has also committed an error in citing the case of AbhisarBuildwell P. Ltd in his support. The decision of the Learned CIT(A) is assailed as under :- (a) Amended provisions of Sec. 153C w.e.f. 1/6/2015 The amended provisions of Sec. 153C w.e.f. 1/6/2015 are quoted below :- Assessment of income of any other person. 153C.(1) 33[Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person] and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person 34[for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and] for the relevant assessment year or years referred to in sub-section (1) of section 153A :
It is submitted that w.e.f. 1/6/2015, the provisions of Sec. 153 C are applicable in the case of assessment of other person even if there is information contained in the seized books of account, documents etc. pertaining and relating to the other person. Now it is not necessary that the seized books, documents etc. should belong, pertain or relate to other person, but the amended provisions now cover the case u/s 153C even if there is any information pertaining, relating to other person in the seized documents. In this case, during the course of search in the case of Shri Rahul Choudhary and other concerns, namely (i)Shiva Trading Co. Prop. Pankaj Kumar, (ii) Diyanshi Sales Corporation, Prop. VikasRathi and (iii) Shyama Trading Co. Prop. Ghanshyam , it was noticed that there was transfer of money to the extent of Rs. 1,00,00,000/- from the aforesaid three concerns. Shri Rahul Choudhary, in his statements, confessed that he was operating and controlling the accounts of the above three concerns, from where money was transferred to the assessee. He further deposed that the transferred amount was of the nature of accommodation entry. It is on the basis of receipt of this information and relevant papers, including copy of assessment order, appraisal report and statement of Shri Rahul Choudhary, that the Learned Assessing Officer initiated assessment proceedings. Further inquiries were conducted from Axis Bank, where the assessee operated his bank account and wherein the aforesaid amount of Rs. 1,0,00,000/- was transferred. On gathering that there were more deposits in the bank account, the Learned Assessing Officer acted accordingly. All these facts are mentioned in first two paras of the assessment, which are scanned below :-
The analysis of the above paras show that relevant papers including statement of Shri Rahul Choudhary, appraisal report and assessment order were received by the Learned Assessing Officer from DCIT, Central Circle, Ghaziabad, who was the Assessing Officer of Shri Rahul Choudhary. The DCIT, Central Circle, Ghaziabad, being the Assessing Officer of the searched person, transferred the information , which emanated as a result of search, to the Learned Assessing Officer of the assessee. The Learned Assessing Officer, while making addition in the case of the assessee, included the amount of Rs. 1,00,00,000/- deposited in the account of the assessee in Axis Bank by the above three concerns, viz, (i)Shiva Trading Co. Prop. Pankaj Kumar, (ii) Diyanshi Sales Corporation, Prop. VikasRathi and (iii) Shyama Trading Co. Prop. Ghanshyam, which were being controlled by Shri Rahul Choudhary. Thus, it is well established that the initiation of assessment proceedings in the case of the assessee has originated on the basis of information in the case of search of Shri Rahul Choudhary. Therefore, the case is governed by the provisions of Sec. 153C. The Learned CIT(A) is wrong in stating that no incriminating material was found in search pertaining to the assessee, as such, there was no scope for assessment u/s 153A/153C. As per amended provisions, it was enough for initiating proceedings u/s 153C that the seized documents in the case of the searched person contained information pertaining to the assessee. The Learned CIT(A) has wrongly quoted the decision of AbhisarBuildwell P. Ltd by the Hon'ble Apex Court . The relevant para of the saiddecision are quoted below :- "14. In view of the above and for the reasons stated above, it is concluded as under: i) that in case of search under Section 132 or requisition under Section 132A, the Assessing Officer assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case ofunabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved." The perusal of the aforesaid para of the Supreme Court decision makes it clear that no addition can be made in a case of unabated/completed assessments in the absence of any incriminating material found during the course of search. Therefore, for making any addition in respect of unabated/completed assessments, existence of incriminating material is a must. However, Supreme Court has further held that the revenue is free to take action u/s 148 in such cases of completed assessments where there is no incriminating material, but there may be other information. The position in respect of abated assessments is that the Assessing Officer would assume jurisdiction to assessee total income both found as a result of search and otherwise. In the case of the assessee, assessment already stood in the process of completion as notice u/s 143(2) was issued on 24/09/2018 whereas information from DCIT, Central Circle was received subsequently under letter dated 18/4/2019. This is a case which would have abated and in such a case, the Assessing Officer was free assess total income both found as a result of search and otherwise u/s 153 C. Thus, it is a case where proceedings were required u/s 153C. The decision of the Hon'ble Supreme Court does not held the Learned CIT(A) in any way. The Learned CIT(A) is wrong in holding that the Learned Assessing Officer has made addition not on the basis of search but by way of inquiry from Axis Bank u/s 133(6). This is patently wrong. The information received from DCIT, Central Circle, Ghaziabad was in respect of deposits in Axis Bank and it was on receipt of this information that the Learned Assessing Officer proceeded to make inquiries. It is during the course of inquiries that the Learned Assessing Officer came to know that the deposits in the bank accounts were more in addition to deposits for which information was received from DCIT, Central Circle, Ghaziabad. He, therefore, made addition both in respect of the deposits for which information was received from DCIT, Central Circle, Ghaziabad as well as in respect of other credits in the bank account. In the facts and circumstances, it is established that the Learned Assessing Officer made additions on account of receipt of information pertaining to assessee's bank account from DCIT, Central Circle. This he could do only by initiating proceedings u/s 153C. Hence, the assessment completed u/s 144 deserves to be quashed. The order of the Learned CIT(A) also deserved to be quashed on this ground. The assessee further quotes the latest decision of the jurisdictional High Court of Rajasthan in the case of Shyam Sunder Khandelwal&Ors Vs. ACIT(338 CTR 0129(Raj), wherein the court has held that the provisions of Sec. 153A to 153D are overriding and prescribe special procedure for assessment in cases of search and requisition. The relevant paras 26 & 27 of the decision are quoted below :- "26. Special procedure is prescribed under Section 153A to 153D for assessment in cases of search and requisition. There cannot be a quibble with the proposition that the special provision shall prevail over the general provision. To say it differently the provisions of Section 153A to 153D have prevalence over the regular provisions for assessment or reassessment under Section 143 & 147/148.
Section 153A and 153C starts with non-obstante clause. The procedure for assessment/reassessment in Section 153A, 153C in cases of search or requisition has an overriding effect to the regular provisions for assessment or reassessment under Sections 139,147,148,149,151 & 153. " In view of the above discussion, the assessment completed u/s 144 deserves to be quashed. The order of the Learned CIT(A) also deserved to be quashed on this ground. Additional Ground No.2 On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in including amount of Rs.1,12,16,408/-, being credits in Indusind Bank, while upholding addition u/s 69 A of Rs. 6,64,99,498/- without providing any opportunity to the assessee u/s 251,69,52,894/-(2) of the IT Act, 1961. This has virtually resulted in enhancement of income in the hands of the assessee. This additional ground is discussed along with regular ground No. 1 & 2. Now the regular grounds1 & 2 along with additional ground No. 2 are taken up for discussion hereunder :- Ground No. 1 –
In the facts and circumstances of the case the Learned CIT(A) has erred in confirming the addition of Rs. 6,64,99,498/- u/s 69 A of the Income Tax Act, 1961 out of Rs. 11,76,18,090/- made by the Learned Assessing Officer by treating the credit entries in the banks as unexplained deposits.
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Ground No. 2 –
In the facts and circumstances of the case the Assessing Officer has erred in confirming the addition foRs. 6,64,99,498/- u/s 69 A of the Income Tax Act, 1961 without considering the submission of the assessee that the credit entries in the banks are realization of debtors and other transactions which are duly recorded in the regular books of accounts.
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Additional Ground No.2 On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in including amount of Rs.1,12,16,408/-, being credits in Indusind Bank, while upholding addition u/s 69 A of Rs. 6,64,99,498/- without providing any opportunity to the assessee u/s 251,69,52,894/-(2) of the IT Act, 1961. This has virtually resulted in enhancement of income in the hands of the assessee. Facts of the case
In pursuance of letter received from the DCIT, Central Cricle, Ghaziabad, the Learned Assessing Officer , while scrutinizing the bank account of the assessee maintained with Axis Bank, found that – (i) In place of Rs. 1,00,00,000/- as was reported by the DCIT, Central Circle, Ghaziabad, the money received in the bank account was Rs.1,57,50,000/- (ii) The Learned Assessing Officer also noticed that in addition to the above amount of Rs. 1,57,50,000/- received on transfer, there were other creditors in the bank account of the assessee, totaling to Rs. 13,33,68,090/-. The position being so, the Learned Assessing Officer made additions as under :- (i) Rs. 1,57,50,000/-, being money transferred from M/s Shiva Trading Company Prop Pankaj Kumar M/s Diyanshi Sales Corporation Prop VikashRathi and M/s Shyama Trading Company Prop Ghanshyam ,treating the same as unexplained u/s 69 A ; (ii) Rs.3,93,750/- assuming that assessee paid commission @ 2.5% on the receipt of aforesaid amount of Rs. 1,57,50,000/- u/s 69 C
(iii) The remaining credits of Rs.11,76,18,090/- (13,33,68,090 – 1,57,50,000), were added u/s 69 A by the Learned Assessing Officer treating the same as unexplained.
Decision of the Learned CIT(A)
The Learned CIT(A) has deleted the first two additions. It has been held by the Learned CIT(A) that the amounts received of Rs. 1,57,50,000/- was duly accounted for by the assessee in its regular books of account and the same is part of sales/part of trading account. The addition on account of alleged payment of commission was also deleted as the amount of Rs. 1,57,50,000/- was treated as part of trading account. The Learned CIT(A) further granted relief against addition of Rs. 11,76,18,090/- made by the Learned Assessing Officer. The Learned CIT(A) has held that besides maintaining bank account in Axis bank, the assessee was having another bank account in Indsind Bank Ltd and found that there were credits in this account of Rs.1,12,16,408/-. The Learned CIT(A) has grossed up the credits in both the accounts , i.e. Axis Bank Rs.13,33,68,090/- + Indsind Bank Rs.11216408/-, both totaling to Rs. 14,45,84,498/-. The Learned CIT(A) has further held that out of these total credits of Rs. 14,45,84,498/-, the assessee has disclosed sales/turnover of Rs.7,80,85,000/-. Accordingly, he reduced the amount of 14,45,84,498/- by Rs. 7,80,85,000/- and the balance amount of Rs. 6,64,99,498/- has been upheld by him as unexplained deposits u/s 69A of the IT Act. Thus, the Learned CIT(A) has upheld total addition of Rs. 6,64,99,498/-The action of the Learned CIT(A) is also not in accordance with law and the same is assailed as under :-
(i) Addition to the extent of Rs. 1,12,16,408/- made without providing opportunity u/s 251(2).
The issue has been discussed by the Learned CIT(A) on page 11 of the appellate order. The Learned CIT(A) has mentioned that besides the account in Axis Bank, the assessee was having another account in Indusind Bank and in this account, there were credits amounting to Rs.1,12,16,408/-. He has aggregated the credits appearing in the bank accounts of the assessee both in Axis Bank and Indusind Bank, totaling to Rs.14,45,84,498/-. It is submitted that the Learned Assessing Officer, in the assessment order, had taken into consideration the credits appearing in Axis Bank only, amounting to Rs.13,33,68,090/-. There is no discussion in the assessment order about credits in Indusind Bank. It is for the first time that the Learned CIT(A) has considered these credits of Rs. 1,12,16,408/- in Indusind Bank as unexplained. The submission of the assessee is that this action of the Learned CIT(A) amounts to enhancement of income. Under the provisions of Sec. 251 (2), the Learned CIT(A) is precluded in making enhancement of income without providing opportunity to the assessee. In this case, the Learned CIT(A) has failed to observe these provisions while making the addition. Therefore, the addition sustained by the Learned CIT(A) of Rs. 6,64,99,498/- is unlawful to the extent of Rs. 1,12,16,408/-. The same deserves to be deleted.
It is further submitted that the assessee is submitting copy of Indusind Bank account on Paper Book Page No.41, which discloses that these transactions are part and parcel of business and stand accounted for in the regular books of accounts. No addition is called for on this account.
(ii) Addition sustained of Rs. 6,64,99,498/- is not in accordance with law. These credits are part and parcel of business of the assessee.
As mentioned above, out of addition of Rs. 6,64,99,498/- sustained by the Learned CIT(A), amount to the extent of Rs. 1,12,16,408/- has been made unlawfully and, thus, the balance addition remains of Rs. 5,52,83,090/-. (66499498 –11216408). In this regard, it is submitted that the transactions appearing in the Axis Bank account totally relate to the business of the assessee. The assessee is submitting copy of account of all the parties and copy of Axis Bank account, wherein these transactions are reflected vis-à-vis the bank account. The perusal of these accounts and bank account, which are available on Paper Book Page No.42-75 as well as the perusal of bank account would make it obvious that all these credits are pertaining to the business of the assessee. The credits in the bank account are against sales conducted by the assessee. In the above regard, it is submitted that during the year under consideration, the assessee had engaged a new accountant, who was not fully conversant with the procedure of maintenance of accounts. Therefore, it so happened that turnover/credits in the bank account to the extent of Rs.3,85,33,090/- were left being accounted for. These figures are worked out as under :-
(a) Total credits in the bank account as Rs.13,33,68,090 mentioned by the Learned Assessing Officer and also as per copy of bank account available on Paper Book Page No.. (b) Amount separately considered by the Rs. 1,57,50,000 Learned Assessing Officer as per information received from DCIT, Central Circle, Ghaziabad © Balance amount of credits in the bank Rs.11,76,18,090 account (d) Already turnover disclosed by the assessee Rs. 7,80,85,000 (e) Remaining credits in the bank account Rs. 3,95,33,090
Thus, due to the inadvertent mistakes of the Accountant, trading receipts of Rs. 3,95,33,090/- were left without being accounted in the regular books of accounts. It is settled position of law that on unaccounted sales, same NP rate is to be applied which is disclosed by the assessee on the regular sales. The gross amount of sales cannot be treated as income of the assessee by any stretch of imagination. In the case of the assessee, on regular sales, N.P. rate of 0.64% has been disclosed and same stands accepted by the Learned Assessing Officer. There is no addition on regular sales disclosed by the assesse of Rs. 7,80,85,000/-. In support of the NP rate, the assessee is submitting copy of audited report u/s 44 AB and copy of accounts, which are available on Paper Book Page No cited supra. These accounts disclose total sales of Rs. 7,80,85,000/- and net profit has been disclosed of Rs. 501190/-, which gives NP rate of 0.64%. Considering these facts, it shall be in the fitness of things if this NP rate is applied on sales of Rs. 3,95,33,090/-, which inadvertently remained unaccounted. This would result in addition of income of Rs.253011/-. The assessee offers that additional sustained by the Learned CIT(A) of Rs.6,64,99,498/- may kindly be reduced and restricted to Rs.2,53,011/-. The Hon'ble Tribunal is humbly requested to do justice in the case accordingly. The following case laws are quoted in support that gross sales cannot be treated as income even if these are unaccounted, only profit rate has to be applied. (1) Commissioner of Income Tax Vs. Williamson Financial Services &Ors (SLP(C) 2275/2007 (Hon’ble Supreme Court)
The Hon’ble Supreme Court has held as under :-
“It is important to bear in mind that under section 4 the levy is on “total income” of the assessee computed in accordance with and subject to the provisions of the Income Tax Act. What is chargeable to tax under the Income Tax Acxt is the profit and gains of a year. What is chargeable to tax under the Income Tax Act is not the gross receipts, but income. Under the Income Tax Act, the tax is on income and not on gross receipts.”
(2) Commissioner of Income Tax Vs. BalchandAjitkumar 263 ITR 610 (2003) Hon’ble MP High Court
The Hon’ble High Court held that total sale cannot be regarded as the profit of the assessee. The net profit rate has to be adopted and once a net profit rate is adopted, it cannot be said that there is perversity of approach. Whether the rate is low or high, it would depend upon the facts of each case. In the present case net profit rate of five per cent has been applied. It is not appropriate that the same requires to be enhanced. It is high. In any case, it cannot be said that there has been perversity of approach.
(3) Commissioner of Income Tax Vs. President Industries (2002) 258 ITR 0654 – Hon’ble Gujrat High Court
The Hon’ble High Court held that it cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. (4) Manmohan Sadhani Vs. Commissioner of Income Tax, (2008) 304 ITR 0052 – Hon’ble M.P. HighCourt
In this case, the Hon’ble Madhya Pradesh High Court held that the entire sale proceeds of the assessee cannot be treated as its income and net profit has to be applied. (5) M/s Abhishek Corporation Vs. DCIT – ITAT, Ahmedabad
The Hon’ble ITAT held that even though it is established from the seized documents that the assessee was receiving premium/on money on booking of flats belonging to third parties, entire receipts cannot be treated as income of the assessee, only net profit rate can be applied on such unaccounted receipts/sales for making addition. (6) Commissioner of Income Tax Vs. Samir Synthetic Mills (2010) 325 ITR 0410 (Hon’ble Gujarat High Court)
The Hon’ble High Court upheld the order of the ld. ITAT and held that any addition that is to be made is not in respect of the sale consideration, but only in respect of the profit.
Ground No. 3 –
The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing. The Hon'ble Tribunal is requested toconsider the additional grounds taken, submission made and case laws cited and decide the appeal in favour of the assessee. Now the assessee comes to discuss the grounds taken by the revenue in its appeal filed against the order of the Learned CIT(A) as under :-
Ground No.1
On the facts and circumstances of the case and in law, the Learned CIT(A) has erred in deleting the addition of Rs. 1,57,50,000/- u/s 69 A of the Income Tax Act, 1961 treating it regular sale transaction, ignoring the fact this sum is nothing but unaccounted income of the assessee received by him as accommodation entries ?
In this case, the grounds taken by the Revenue are of no avail. During the course of appellate proceedings, the assessee had submitted a detailed note in respect of the uncalled for addition of Rs.1,57,50,000/- u/s 69 A of the IT Act, 1961. Before the Learned CIT(A), the assessee objected to the additions both on facts as well as with reference to provisions of Sec. 69A. It was submitted that the amount received of Rs.
1,57,50,000/- from M/s Shiva Trading Company Prop Pankaj Kumar M/s Diyanshi Sales Corporation Prop VikashRathi and M/s Shyama Trading Company Prop Ghanshyam was part of trading receipt/realization of sales proceeds. In support of this, relevant copies of account of these parties were submitted and it was also submitted that the receipt of amount and the sales made are fully accounted for in the books of accounts, which stood duly audited. It was also submitted that application of Sec. 69 A by the Learned Assessing Officer was wrong as these provisions were not applicable even distantly. The provisions of Sec. 69 A are applicable only where the assessee is found owner of money etc. and that too is not accounted for in the books of the assessee. In the case of the assessee, the additions relate not to any money found, but only to entries in the bank account, which are fully accounted in the books of account. The relevant part of submission made before the Learned CIT(A) under letter dated 8/10/2020 is quoted below :-
Facts of the case: –
In this case information was received from Dy. Commissioner of Income Central Circle, Ghaziabad vide letter No.DCIT/CC/GZB/Rahul Choudhary/2019-20/183 dated 18.04.2019, that a search and seizure operation was conducted in the presmises of Shri Rahul Choudhary& Others at C-133, II Floor, New Panchwati Colony, Ghaziabad on 18.01.2017 based on the information regarding cash deposits in three accounts (0519010100000772, 0519010100000665 and 051900100000698) maintained in J&K Bank, Ghaziabad. These three accounts were in the name of M/s Shiva Trading Company Prop Pankaj Kumar M/s Diyanshi Sales Corporation Prop VikashRathi and M/s Shyama Trading Company Prop Ghanshyam respectively. Shri Rahul Choudhary in his statement recorded during the course of search accepted that he controlled and operated the above three accounts and earned commission at the rate of 1.5 to 2.5% on deposits. From the perusal of the bank accounts, it was found that the funds were transferred to various bank account through RTGS/NEFT from above three bank account and out of these funds, and amount of Rs.1,00,00,000/- was transferred to bank account of M/s MurlidharImpex Prop Bhaskar Chauhan through NEFT/RTGS from M/s Shiva Trading Co Prop Shri Pankaj Kumar M/s Diyanhi Sales
Corporation Prop VikashRathi and M/s Shyam Trading Company Prop Ghanshyam during FY 2016-17 relevant to AY 2017-18.
The Learned Assessing Officer has further mentioned that as per information provided by Dy.Commissioner of Income Central Circle, Ghaziabad you have received accommodationentries for Rs.1,00,00,000/- (Rs.35,00,000/- on 16.11.2016, Rs.30,00,000/- on 15.11.2016 and Rs.35,00,000/- on 16.11.2016), however, on perusal of the Bankaccount obtained u/s 133(6) from Axis Bank, it is noticed that the total accommodationentries is Rs.1,57,50,000/- (on 15.11.2016 Rs.72,50,000/-, on 15.11.2016Rs.30,00,000/-, on 16.11.2016 Rs.35,00,000/- & 16.11.2016 Rs.20,00,000/-) receivedfrom Divyanshi Corporation & Shiv Trading Company. And the Learned Assessing Officer on the basis of these transaction made an addition of Rs.1,57,50,000/- u/s 69A of the Income tax Act,1961. The action of the Learned Assessing Officer in making addition is illegal, unlawful and unjustified. The same is objected as under –
2. Transactions are related the sale proceeds –
It is submitted that the transactions appearing in the bank accounts on the basis of which the Learned Assessing Officer has made the addition are pertaining to sales made to M/s Divyanshi Sales Corporation and M/s Shiva Trading Company. The assessee has received payment through RTGS/NEFT for sale of goods i.e. Emerald Rough. The assessee is trader of precious and semi stones, gold and silver bullions and jewellery. During the year under consideration the total turnover of the assessee of Rs. 7,80,85,000/- which include the sales of Rs. 1,57,50,000/- made to M/s Divyanshi Sales Corporation and M/s Shiva Trading Company. Hence the action of the Learned Assessing Officer in treating these transactions as accommodation entries is not justified. The Learned Assessing Officer has not doubted on purchases made by the assessee. The learned AO has also not invoked the provisions of section 145(3) of the Income Tax Act, 1961. The learned AO has accepted the trading results of the assessee. The books of accounts of the assessee are audited u/s 44AB of the Income Tax Act, 1961. The auditor has not made any adverse remarks or commented otherwise. Copy of income tax return filed along with computation of income, trading account, profit & loss account and balance sheet, audit report are placed on paper book page no. 17 to
We are also enclosing herewith copy sales ledger placed on paper book page no. 55 to 56 and copy of ledger account of M/s Divyanshi Sales Corporation and M/s Shiva Trading Company along with copy of sales invoices and the same are available on Paper Book Page No. 1 to 6. All the entries recorded in sales ledger are tallied with sales made to Divyanshi Sales Corporation and M/s Shiva Trading Company and also part of total sales of Rs. 7,80,85,000/- appearing in the audit report and trading & profit & loss account. This clearly shows that the amount received through proper banking channel from M/s Divyanshi Sales Corporation and M/s Shiva Trading Company are against the sales made to them and part of sale consideration and not any accommodation entries as alleged by the learned AO. The learned AO has not made any enquiry in this regard and he did not bring any evidence on record to say that cash was transferred by the assessee to obtain accommodation entry. The sales were made out of purchases made by the assessee which are verifiable from the books of accounts and other records. Payments of all the purchases were also made through proper banking channel. Therefore the addition made by the learned AO without making any enquiry or investigation only on the basis of information received from third party deserves to be deleted.
3. Statement of Shri Rahul Choudhary/ Addition cannot be made on the basis of statement alone –
During the course of search on Shri Rahul Choudhary, statements of Shri Rahul Choudhary were recorded on 18.01.2017 u/s 132(4) and on 08.05.2017 u/s 131(1A). Copy of statement of Shri Rahul Choudhary is available on paper book page no. 7 to 16. On the basis of these statements the Learned Assessing Officer has made the addition in the hands of the assessee. It is submitted that in the statement of Shri Rahul Chodharythere is nothing specific in respect of the assessee. The statement are general and nowhere discloses anything regarding any accommodation entry given to the assessee. In the entire statement of Shri Rahul Choudhary no any specific question was asked by the department with regard to the assessee. Rather Shri Rahul Choudharyhas specifically stated in reply to question no. 14 that he has no connection with the firm M/s Divyanshi Sales Corporation. He has further stated in reply to question no. 15 that he has no connection with M/s Shiva Trading Company. In reply to question no. 5 Shri Rahul Choudhary has clearly stated that "eSfdlhHkhCompany/firm esaHindustan Traders ds vykokDirector/Partner ugh gwW**. He has shown total ignorance about the concerns M/s Divyanshi Sales Corporation and M/s Shiva Trading Company.It was also not in the knowledge of Shri Rahul Choudhary that what was the modus operandi of these firms. Shri Rahul Choudhary nowhere stated the name of the assessee firm M/s MurlidharImpex in his statement recorded on 18.01.2019 u/s 132(4) and on 08.05.2017 u/s 131(1A). It has no connection with the assessee. In view of this it is submitted that the statement of Shri Rahul Choudharyis also of general nature, no addition can be made in the hands of the assessee on the basis of statement of Shri Rahul Choudhary. The following case laws are quoted in support –
(i) CIT vs. KalyanSundram (2007) 294 ITR 94 (SC) No addition can be made where no enquiry is made and no evidence is found during search except the conflicting statement of the third party.
(ii) ACIT Vs. Prabhat Oil Mills 52 TTJ 533 (Ahm) Entries in the diary seized from the premises of third party were not sufficient to make addition in the hands of the assessee. The Assessing Officer was required to bring on record corroborative material.
(iii) Associated Stone Industries (Kotah) Ltd Vs. Dy. Deputy Commissioner of Income Tax 68 ITD 312 (Jaipur) Addition could not be made in the hands of assessee company on the basis of contents of a diary on an employee.
(iv) Amarijit Singh Bakshi HUF vs. Assistant Commissioner of Income Tax (2003) 263 ITR 75 (Del) No addition can be made on the basis of notings on documents found during search at third party place, when assessee was not given any opportunity for cross examination.
(v) PS. Venkateshan Vs. Assistant Commissioner of Income Tax 74 ITD 298 (Cal) Addition could not be made in the hands of the assessee on the basis of statement given by third person without giving opportunity for cross examination.
(vi) Sunil Agawral vs. Assistant Commissioner of Income Tax 83 ITD 1 (Del) It was held that addition to income could not have been made by the Assessing Officer without confronting the assessee with statement of third party which were adverse to assessee.
(vii) Jai Kumar Jain Vs. Asstt. Commissioner of Income Tax (2007) 11 SOT (Jaipur) (URO). No addition can be made on the basis of documents found from third party in the absence of corroborative evidence.
(viii) Chuharmal Vs. Commissioner of Income Tax 172 250 I 38 Taxman 190 (SC). The revenue would not be justified in resting its case on the loose papers, diary and documents found from third party.
(ix) Prarthana Construction (P) Ltd. Vs. Deputy Commissioner Of Income Tax (2001) 118 Taxman 112 (IT AT- Ahmedabad) (Mag) It has been held that loose papers and documents seized from premises of third parties and statement recorded at back of assessee without it being afforded opportunity to interrogate said documents and without bringing on record any supporting evidence, could not be made basis for adding undisclosed income in hands of assessee
(x) Additional Commissioner of Income Tax Vs. Miss LataMangeshkar (1974) ITR 696 (Mumbai) It has been held that on appreciation of evidence on record, that entries in the ledger of a firm (third party) did not represent assessee's income from undisclosed sources, was finding of the fact not giving rise to any referable question of law
(xi) CIT Vs. SMC Share Broker Ltd. 288 ITR 345 It was held that in absence of witness being made available for cross examination, his statement could not be relied upon to the detriment of the assessee. Tribunal was justified in setting aside block assessment.
(xii) CIT Vs. S M Aggarwa1 293 ITR 43
It was held that statement made by the assessee's daughter, cannot be said to be relevant or admissible evidence against the assessee, since the assessee was not given any opportunity to cross examine her and even from the statement, no conclusion can be drawn that the entries made on the relevant page belongs to the assessee and represents his undisclosed income.
Therefore no addition can be made on the basis of third party statement alone without bringing corroborative evidence or supporting material to substantiate the statement. 4. Addition was made on the basis of assumption and presumption –
In this regard it is submitted that the Learned Assessing Officer has made on the addition only on the basis of statement of Shri Rahul Choudhary by treating these transactions as accommodation entry. The assessee has received the amount against sale of goods/rough emerald to M/s Divyanshi Sales Corporation and M/s Shiva Trading Company. It is worthwhile to mention that Shri Rahul Choudhary nowhere mentioned the name of the assessee or no any document was found during the course of search which proved that the assessee has taken any accommodation entry. Shri Rahul Choudhary has not deposited any cash in his proprietary concern M/s Hindustan Traders. The Learned Assessing Officer has made the additions simply on suspicion and doubt that the assessee has taken accommodation entries. It is submitted no addition can be made on basis of presumption. There is no case for making any addition on the basis of statement of Shri Rahul Choudhary. Presumption however strong cannot take the place of evidence. The following case laws are quoted in support: -
(i) Uma Charan Shaw & Brothers 37 ITR 271 (SC) (ii) CIT vs. Anupam Kapoor 299 ITR 179 (P&H) (iii) CIT vs. Dhiraj Lal Girdhari Lal 26 OTR 736 (iv) Dhakeshwari Cotton Mills 26 ITR 775 (SC) (v) State vs. Gulzari Lal Tondon 1979 AIR 1382 (SC) (vi) J.A. Naidu vs. State of Maharastra 1979 AIR 1537 (SC)
5. Books of Accounts are audited u/s 44AB:-
It is submitted that the books of accounts of the assessee firm are audited u/s 44AB of the Income Tax Act, 1961. A copy acknowledgement of return, computation of total income and copy of audit report is available on Paper Book Page No. 17 to 31. The auditors have not made any adverse remark regarding maintenance of books of accounts. The assessee has maintained cashbook, bank book, journal, ledger and other supporting. Entire purchases and sales are fully vouched.
6. Provisions of section 69A are not applicable –
In this regard it is submitted that by making the addition the Learned Assessing Officer has also applied the provisions of section 69A of the Income Tax Act, 1961 which are not applicant in the asssesse's case even distantly. The provisions of section 69A quoted below: -
Unexplained money, etc. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. The perusal of the aforesaid provisions reveals that it is applicable that "Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account" In the case of the assessee it is undisputed fact that the transactions are recorded in his books/bank account. These are fully stand recorded in the books of accounts. In view of this the provisions of section 69A are not applicable in the case of the assessee. The addition made invoking section 69A is unlawful, illegal and unjust. The same deserves to be deleted.
Assessment order in case of Shri Rahul Choudhary –
It is submitted that the Learned Assessing Officer has also referred the assessment order of Shri Rahul Choudhary in the assessee's case. Copy of assessment order in case of Shri Rahul Choudhary is available on Paper Book Page No. 32 to 41. He has made the addition in the hands of the assessee the referring the cases of Shri Rahul Choudhary, Pankaj Kumar, VikasRathi&Ghanshyam for AY 2017-18 and the Learned Assessing Officer has also mentioned in his assessment order that "copies of assessment order in the case Rahul Choudhary, Pankaj Kumar, VikasRathi&Ghanshyam for AY 2017-18, Statement of Shri Rahul Chodhary recorded during search & post search proceedings and relevant para of the appraisal report also provided to assessee for comments". However the same was never supplied to the assessee neither the course of assessment proceedings nor with the assessment order passed by the Learned Assessing Officer u/s 144 of the Income Tax Act, 1961.
The assessee subsequently requested to the Learned Assessing Officer for providing the copies of assessment orders in case of Rahul Choudhary, Pankaj Kumar, VikasRathi&Ghanshyam for AY 2017-18. But the Learned Assessing Officer has only supplied the copy of assessment order in case of Shri Rahul Choudhary. In the assessment order of Shri Rahul Choudhary the name of the assessee or his firm not mentioned anywhere. From the perusal of the assessment order in case of Shri Rahul Choudhary it is revealed that the most of additions are made in the hands of the assessee are on protective basis. The substantive additions were made either in the hands of Shri VikasRathi Proprietor of Divyanshi Sales Corporation or in the hands of Shri Pankaj Kumar Proprietor of M/s Shiv Trading Company. In the statement of Shri Rahul Choudhary it is clearly stated that he has no connection with Shri VikasRathi Proprietor of Divyanshi Sales Corporation and with Shri Pankaj Kumar Proprietor of M/s Shiv Trading Company. Hence the substantive additions were made in their hands.
The learned AO did not make any enquiry from Divyanshi Sales Corporation or M/s Shiv Trading Company or from their proprietor regarding genuineness of the transaction. Shri Rahul Choudhary was third party and the assessee has no transaction or relation with Shri Rahul Choudhary or his business. The assessee has entered into the sales transactions with M/s Divyanshi Sales Corporation and M/s Shiv Trading Company. The learned AO was required to make enquiries from Divyanshi Sales Corporation and M/s Shiv Trading Company which was not made by him. Therefore no advance inference can be drawn for the assessee without causing any enquiry from the related party and addition so made without making any enquiry deserves to be deleted.
Applicability of Section 115BBE –
(a) Neither the provisions of section 68 nor of section 69A of the Act can be applied in respect of cash deposits which have been duly recorded in the books of account and have already been considered as income in the return of income filed by the assessee.
(b) Similarly provisions of section 69, 69B,69C or 69D are also not applicable.
(c) In case provisions of above sections are not applicable, the issue for applicability of section 115BBE of the Act will also not arise.
All the deposits are duly recorded in the books of accounts and are part of regular books of accounts, hence provisions of section 115BBE are not applicable.
(iii) Why the income cannot be added again in the garb of section 69A–
(a) Provisions of Section 69A are not applicable since there are proper entries in the books of account on account of sale. All the transactions are duly on recorded in the books of accounts of the assessee. The amount received against sales are credited in the bank account of the assessee.
(b) Income has already been shown in the Profit & Loss Account/ Income & Expenditure A/c by way of sale either in the year ended 31.03.2017 or earlier years of both the firms and same has duly been declared in the return(s) of income. Therefore, there is no question of considering the deemed income in terms of Section 69A of the Act. It will result in double addition.
(c) The Learned Assessing Officer has also not rejected the books of accounts of the assessee.
(d) Provisions of Section 69A are applicable only when there is no entry in the books of account in respect of money, jewellery, etc. found in possession of the assessee. In the circumstances since the assessee has already made the accounting entry in the books in respect of cheques deposited in bank account by him provisions of above Section are not applicable.
(e) In case the assessee has given necessary evidence on the basis of its books of account and other relevant record in the form of confirmations and identity of the persons who have paid to the assessee that the amount deposited by him was sale proceeds, evidence in support of which has also been given, the assessee will be deemed to have discharged his obligation and thereafter onus will be on the Department to prove that amount was representing undisclosed income of the assessee.
(f) As per instruction no.03/2017 dated 21.02.2017 the Assessing Officer is required to take into consideration the record of the assessee such as stock register, bank statement, sale tax returns, monthly sales summary, possibility of back-dating of cash sales or fictitious sales etc. before arriving at a conclusion in this regard which exercise has not been done by the AO.
(g) As per aforesaid instructions approval of higher authorities i.e. Addl. Commissioner and Commissioner is also to be sought before closure of verification and taking a view as regards making an addition in the case of the assessee. Therefore, in the instant case necessary approval has not been taken, and the addition is totally against the guidelines/circular issued by the CBDT.
(iv) Case laws in favour of the assessee –
(a) CIT v. Kailash Jewellery House decided by Delhi High Court on 09.04.2010 In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon’ble High Court dismissed the appeal filed by the Department.
(b) R.B.JessaramFetehchand (Sugar Dept.) v. CIT (1969) 75 ITR 33 (Bom.) In the facts of above case the assessee had shown cash sales of sugar. The Assessing Officer required address of the buyers. The Hon’ble High Court in regard to the matter held as under:-
“In the case of a cash transaction where delivery of goods is taken against cash payment, it is hardly necessary for the seller to bother about the name and address of the purchaser. In our opinion, therefore, the rejection of the results of the assessee's cash book by the Income-tax Officer was not at all justified and the Appellate Assistant Commissioner, therefore, was right in deleting the addition made by the Income-tax Officer. The Tribunal, it appears, has approached the matter on certain surmises and conjectures………………….. In our opinion, the assessee's account books are to be accepted, unless, on verification, they disclosed any faults or defects, which cannot be reasonably and satisfactorily explained by the assessee. All the other transactions, except the cash transactions, which were verifiable, have been verified and scrutinized by the Income-tax Officer and there is nothing wrong whatsoever found with them. As to the cash transactions also, the quantity of sugar sold has not been disputed. The rates at which sugar was sold were not such as would excite suspicion by reason of being lower than the prevailing market rates.”
(c) CIT v. Jaora flour and Foods Pvt. Ltd. (2012) 344 ITR 294 (MP) During the course of survey two slips were found mentioning about sale of bardana of Rs. 10 Lacs. Cash of Rs. 10 lacs was also found. The assessee entered in the books of account sale of bardana and determined the profit on that basis. The Assessing Officer made addition of Rs. 10 lacs rejecting the explanation of the assessee. It was held that since sale of bardana was duly entered in the books, amount of Rs.10 lacs did not remain unrecorded and it was not unaccounted. It was also noted by the Tribunal that addition of the same amount again during assessment proceedings amounted to double addition.
(d) CIT v. Vishal Exports Overseas Ltd., Tax Appeal No. 2471 of 2009 decided by Gujarat High Court on 03.07.2012 Assessee was an exporter and claimed deduction u/s 80HHC of the Act. On the basis of information received by the Assessing Officer from investigation he considered the entry for export of 70 lacs as bogus. He denied benefit u/s 80HHC of the Act. Further, he made addition of Rs. 70 lacs in the income u/s 68 of the Act. It was held that once the assessee has already included the amount of sale of Rs. 70 lacs in Profit and Loss Account and determined the income on that basis no further addition could be made u/s 68 of the Act as it would tantamount to double taxation of same income. The Assessing Officer could only reject claim u/s 80HHC of the Act.
(e) M/s Singhal Exim Pvt. Ltd. v. ITO decided by ITAT Delhi on 12.04.2019 Assessee was importing mobile phones from China. Most of the time it was making sales of the goods when in transit by way of high sea sales. During the year total turn-over was Rs.62.91 crores out of which high sea sales were of Rs.59.11 crores. Sale consideration for high sea sales was received in cash. The assessee was having meager finances and was purchasing the goods on credit and was making the payment after the sale. The Assessing Officer with a view to verify the transactions of high sea sales issued notices to the buyers which were returned by postal authorities with remarks “left or not exist”. The Assessing Officer on this basis made addition of Rs.59.11 crores u/s 68. Held by the Tribunal that Section 68 was not applicable. Goods have been duly imported there have been custom clearances for the same. There were agreements for sale of the goods on high sea basis. Once the goods have been sold, the buyer became the debtor and any receipt of money from him is the realization of such debt. Therefore, Section 68 cannot be applied.
(f) CIT v. Kulwant Rai (2007)291 ITR 36 (DEL) In the facts of above case cash balance of Rs.3,76,800/- was found in the bed room of the assessee during the course of search on 14.02.2001. The Assessing Officer made addition in the assessment of Rs. 2.5 lacs. The assessee submitted cash flow and had shown that entire cash was out of withdrawals made from the bank from time to time and sum of Rs.2 lacs was withdrawn on 04.12.2000. It was held that since the Assessing Officer has not been able to show that cash withdrawn were utilized for some other purpose, addition could not be made in respect of cash available with the assessee. Accordingly, addition was deleted by ITAT and confirmed by High Court.
(g) DCIT v. Smt. VeenaAwasthi LKW/2016 decided by ITAT Lucknow Bench on 30.11.2018 There were aggregate deposits in bank accounts of the assessee and her minor son amounting to Rs.1,35,61,000/-. The Assessing Officer made the addition on the ground that there were very frequent withdrawals from bank and also deposits in the bank which are full of suspicious features and cannot be relied upon as evidence. CIT(A) after fully examining the facts accepted the contention of the assessee that all the transactions were fully reflected in the bank account and are verifiable. Tribunal in appeal filed by the department held that documentary evidences furnished before the Revenue clearly clarifies that on each occasion at the time of deposit in her bank account, assessee had sufficient availability of cash which is also not disputed by the Revenue. Entire transaction of withdrawals and deposits are duly reflected in the bank account of the assessee and are verifiable from relevant records.
(h) Neeta Breja v. ITO decided by ITAT Delhi on 25.11.2019 In the facts of above case the assessee has deposited aggregate amount of Rs. 26,75,100 in the bank account. The Assessing Officer made addition for the same considering unexplained cash deposits. ITAT relying upon decision of Delhi High Court in the case of Kulwant Rai held that merely because there was a time gap between withdrawal of cash and cash deposits explanation of the assessee could not be rejected and addition on account of cash deposits could not be made in the absence of any finding that cash withdrawn was used for any other purpose.
(v) Other Latest Case laws in favour of the assessee – (a) Kanpur Organics Pvt. Ltd Vs. Dy. CIT – Lucknow Bench of ITAT ITA.675/LKW/2018 dated 10/01/2020 – Assessment year 2016- 17 Addition of Rs.1.51 crores on account of unrecorded sales stated during search, under section 69A which was subsequently entered in Books and return was filed accordingly. Additional ground was raised before ITAT for applicability of sections 69A and 115BBE. Contention accepted by ITAT and held that addition could not be made under section 69A for unrecorded sales, which were duly recorded by the assessee and income determined accordingly.
(b) SALEM SREE RAMAVILAS CHIT CO. Pvt. LIMITED vs. DEPUTY COMMISSIONER OF INCOME TAX HIGH COURT OF MADRAS – W.P.No.1732 of 2020 decided on Feb 4, 2020 – (2020) 107 CCH 0322 Chennai HC – Assessment year 2017-18 Writ filed against order of assessment challenging addition of account of cash deposit in bank of 67 lacs under section 69A and applying section 115BBE. Assessee explained that deposits were out of cash balances and collections made from debtors. HC set aside the order and remanded the matter to examine the details submitted.
(c) SMT. ASHA GANDHI vs. INCOME TAX OFFICER ITAT CHANDIGARH BENCH ‘SMC’ – decided on Aug 29, 2019 (2019) 75 ITR (Trib) 0036 / (2019) 201 TTJ 0900 (Chd)– Assessment year 2014-15 Cash deposits of 5,65,000 in bank - assessed under section 68 read with section 115BBE - assessee explained that income was from BOUTIQUE and had been shown in books and profit of Rs.4,98,000/- in the profit and loss account was shown as income.
Hon’ble Bench observed that amount reflected in the cash book was the basis of deposit- explanation offered consistently has never been examined - The arbitrary wilful reluctance to look into the facts cannot be upheld – set aside to AO with the direction to examine the claim.
(d) SHRI VINOD BHANDARI vs PR. CIT, ACIT-2 (1), DCIT-2(1), INDORE – ITAT Indore Bench decided on 20 March 2020 – ITA No.57/Ind/2019- – Assessment year 2012-13
Assessee, who was a doctor by profession, surrendered an amount of Rs.7 crores on account of short term loans given by him to various persons. He entered the amount in books. Subsequently recovered in cash and deposited in bank account. He included the amounts in his income returned. The AO made further addition of Rs. 7.34 crores being amount of loans and interest thereon realised and deposited in bank account under section 68 of the Act.
Held that Ld. A.O merely on the basis of surmises and conjectures have taken this view. He ignored the fact that the assessee has surrendered � 7 crores as unaccounted income during the year. it can be inferred that if there are two funds one which is already taxed and other has not and there was remittances during the accounting year for certain sum, the source of which is not indicated then the presumption is that the remittances should have been from the fund which has already suffered tax. It is noteworthy that the Ld. A.O has not rejected the books of accounts.
The provisions of section 115BBE were retrospectively amended and the present situations are as under: -
* Section 115BBE of the Act was amended vide Taxation Laws (Second Amendment) Act, 2016 w.e.f. 01.04.2017 to provide that:-
Rate of tax of 60% on income referred therein and surcharge thereon is leviable at 25% along with education cess @ 4%.
* Section 271AAC was also simultaneous inserted to provide penalty in a case where provisions of Section 115BBE are applicable @ 10% of the tax payable under above section.
* On the basis of above the assessee is liable to pay 77.4% as tax plus 10% thereof as penalty. Whereas in the earlier provisions maximum rate of tax was leviable.
* Section 115BBE of the Act was amended vide Taxation Laws (Second Amendment) Act, 2016 w.e.f. 01.04.2017 to provide rate of tax of 60%.
* Issue is whether amendment in rate is retrospective and can be applied to income / cash deposits made prior to amendment.
* Writ has been filed in Gujarat High Court and notice thereon has been issued. The writ is still pending.
* Section 115BBE not applicable, since section 68 or 69A is not applicable.
* Addition on account of cash deposits can not be made in addition to profit as per P&L A/c without rejecting the books of account.
* If Section 68/69A is applicable profit as P&L A/c is to be re- determined and amount is to be excluded from sales/ turnover which has not been done by the Ld AO.
In view of the above the addition made by the Learned Assessing Officer u/s 68 of the Income Tax Act, 1961 deserves to be deleted. 9. Conclusion : -
In view of the aforesaid facts and circumstances of the case the cash deposited in bank is genuine and deserves acceptance. The addition made by the learned Assessing Officer deserves to be deleted.
Considering the aforesaid submissions of the assessee, the Learned CIT(A) has deleted the addition holding that in this case, the receipt of amount in the bank account of the assessee amounting to Rs.1,57,50,000/- is realization of sale proceeds. The sales made by the assessee to M/s Shiva Trading Company Prop Pankaj Kumar M/s Diyanshi Sales Corporation Prop VikashRathi and M/s Shyama Trading Company Prop Ghanshyam are fully reflected in the regular books of account. Therefore, the receipt is fully explained. The Learned CIT(A) has further held that provisions of Sec. 69 A were not applicable in the case of the assessee as no money etc. was found of which the assessee was owner and same was not accounted for in the regular books accounts. The findings given by the Learned CIT(A) are required to be confirmed by the Hon'ble ITAT. The appeal of the revenue relating to this ground deserves to be dismissed.
Ground No. 2
On the facts and circumstances of the case and in law, the Learned CIT(A) has erred in deleting the addition of Rs. 3,93,750/- u/s 69 C of the Income Tact, 1961 on account of commission paid for acquiring accommodation entry ?
It is submitted that the Learned Assessing Officer has made addition of Rs. 393750/- u/s 69 C assuming and presuming that the assessee paid commission @ 2.5% for obtaining deposits of Rs. 1,57,50,000/-. In this regard, it is submitted that no documentary evidence was found in the course of search in the case of Shri Rahul Choudhary regarding payment of any commission by the assessee. The addition was made by the Learned Assessing Officer purely on assumption, presumption and conjecture. The assessee had made a detailed submission before the Learned CIT(A) during the course of appellate proceedings. The relevant portion of the submission made in letter dated 8/10/2020 is quoted below :-
"The Learned Assessing Officer has also made addition of Rs. 3, 93,750/- on the ground that in the assessment order of Shri Rahul Choudhary, commission income @ 2.5% of the total accommodation entries was added to his total income therefore, by adopting the same rate of commission on total credit entries received by the assessee in its bank accounts from aforementioned concerns, and he has made an addition of Rs. 3,93,750/- i.e. 2.5% on account of commission payment u/s 69C of the IT Act, 1961 as unexplained expenditure.
In this regard it is submitted that when the assessee has empathetically denies about the accommodation entries then the question of any commission payment does not arise. The assessee has proved the genuineness of all the transactions. Transactions are made through banking channel. It is further submitted that there was no material in the possession of the Learned Assessing Officer to establish that asessee had taken accommodation entries. The addition has been made purely on the basis of presumption and assumption. The following case laws quoted in support -
(i) Uma Charan Shaw & Brothers 37 ITR 271 (ii) CIT vs. AnupamKapoor 299 ITR 179 (P&H) (iii) CIT vs. DhirajLalGirdhariLal 26 OTR 736 (iv) State Vs. GuljariLalTondon AIR 1979 (SC) 1382 (v) J.A. Naidu vs. State of Maharastra SC 1537 (vi) Krishnand vs. State of Mandharsinghji P. Jadera (2005) 281 ITR 0019 AIR 1977 SC 796 (vii) Dhakeshwari Cotton Mills 26 ITR 775 (SC) (viii) Omar Shaa 37 ITR 151 (SC) (ix) Lal Chand BhagatAmbika Ram (1959) 37 ITR 288
In view of above facts and circumstances the addition made by the learned Assessing Officer deserves to be deleted."
In view of the aforesaid submissions, the Learned CIT(A) has deleted the addition. The Learned CIT(A) has observed that the deposits in the bank account amounting to Rs. 1,57,50,000/- have been treated as explained, being receipt of sale proceeds, in such circumstances, question of payment of commission does not arise. The decision of the Learned CIT(A), being in accordance with law, deserves to be confirmed. This ground of appeal of the Revenue may be dismissed by the Hon'ble ITAT.
Ground No. 3 On the facts and circumstances of the case and in law, the Learned CIT(A) is not justified in holding that to the extent of sales reported in ITR, the credit entries in the Axis Bank account are part of books of account. The Learned CIT(A) ignored the fact that the onus is on the assessee to declare true particulars of its transactions. The assessee has admittedly failed to disclose Axis Bank account in his books and claimed the credit appearing in the bank account of Rs. 7.8 Cr declared in regular books. The nexus was not established by the assessee to prove the receipts in Axis Bank account belongs to his business activities only, had the credit in Axis Bank account been kept business activity, he would have suo-moto declared them in his ITR. The credit entries of Axis Bank account reported undisclosed & unaccounted income of the assessee, being not a part of his regular business transaction, the addition was correctly made by the Assessing Officer u/s 69 A. This fact was not appreciated by the Learned CIT(A).
This ground of Revenue is covered in assessee's submission in respect of regular Ground No. 1 & 2. The assessee has submitted that the deposits in the bank account maintained with Axis Bank were left being accounted for in the regular books of account erroneously as the new Accountant was not fully conversant and well-versed in his work. In any case, the assessee has established beyond doubt by furnishing the relevant copies of parties to whom sales were made. It is the amount of sale proceeds which has come in the bank account maintained with Axis Bank. The assessee has further submitted that it is settled position of law that addition cannot be made of the entire amount of unaccounted sales, only profit rate requires to be applied. Accordingly, assessee has offered income of Rs.Rs.253011/- on such unaccounted receipt of sale proceeds. The Hon'ble ITAT is humbly requested that this ground of appeal of the Revenue may kindly be decided in view of the submissions made by the assessee against regular grounds of appeal of the assessee.”
To support the contention raised in the written submission ld. AR of the assessee filed a detailed paper book the index of the document submitted reads as under:-
Sr. No. Particulars Page no. 1. Copy of acknowledgement of return and computation 1-15 of total income along with copy of audit report u/s 44AB for Assessment year 2017-18. 2. Copy of submission filed before the Learned CIT(A) 16-40 3 Copy of Indusind Bank account 41 4. Copy of bank account with Axis bank (account No. 42-75 916020049304891 in the name of Murlidhar Impex) and copies of accounts of parties with whom the assessee had business transactions.
7. The ld. AR of the assessee in addition to the written submission filed and relied vehemently argued that out of credit addition of Rs. 11,76,18,090/-, ld. CIT(A) has sustained only an addition of Rs. 6,64,99,498/- and that is also required to be deleted on the set of arguments as it was for the deleted amount. He also submitted that during the year under consideration, the assessee has employed a new accountant who was not fully aware about procedure to maintain books of accounts and thereby credit in the bank account to the extent of Rs. 3,85,33,090/- were left being un reconciled as bifurcated here in below:-
(a) Total credits in the bank account as mentioned by the Rs.13,33,68,090 Learned Assessing Officer and also as per copy of bank account available on Paper Book Page No.. (b) Amount separately considered by the Learned Rs. 1,57,50,000 Assessing Officer as per information received from DCIT, Central Circle, Ghaziabad © Balance amount of credits in the bank account Rs.11,76,18,090 (d) Already turnover disclosed by the assessee Rs. 7,80,85,000 (e) Remaining credits in the bank account Rs. 3,95,33,090 Thus, due to the inadvertent mistakes of the accountant, trading receipts of Rs. 3,95,33,090/- were left without being accounted in the regular books of accounts. It is settled position of law that on unaccounted sales, same NP rate is to be applied which is disclosed by the assessee on the regular sales. The gross amount of sales cannot be treated as income of the assessee by any stretch of imagination. In the case of the assessee, on regular sales, N.P. rate of 0.64%. Based on that argument he submitted that in respect of these unexplained credit being the regular sale net profit should be applied as the ld. CIT(A) has already allowed the profit to be taxed in respect of bank account not disclosed in the books of the accounts and therefore, the same view should be taken while dealing with the unreconciled amount by the ld. CIT(A). submitted that the consistent view should be taken dealing with the appeal of the assessee.
As regards the appeal of the revenue, ld. AR of the assessee relied upon the written submissions filed and the detailed order of the ld. CIT(A) which has been passed in accordance with law.
8. Per contra, ld. DR was heard for the cross appeal. The ld. DR vehemently argued that there has been a search conducted at the premises of Shri Rahul Choudhary and others wherein the concerned assessee found to be operating and indulged into in providing the accommodation entries though the assessee filed return of income but has not disclosed the bank account maintained with two bank account i.e. Axis Bank and Indusind Bank in those two bank accounts maintained by the assessee, he has done various transactions for which there is no explanation about the nature of credit and debit entries made in those bank accounts. Therefore, he supported the action of ld. Assessing Officer and that of ld. CIT(A) considering that amount which was not disclosed as by the assessee as turnover of the assessee for regards the sustained addition is supported the finding of the lower authority. Ld. DR also stated that though the assessee was given 2nd chance before the ld. CIT(A), the assessee could not reconcile much of the amount with the books of accounts and therefore, the ld. CIT(A) has already considered the submissions of the assessee in part is also under challenge by the revenue before this Tribunal.
As regards the proposal of ld. AR of the assessee to tax 0.64% net profit rate on sustained addition amount is also not correct when the assessee failed to give details about the nature of credit and debit entries in the books of the accounts. As it has been established by the ld. AO, assessee Bhaskar Chouhan Prop. M/s Murlidhar Impex has taken accommodation entries from M/s Shiv Trading Co. Prop. Shri Pankaj Kumar, M/s Diyanshi Sales Corporation Prop. Vikash Rathi and M/s Shyama Trading Company Prop. Ghanshyam was controlled and managed by Shri Rahul Choudhary. Since the assessee failed to give the details about the nature of credit and debit entries, ld. AO rightly made addition u/s 69A and 69C of the Act. As regards the ground of appeal raised by the revenue, ld. AR of the assessee while dealing assessee is taken a plea that the total accommodation entries of Rs. 1,57,50,000/- (on 15.11.2016 Rs. 72,50,000/-, on 15.11.2016 Rs. 30,00,000/-, on 16.11.2016 Rs. 35,00,000/- & 16.11.2016 Rs.
20,00,000/-) received from Divyanshi Corporation & Shiv Trading Company to be treated as part of the turn over that plea is not supported by any cogent evidence placed by the assessee and therefore, the revenue has challenged the order of ld. CIT(A) while dealing with the appeal of the assessee, the same way the revenue challenges the deletion of addition of Rs. 3,93,750/- u/s 69C of the Act on the same ground. Considering the regular turnover of the assessee and therefore granting relief to the assessee is not correct. Ld. CIT(A) has not appreciated that after the announcement of demonetization, people in possession of undisclosed cash money resorted to all possible ways to convert their black money into white. Thus modus operandi adopted as found during the course of search/post search proceedings in the case of Shri Rahul Choudhary (entry provider on commission basis) is most common one. The admission of Shri Rahul Choudhary in his statement and the firms through which the entries unaccounted cash credits of Rs.1,57,50,000/-and also paid commission of Rs.3,93,750/-. The entry in the books of account is nothing but a paperwork just to show the accommodation entries as genuine Transactions. The Id. CIT(A) also gives weightage to statement recorded during the course of search proceedings of Shri Rahul Choudhary and fully ignored the statement given in post search proceedings on 08.04.2017. In the statement given on 08.04.2017, Shri Rahul Choudhary clearly stated that he operates the Shyama Trading Company, M/s Shiva Trading, M/s Diyansi Sales Corporation and also clearly stated that the bank accounts were operated by him. The huge amount deposited by papers firms are nothing but unaccounted income of the beneficiaries. The assessee declared sales in the ITR of Rs.7,80,85,000/- and the total credit in both accounts were Rs. 14,45,84,498/-. However, the Axis Bank account was not disclosed by the assessee in the ITR and closing balance of this account is also not taken in account while preparing audited balance sheet. The assessee has admittedly failed to disclose his Axis Bank Account in his books and has claimed that the credit appearing in the bank account to books. However, the nexus was not established by the assessee to prove that the receipts appearing in this Axis Bank Account belongs to his business activities only, had the credit appearing in his Axis Bank Account been keep business activity, he would have Suo-moto declared them in his ITR. The credit entries of Axis Bank Account reported undisclosed and unaccounted income of the assessee, which is not a part of his regular business transaction.
The Id. CIT(A) accepted the submission of the assessee without taking into account the submission that the books of accounts were not produced by the assessee before Assessing Officer for verification. Also, a plan reading of appellate order shows that the assessee did not produce books of account before CIT(A) also.
Therefore, the CIT(A) is not justified holding that to the extent of sales reported in the ITR, the credit entries in the respective bank account is part of books of account. Therefore, to the extent of relief allowed by the Ld. CIT(A), the decision of CIT(A) is not acceptable. Based on the above submission, ld. AR of the assessee stated that the contention of the assessee to take him only to the extent of net profit rate should not accepted and since the assessee failed to establish nature to credit and debit entries and therefore, the benefit should not be allowed and thereby he strongly supported the order of Assessing Officer. In support of the contentions raised ld. DR also filed a paper book containing following evidence / records ;
S.No. Particulars Page No. 1 Copy of Appeal Memo in Form-36 alongwth covering letter 1 to 4 No.242 dated 12- 06-2024 for filing of appeal against order 2 Copy of facts and grounds of appeal dated 07-06-2024 by 5 to 10 3. Copy of limitation letter/ order/ certificate of authority by 11 to 12 4. Copy of order of the Ld. CIT(A), NeFAC, Delhi dated 19-04- 13 to 25 5. Copy of Form No.35 — Appeal Memo filed by assessee 26 to 27 6. Copy of assessment order u/s 143(3)/144 dated 18-12-2019 28 to 35
7. Copy of acknowledgement of filing of online appeal (Form- 36 36) the Income Tax Department on 12-06-2024
8. Copy of DIN Show Cause Notice dated 15-12-2019 37 to 41 alongwith copy of online email delivered report as per ITBA
8. Copy of DIN Show Cause Notice & DIN notice u/s 142(1) 42 to 47 dated 11-12-2019 alongwith copy of online email delivered Copy of DIN Show Cause Notice & DIN notice u/s 142(1) 10 48 to 53 dated 05-12-2019 alongwith copy of online email delivered
11. Copy of DIN summon u/s 131 dated 30-11-2019 issued to 54 to 56 the assessee alongwith copy of online email delivered
12. Copy of DIN notice u/s 142(1) dated 29-11-2019 alongwith 57 to 60 copy of online email delivered report as per ITBA
13. Copy of DIN notice u/s 142(1) dated 14-11-2019 alongwith 61 to 63 copy of online email delivered report as per ITBA
14. Copy of DIN notice u/s 142(1) dated 04-09-2019 alongwith 64 to 73 copy of online email delivered report as per ITBA 15 74 to 77. Copy of DIN notice u/s 142(1) dated 21-08-2019 alongwith copy of online email delivered report as per ITBA
16. Copy of DIN notice u/s 142(1) dated 30-04-2019 alongwith 78 to 82 copy of online email delivered report as per ITBA
17. Copy of response/ remarks for adjournment dated 27-09- 83 2018 filed by the assessee as per ITBA
18. Copy of DIN notice u/s 143(2) dated 24-09-2018 alongwith 84 to 88 copy of online email delivered report as ITBA
19 Copy of letter No.183 dated 18-04-2019 of DCIT, Central 89 to 90 Circle, Gaziyabad for passing information in the case of Shri Bhaskar Chouhan, Prop- M/S Murlidhar Impex (copy 21 Copy of assessment order u/s 144 dated 24-12-2018 in the 91 to 109 case of Shri Rahul Choudhary for AY 2017-18 as referred to point No.8 (copy provided to assessee also) 22 Copy of assessment order u/s 144 dated 24-12-2018 in the 110 to 118 case of Shri Pankaj Kumar, Prop-M/s Shiv Trading Co. for AY 2017-18 (copy provided to assessee also) . 24 Copy of assessment order u/s 144 dated in the case of Shri 119 to 136 Vikas Rathi, Prop- M/s Divyanshi Sales Corporation for AY 2017-18 (copy provided to assessee also). 23 Copy of assessment order u/s 144 dated 24-12-2018 in the 137 to 144 case of Shri Ghanshyam Patel, Prop- M/s Shayma Trading Co. for AY 2017-18 (copy provided to assessee also). 25 Copy of statement recorded on 18-01-2017 of Shri Rahul 145 to 158 Chaudhary during the search & seizure operation u/s 132 of the Income Tax Act, 1961 (copy provided to assessee also). 26 Copy of statement recorded u/s 131(1A) on 08-05-2017 of 159 to 164 Shri Rahul Chaudhary (copy provided to assessee also). Copy of relevant part of appraisal report in the case of 27 165 to 169 Rahul Chaudhary & others Groups of case (copy provided Copy of current bank account No.916020049304891of M/S 28 170 to 181 Murlidhar Impex, Prop- Shri Bhaskar Chouhan held with 29 Copy of eITR, Computation of total income and Audit report 182 to 196 (Form 3CB & Form 3CD) and statement of accounts (Trading account, Profit & Loss account & Balance Sheet)
We have considered the rival contention and perused the orders of the authorities below and the material placed on record by both the parties.
First, we will deal with the appeal of the assessee in ITA no.
523/JP/2024. In this appeal the assessee challenges the order of the ld. CIT(A) on technical ground as well as on the merits of the dispute. The brief facts related to the dispute are that ld. AO made 1961. As per Bank account obtained u/s 133(6) from the Axis Bank, it was noticed that the bank account was opened on 30.08.2016. The total of credit entries is worked out at Rs. 13,33,68,090/- for the year under consideration. Since the appellant did not offer any explanation, for Rs. 11,76,18,090 (Rs.
13,33,68,090 minus Rs.1,57,50,000) same amount was treated as income from undisclosed sources and added to the income of the assessee u/s 69A of the Act.
Records reveals that the assessee was maintaining two bank accounts during the year under consideration, one is with Axis Bank and another one is Indusind Bank Limited. Total credits in Indusind Bank amount to Rs.1,12,16,408. Total credits in both accounts amount to Rs. 14,45,84,498. As against that credit the assessee the total turnover of Rs.7,80,85,000 reflected in the P&L account. Regarding the balance amount of Rs.6,64,99,498, the appellant submitted that it relates to the realization of debtors.
However, no further details were provided regarding the realization of debtors and even otherwise the balance sheet shows current assets and advances amounts to Rs. 18,53,600 only as per the CIT(A) did not consider the explanation of the assessee and thus, the balance receipts of Rs.6,64,99,498 were confirmed by the ld. CIT(A) as income as per provision of section 69A of the Act.
The assessee contended that the ld. CIT(A) has enhanced the income as well as the turnover without affording any opportunity of being heard and thereby the assessee challenges that confirmation of addition u/s 69A of the Act. The assessee also challenges the order on technical ground that the order should have been passed as per provision of section 153C of the Act as the assessment is based upon the information received under the search action.
Record also reveals that the impugned addition is based on the credit and debit entry partly reflected in the books of account and partly not. It is not the case of the assessee that the assessee has deposited cash into the bank account. It is a case of the revenue that the assessee is engaged business of wholesale trading [ clause 10a of Form no. 3CD] in the name of M/s Murlidhar Impex. The assessee vide tax audit report filed on 30.09.2017 declared trading turnover at Rs. 7,80,85,000/- whereas the total credit entries as computed by the revenue and disputed by the assessee come at Rs.14,45,84,498/-. While deciding the appeal of the assessee ld. CIT(A) considered the turnover reflected in the audited accounts as explained by holding as under :
6. Ground No.4 is raised against the addition of Rs. 11,76,18,090 u/s 69A of the Income Tax Act, 1961. As per Bank account obtained u/s 133(6) from the Axis Bank, it was noticed that the bank account was opened on 30.08.2016. The total of credit entries is worked out at Rs. 13,33,68,090/- for the year under consideration. Since the appellant did not offer any explanation, Rs. 11,76,18,090 (Rs. 13,33,68,090 minus Rs.1,57,50,000) was treated as income from undisclosed sources and added to the income of the assessee u/s 69A of the Income tax Act, 1961. The appellant submitted that the firm was maintaining two bank accounts during the year under consideration one is with Axis Bank and another one is Indusind Bank Limited. Total credits in Indusind Bank amounts to Rs.1,12,16,408. Total credits in both accounts amount to Rs. 14,45,84,498. The assessee had shown total turnover of Rs.7,80,85,000 during the year under consideration which was reflected in the P&L account. 6.1 Regarding the balance amount of Rs.6,64,99,498, the appellant submitted that it relates to the realization of debtors. However, no further details were provided regarding realization of debtors. As per the balance sheet, current assets and advances amounts to Rs. 18,53,600 only. The audited books of accounts and ledgers submitted by the appellant do not reveal any details regarding credits in bank account which are not part of PnL account. The appellant has failed to bring on record any evidence to establish his claims that the excess deposits in bank accounts were out of receipts connected with his business transactions. The law is settled that bank statement do not constitute books of accounts. So it is clear that the balance receipts of Rs.6,64,99,498 are not recorded in books of accounts. In the case of Karan Sharma (ITA No.465/Bang/2018), ITAT Bangalore held that, (para 4) there is no rule that when an amount is credited in the Bank Account, it must be taken as receipt from the business. Whether the amount of deposit added u/s. 68 or 69 is income from business or income from other sources depends on the evidence and explanation furnished by the assessee. If the deposits are found in the Bank account of the assessee
and the explanation as to the nature and sources of the amount is rejected by the Assessing Officer, in such an occasion, the Assessing Officer is entitled to treat the deposit as income from other sources and not as business income. It is merely because the assessee is running a business in which found certain unexplained deposits, it does not necessarily show that such deposits represented the suppressed business receipts and there would be no error of law in regarding unexplained deposits as income of the assessee from other sources. Unless there are strong reasons for connecting unexplained deposits with known source of income of the assessee, there will be no alternative to treating them as income from other sources, Hence these deposits are to be considered as from unexplained sources to bring into taxation. Therefore, deposits of Rs.6,64,99,498 is to be considered as unexplained deposits under sepljon 69A. As a result, ground No. 4 is partly allowed.”
As is evident from the above finding of the ld. CIT(A) that on the on hand he considered the explanation of the assessee to the extent of Rs. 7,80,85,000/- as turnover of the assessee and directed to delete the addition for which the profit has already been taxed while filling the ITR along with the tax audit report. As is also evident from the order of the ld. CIT(A) that he considered the transaction to the extent of Rs. 1,57,50,000/- with the Divyanshi Corporation and Shiv Trading Company and considered as turnover reflected in the regular course of business and thereby deleted considering it as not accommodation entry, even though there was allegation of having the transaction with the above two firms engaged in the business of providing accommodation entry. was not the case of the revenue that the assessee has deposited the cash and the same is not reflected in turnover. The assessee has already reflected the turnover to the extent of Rs. 7,80,85,000/- and the balance amount cannot be taxed under section 69A of the Act because the provision of section 69A [ as reproduced here in below ] does not deal to tax the turnover as income of the assessee:
Unexplained money, etc. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.
As is also not the case of the revenue that the assessee is found to be owner of the of any money, bullion, jewellery or other valuable article but the assessee is found to be engaged in the accommodation entry with related to the concern based on which the case of the assessee was taken up for scrutiny. From the paper book filed by the revenue it is noted from the assessment order of Rahul Choudhary wherein for the transaction of M/s.
Divyanshi Corporation for an amount of Rs. 2,70,73,500/- addition for the whole amount and the commission both were made.
Similarly for Shiv Trading Company addition of Rs. 9,30,73,050/- was made and the addition of commission was also made. The relevant extract from that assessment order of Rahul Choudhary reads as under :
Assessment Order of Rahul Choudhary for A. Y. 2017-18 [ page 95 to 104] 5. M/s Divyanshi Sales Corporation During the assessment proceedings bank statement of the firm was called for from bank U/s 133(6) of the I.T Act. From the perusal of bank account of ShriVikasRathi Prop. of M/s Divyanshi Sales Corporation, bearing number 0519010100000665 maintained with Jammu and Kashmir Bank Ltd, Ghaziabad, it is observed that during the year under consideration, huge amount of cash was deposited into the bank account, the details of which is as under:- S. No. Date of deposit Amount Rs. 1 10/11/2016 164000 2 10/11/2016 172500 3 13/11/2016 2000000 4 15/11/2016 3000000
5 15/11/2016 3000000 6 16/11/2016 12000 7 16/11/2016 6000000 8 16/11/2016 7000000 9 16/11/2016 5700000 10 25/11/2016 25000 270,73,500/-
It is pertinent to mention here all above cash deposits in old currency were made after announcement of demonetization. The amount SO deposited was transferred through RTGS to real beneficiaries/actual owners of the money. Since as discussed above, Shri Rahul Choudhary has accepted that he operates the bank account of the firm M/s Divyanshi Sales Corporation, and in statement recorded during search proceedings accepted he himself has deposited cash in the bank account of m/s Divyanshi sales corporation and has also accepted that he has put his own signature on the cheque books and make RTGS to different others accounts. The copy of relevant statements are being reproduced below. Shri Rahul Choudhary has also accepted that for sms alert he has put fake signature of Shri Vikash Rathi. x x x x Therefore, in view of above discussion it is obvious that bank account of Shri Vikash Rathi was operated and controlled by Shri Rahul Choudhary after the announcement of demonetisation and Shri Rahul Choudhary has used the bank account of Vikash Rathi to provide entries to earn commission. During the assessment proceedings it is observed that during search proceedings in his statement recorded on 08/05/2017 in reply to question no. 10 the assessee stated that he has done work on commission basis and earned commission on the rate of 1.5% to 2.5%. In the light of above discussion it is established that Shri Rahul Choudhary has used bank account of Vikash Rathi to earn commission as ShriVikash Rathi is a person of no means. Therefore, commission earned at the rate of 2.5% on total credits Rs.270,73,500/-i.eRs.
6,76,837/-is hereby added to the income of assessee u/s 69A of the IT.Act, 1961on substantive basis. Penalty proceedings under section 271AAB and 271AAC of the I.T. Act, 1961 are being initiated separately (Addition: Rs. 6,76,837/-) 5.1 However, during the assessment proceedings from the perusal of documents filed in the bank, it is observed that the documents submitted pertains to ShriVikasRathi and moreover the PAN given on the KYC form also pertains to Shri Vikas Rathi and since Shri VikasRathi has not submitted any documents/explanation which can substantiate that the amount deposited in bank account does not pertains to him therefore, to protect revenue amount earned as commission at the rate 2.5% on total deposits in the said bank account to the tune of Rs. 270,73,500/-i.eRs. 6,76,837/- is being added in the income of ShriVikas Rathi on protective basis. 5.2 It is also worthwhile to mention here that some of the beneficiaries to whom accounts funds was transferred, was covered in search proceedings and they have declared the amount in PMGKY considering as their undisclosed income, and in other cases information has been sent by Dy.DDIT(Inv.)-II Ghaziabad to respective DGITs(Inv.). However considering the facts of the case andto protect the interest of revenue protective addition to the tune of amount i.e. Rs.270,73,500/-cash deposited in the bank account of the VikashRathi is hereby added in the income of assessee on protective basis as Shri Rahul Choudhary has accepted that he operates the bank account of ShriVikashRathi. (To be taxed as per provision of section 115BBE) Penalty proceedings U/s 271AAB and 271AAC of the I.T. Act are being initiated separately. The assessment on substantive basis will be made in the hands of real beneficiaries/ actual owners of money. (Protective addition: Rs.2,70,73,500/-) 6. M/s Shiv Trading Company: As discussed above in Para no. 4, that the assessee has admitted in his statement given on oath that he operates the bank accounts of three firms namely M/s Shyama Trading Company, M/s Shiva Trading Company and M/s Divyanshi Sales Corporation. Therefore bank account statement of the firm M/s Shiv Trading Company was also called for from the bank U/s 133(6) of the I.T. Act. During the course of assessment proceedings, from the perusal of bank account of ShriPankaj Kumar Prop. M/s Shiv Trading Company
No. 0519010100000772 maintained with Jammu and Kashmir Bank Ltd, Ghaziabad it is observed that during the year under consideration, huge amount was deposited into the above mentioned bank account, the details of which is as under:- S. No. Date of deposit Amount 1 5/4/20216 1200000 2 7/4/2016 300000 3 12/4/2016 1300000 xxx xxxx xxxx 101 25/11/2016 93073050
Since as discussed above Shri Rahul Choudhary has accepted that he operates the bank account of the firm M/s Shiva Trading Company, and shriPankaj Kumar has neither appeared nor claimed that the amount deposited in the bank accounts pertains to him and moreover he has also not denied that the amount deposited in his bank account does not pertains to Shri Rahul Choudhary and as discussed above Shri Rahul Choudhary has admitted that he has done work on commission basis and earned commission on the rate of 1.5% to 2.5%.. In the light of above discussion, it is established that Shri Rahul Choudhary has used the bank account of Pankaj Kumar to earn commission. Therefore, commission earned at the rate of 2.5% on total credits Rs.9,30,73,050/- i.e Rs. 23,26,826/-is hereby added to the income of assessee on substantive basis. (Addition: Rs. 23,26,826/-) 6.1 However, from the perusal of bank account No. 0519010100000772 maintained with Jammu and Kashmir Bank Ltd, of ShriPankaj Kumar Prop. M/s Shiv Trading Company it is observed that the documents submitted to the bank pertains to Shri Pankaj Kumar and moreover the PAN given on the KYC form also pertains to Shri Pankaj Kumar and since Shri Pankaj Kumar has not submitted any documents/explanation which can substantiate that the amount deposited in bank account does not pertains to him and as no submission/explanation has been offered by Shri Pankaj Kumar regarding the source of amount deposited in the bank account, therefore, the amount earned as commission at the rate 2.5% on total deposits in the said bank account to the tune of Rs. 9,30,73,050/- i.e Rs. 23,26,826/- is being added in TIFI the income of Shri Pankaj Kumar on protective basis. It is also worthwhile to mention here that some of the beneficiaries to whom accounts funds was transferred, was covered in search proceedings and they have declared the amount in PMGKY considering as their undisclosed income, and in other cases information has been sent by Dy. DDIT(Inv.)-II Ghaziabad to respective DGITs(Inv.). However considering the facts of the case and to protect the interest of revenue, protective addition to the tune of amount i.e. Rs.9,30,73,050/-deposited in the bank account of the Pankaj Kumar is hereby added in the income of assessee u/s 69 of the I.T. Act, 1961 as Shri Rahul Choudhary has accepted that he operates the bank account of Shri Pankaj Kumar. (To be taxed as per provision of section 115BBE). The assessment on substantive basis will be made in the hands of actual beneficiaries/actual owners of money. Penalty proceedings U/s 271AAB and 271AAC of the I.T. Act are being initiated separately. (Protective addition: Rs.9,30,73,050/-)
As is evident from the above order of Shri Rahul Choudhary that revenue has already taxed the amount of accommodation entry and its commission income both in the hands of that assessee which was the reason to re-open the case of the assessee. Thus, that income on account of accommodative transaction has already been added in that case of the assessee.
Be that it may once the assessee’s bank account partly considered as for the purpose of business transaction and the assessee is not found be in possession of any money, bullion, addition for whole amount of Rs. 6,64,99,498/-. But the profit of the transaction which remained to be incorporated is required to be taxed. Having held so the bench noted that since the assessee has already claimed all the indirect expenses and; therefore, now we have to estimate the gross profit remained to be taxed on this transaction of Rs. 6,64,99,498/-. Before going to decide the income to the extent of profit which is required to be taxed in the hands of the assessee. As the ld. AO has not rejected the book results for regular transaction reflected, we considered that gross profit rate at 2.08 % as indicative to taxed on the turnover of Rs. 6,64,99,498/- which will render the justice to both the parties and accordingly, we direct the ld. AO to add a sum of Rs. 13,83,190/- [ Rs.
6,64,99,498/- * 2.08 % ] as income of the assessee. In the light of this observation ground no. 1 & 2 raised by the assessee are partly allowed.
Since we have partly allowed the appeal of the assessee on the merits of the disputed we note that the technical ground raised by the assessee become academic and does not require our finding.
533/JP/2024 is partly allowed.
Now we take up the appeal of the revenue in ITA no. 868/JP/2024. Since this being the cross appeal filed by the revenue and the facts of the case and arguments raised is already discussed while dealing with the appeal of the assessee and therefore, we do not intend to repeat the same.
In this appeal vide ground no. 1 the revenue challenges the direction of the ld. CIT(A) while deleting the addition of Rs.
1,57,50,000/- treating the accommodation entry as regular sales.
As is clear from the record that the assessing officer received information from Central Circle that one Mr. Rahul Chowdhary has received accommodation entry from Divyanshi Corporation and Shiv Trading Company with whom the appellant also have transactions and thereby the ld. AO noted in the assessment proceeding that the assessee has total credits of Rs.1,57,50,000 received from Divyanshi Corporation and Shiv Trading Company found in the Axis bank account was added u/s 69A. In the sworn statement of Rahul Choudhary the appellant's name was not connection with M/s Divyanshi Sales Corporation and M/s Shiva Trading Company other than obtaining accommodation entry from them. The books of accounts of the appellant and audit report were verified along with sales register. Entries recorded in sales ledger were tallied with ledger accounts of Divyanshi Sales Corporation and M/s Shiva Trading Company. Rs.1,57,50,000 received from Divyanshi Sales Corporation and M/s Shiva Trading Company are part of total sales of Rs.7,80,85,000 appearing in the audit report and trading & profit & loss account. The Assessing Officer has neither doubted purchases made against these sales nor rejected appellant's books of accounts and therefore, the ld. CIT(A) directed to deleted that addition made on account of accommodation entry as the transaction as referred to in that allegation is duly reflected in the audited books of account which has not been rejected by the ld. AO. Even in the present appeal the ld. AO through ld. DR did not present any contrary evidence to that finding and therefore, we do not find any infirmity in the finding of the ld. CIT(A) and thereby the ground no. 1 raised by the revenue is dismissed. transaction reflected in the books of account of the assessee there is no reason to sustain the addition for alleged commission on accommodation entry and therefore, even on that issue we do not find infirmity in the order of the ld. CIT(A) while directing to delete the addition of Rs. 3,93,750/-.
The third and last ground taken by the revenue is that the ld.
CIT(A) has erred in considering the turnover of Rs. 7.8 cr reflected in the books as genuine turnover and directed to delete that addition even though the assessee has not correctly reflected the entries in the bank account. As is evidently clear that the reason for taking the case of the assessee was that they have undertaken the transaction upon the assessee has already shown the sales and the credit received by the assessee was the sale proceeds.
The ld. CIT(A) has considered that transaction are partly reflected and thereby the turnover to the extent of the Rs. 7.8 crore has already considered as sales and thereby the purchases were not doubted by rejecting the audited books of account and the purchase reflected in the books of account of the assessee.
Considering that non-disputed fact we see no reason to sustain the infirmity in the finding of the ld. CIT(A). Considering this fact ground no. 3 raised by the revenue is also dismissed.
In the result the appeal of the revenue in stands dismissed.
In the result, the appeals of the assessee is partly allowed and that of the revenue is dismissed.