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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘B’ NEW DELHI
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No. 1902/Del/2016 Assessment Year: 2011-12
Vipul Kumar Jain vs ACIT E-6, 1st Floor, Circle 34(1) Ashok Vihar, Delhi. New Delhi. PAN No. ACZPJ8354M
APPELLANT RESPONDENT
Assessee by Shri P.C. Yadav, Adv. Shri Sumer Garg, CA Revenue by Ms. Ashima Neb, Sr. DR
Date of Hearing 18.04.2019 Date of Pronouncement 01.07.2019
ORDER PER SHRI R K PANDA, A.M.
This appeal filed by the assessee is directed against the order dated 28.01.2016 of the Ld. CIT(Appeals)-32, New Delhi relating to AY 2011-12.
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Grounds of appeal no. 1 & 2 by the assessee are as under: 1. “That the ld.CIT(A) erred in law and on facts in confirming an addition of Rs. 17,58,156/- out of addition of Rs. 32,22,140/- made by AO in respect of cash deposits in the saving bank account with ICICI Bank in the facts and circumstances of the case. 2. That the Ld. CIT(A) erred in law and on facts in restricting the relief to Rs. 14,63,984/- and confirming an addition of Rs. 17,58,156/- out of addition of Rs. 32,22,140/- made by the AO in respect of cash deposits in the saving bank account with ICICI Bank by wrong appreciation of facts and by not following the judgments of the Hon’ble High Courts and Apex Court.” 3. Facts of the case, in brief, are that the assessee is an individual and is engaged in the business of manufacturing and trading in chemicals and laminations under the name and style of M/s Arihant Industries and M/s Arihant Packaging. He filed his return of income on 30.09.2011 declaring total income of Rs. 16,04,290/-. The AO during the course of assessment proceedings observed that as per the AIR Information the assessee has deposited cash of Rs. 32,22,140/- in the bank account maintained with ICICI Bank. He, therefore, asked the assessee to explain the source of cash so deposited. It was submitted by the assessee that out of the above amount of Rs. 32,22,140/- deposited in ICICI Bank an amount of Rs. 15,39,800/- was deposited by the outstation Debtors. Purchases were made against such sale amounting to Rs. 14,63,984/-. The assessee earned a profit of Rs. 75,816/- which was not shown while filing the return of income and, therefore, the assessee wants to surrender the same. However, the AO was not satisfied with the explanation given by the assessee on the ground
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that no details of parties to whom the sales were made, no confirmations with address and PAN Number of the Debtors and no details of the parties from whom purchases were made along with their confirmation address and PAN etc. were submitted. He, therefore, again asked the assessee to explain as to why the claim should not be disregarded and the addition of Rs. 32,22,140/- should not be made. The assessee again submitted that the sale of Rs. 15,39,800/- were made to parties in cash and purchase of Rs. 14,63,984/- was also made in cash and hence, no details of creditors and debtors could be given. However, the AO rejected the above explanation of the assessee. He referred to the decision of the Hon’ble Supreme Court in the case of M/s Zaveri Diamonds Vs. CIT, Range-1 [2012] 25 taxmann.com 552, wherein it has been held that to establish that sales had been made by the assessee and cash deposited in bank account was in lieu of sales and that the assessee had not disclosed name of persons to whom sales had been made, the sales by assessee remains unverifiable. The AO, accordingly, made an addition of Rs. 32,22,140/- to the total income of the assessee u/s 68 of the Act.
In appeal, the Ld. CIT(A) sustained the addition of Rs. 17,58,156/- out of the total addition of Rs. 32,22,140/- by observing as under: - “Ground No. 1 & 2: The Ground no. 1 & 2 are against addition of Rs. 32,22,140/- being the cash deposited in the ICICI bank account of the assessee. The sequence of events have been narrated in detail above. Initially before the AO and
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during the appellate proceedings the assessee claimed that out of cash deposit of Rs. 32,22,140/-, Rs. 15,39,800/- represented unaccounted cash sales of the assessee against which the assessee had done unaccounted cash purchase of Rs. 14,63,984/-. This resulted in unaccounted profit of Rs. 75,816/-. Later during the appellant proceedings the assessee claimed that out of Rs. 32,22,140/-the unaccounted sales was of Rs. 19,48,480/-. Against which the unaccounted purchase remained Rs. 14,63,984/-. When information was received from ICICI Bank and a show cause notice was issued to the assessee the assessee admitted vide his letter dated 27/01/2016 that entire Rs. 32,22,140/- represents unaccounted sales of the assessee. In the letter dated 27/01/2016 the assessee has now changed his stand as far as purchases are concerned. Now the assessee is not claiming that his unaccounted purchase against the unaccounted sale of Rs. 32,22,140/- was of Rs. 14,63,984/-. In the letter dated 27/01/2016 the assessee has mentioned that in absence of complete records his unaccounted income should be computed at 8% of the sales as per the provision of the 44AD of the I.T. Act. The contention of the assessee is not tenable. The assessee has been changing his stand from the very beginning as mentioned above. The total turnover of the assessee is more than Rs. 2 crore much beyond the limit prescribed in section 44AD. The so called business of trading in chemicals done by the assessee through ICICI Bank account was totally unaccounted. Assessee never bothered to disclose the business in his return of income. From the conduct of the assessee it is crystal clear that the assessee wanted this business to remain hidden from tax authorities from the very beginning. He never intended to pay tax on this business. It was only after the AO confronted the assessee with AIR information, the assessee admitted having the bank account and having cash transactions
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therein. It was only when the assessee was cornered by the AO the assessee came up with the explanation that he was doing trading of chemicals which was not disclosed in his return of income. Turnover of this business was more than Rs. 32 lacs. Number of transactions in the bank statement clearly shows that it was not a one time affair. The assessee is also not new to financial world. He is carrying out his regular business of chemicals and lamination since quite some time. He is well aware of the Income Tax Laws and his responsibilities as an assessee. The assessee has violated the Income Tax laws and most probably also sales tax laws knowingly and willingly. During the appellate proceedings the assessee has argued that the GP ratio of unaccounted sales should be taken at 8%. This argument of the assessee defies logic. The assessee’s regular business namely Arihant Industries and Arihant Packaging have GP ratio of 14.44% and 8.45%. Why anyone will do a business having less profit than his regular business and why such business be kept secret? Secret, unaccounted activities are under taken only when the profit is very high and the expected tax liability is also very high. Secondly, the assessee has not given even on iota of evidence to prove that he was really engaged in unaccounted chemical trading business. Second argument of the assessee was that the AO did not give deduction for related expenses i.e. expenses related to unaccounted business. The assessee was carrying a regular business in addition to unaccounted business. All the expenses incurred by the assessee for carrying out the business like maintaining an office etc. were claimed as expense in his regular business. If there was any other expense which was not already claimed by the assessee in his regular business, it was for him to given evidence of such expense and claim that in absence of any evidence the AO was right in not giving any deduction. It is relevant to mention here that the assessee has introduced fresh capital of Rs. 24,03,868/- in his regular business during the year under consideration.
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The assessee has never disclosed the exact nature of his unaccounted sales and purchases. He has been trying to somehow explain the cash deposits by giving vague replies. It was only when he was cornered from all directions, he admitted that the entire cash deposits of Rs. 32,22,140/- was unaccounted cash sales. The assessee has himself been claiming that his unaccounted cash purchases were of Rs. 14,63,984/-. The assessee has himself given cash flow statement. The deposits and withdrawals have remained same even after receipt of reply from ICICI Bank. The reply of ICICI Bank made it clear that the cash deposited in ICICI Bank account was not out of earlier cash withdrawal. However, the amount and place of cash of deposits do indicate that these may be sale proceeds of some business carried out by the assessee. It implies that there must be purchases also to enable the assessee to make sales. If the assessee’s version of unaccounted purchases of rs. 14,63,984/- is believed, it will result in unaccounted profit of Rs. 32,22,140 – Rs. 14,63,984 = Rs. 17,58,156/-. In my view the addition on account of unaccounted cash deposits should be restricted to Rs. 17,58,156/-.” 5. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.
5.1 The Ld. Counsel for the assessee strongly challenged the order of the Ld. CIT(A). He submitted that before AO and the CIT(A) the assessee explained the amount deposited in the ICICI Bank which is basically out of the receipts of unaccounted sales as well as cash in hand. He submitted that the assessee filed the reconciliation reflecting the position of cash withdrawals and cash purchases. Referring to page no. 62 of the PB, the Ld. Counsel for the assessee drew the attention of the Bench to the copy of the bank account
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maintained with ICICI Bank which shows that there are humongous amount of cash withdrawals. Besides the bank statement, the assessee has also filed one cash flow statement, copy of which is placed at page 90 of the Paper Book which shows the total cash withdrawals from bank and also from proprietorship concern. Relying on various decisions, he submitted that when there are so many debit and credit entries in the bank account then the theory of peak credit will be applicable and only the peak credit is to be added and the assessee will get the benefit of the debit entries. Referring to page 65 of the PB, which is the copy of the bank account with ICICI Bank he submitted that the peak credit in the instant case comes to Rs. 2,38,737/-. Referring to page 122 of the PB, which shows the summary of cash flow statement for the period 01.04.2010 to 31.03.2011, he submitted that the assessee had shown the regular purchases and the unaccounted purchases out of cash withdrawal. There is no other evidence with the Revenue that assessee had utilized the cash to withdrawn for any other purposes. Referring to page 121 of the PB he submitted that the total sales are Rs. 35,59,020/-. Therefore, corresponding purchases also must be allowed to the assessee. He, accordingly, submitted that either profit rate of 8% should be adopted on the unaccounted sales or the peak credit should be considered.
The Ld. DR, on the other hand, strongly supported the order of the CIT(A). He submitted that the assessee during the course of assessment proceedings had submitted that the deposits made in the bank account are out of deposits made by out station debtors.
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But the assessee suddenly changed his argument before the CIT(A) and came out with some new theory. He submitted that the assessee has not discharged the onus cast on him by providing the requisite details to support his claim regarding the deposits made in the bank account. So far as the argument of the Ld. Counsel for the assessee that peak credit should be allowed he submitted that some circumstantial evidences need to be produced by the assessee for the proposition regarding the peak credit. Since, the assessee could not discharge the onus cast on him, therefore, the assessee cannot be given the benefit of the peak credit. For the above proposition the Ld. DR relied on various decisions. He, accordingly, submitted that since the CIT(A) has given substantial relief to the assessee for which the Revenue is not in appeal before the Tribunal, therefore, the order of the Ld. CIT(A) should be upheld and the grounds raised by the assessee should be dismissed.
We have considered the rival arguments made by both the sides, perused the orders of the authorities below and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case made an addition of Rs. 32,22,140/- being the cash deposited in the ICICI Bank account of the assessee on the ground that assessee could not explain the nature and source of such deposits to his satisfaction. While doing so he rejected the claim of the assessee that out of such deposits an amount of Rs. 15,39,800/- was deposited by the out station debtors and the assessee had made purchases of Rs. 14,63,984/- and has earned an amount of
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Rs. 75,816/-. We find the Ld. CIT(A) after considering the various submissions made by the assessee sustained an amount of Rs. 17,58,156/- and granted relief of Rs. 14,63,984/-, the details of which are already given in the preceding paragraph. It is the submission of the Ld. Counsel for the assessee that there are humongous amount of cash withdrawals from the bank account and, therefore, when there are large number of deposits and withdrawals in the bank account, only the peak balance should be sustained and not the entire amount of deposit. We find some force in the above argument of the Ld. Counsel for the assessee. A perusal of the bank statement shows that only a part of the deposits and withdrawals have been shown in the regular accounts and the assessee has not disclosed the entire deposits and withdrawals. When there is no evidence with the Revenue that the withdrawals made by the assessee systematically from the bank account, which are not shown to the Revenue, have been utilized for some other purpose other than for the unaccounted business of the assessee, therefore, we find merit in the argument of the Ld. Counsel for the assessee that the assessee should be given the benefit of peak credit theory and only the peak credit has to be sustained. Since, the assessee has calculated such peak credit at Rs. 2,38,737/-, therefore, we set aside the order of the Ld. CIT(A) and direct the AO to sustain only the peak credit of Rs. 2,38,737/- subject to his verification.
Ground of appeal no. 1 & 2 by the assessee are accordingly partly allowed.
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Ground of appeal no. 3 reads as under: - “3. That the Ld. CIT(A) erred in law and on facts in confirming the disallowance of Rs. 9,54,544/- u/s 54F of the Act in the facts and circumstances of the case.” 10. Facts of the case, in brief, are that AO during the course of assessment proceedings observed that assessee has claimed deduction of Rs. 9,54,544/- u/s 54F out of the long term capital gain earned on sale of property measuring 1,012.5 sq. mt. bearing plot no. 95 situated at Phase-4, Sector-56, HSIIDC Limited Industrial Estate, Kundli, Sonepat, Haryana. On being asked by the AO to furnish the details of the claim of deduction under section 54F, the assessee submitted that he had purchased the property and made an investment of Rs. 48,63,120/- towards the house property to claim deduction u/s 54F. The assessee furnished an agreement with the contractor for construction of a residential unit along with bills of contractor and ledger account of material suppliers. The AO deputed the Inspector to report on the status of the construction. The Inspector reported that the plot is lying vacant and there is no construction work carried over the said plot. The AO, therefore, confronted the same to the assessee. The assessee replied that the building could not be constructed due to non-sanctioning of the plan although the intention of the assessee were to construct the residential house. The AO rejected the argument of the assessee and held that the assessee has not fulfilled the condition laid down in section 54F. He, therefore, made an addition of Rs. 9,54,544/- to the total income of the assessee.
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In appeal, the Ld. CIT(A) upheld the action of the AO by observing as under: - “Ground no. 3 : is against disallowance of Rs. 9,54,544/- u/s 54F. As mentioned above the assessee had claimed deduction of Rs. 9,54,544/- out of long term capital gain earned on sale of property at plot no. 95, phase-4, sector 56, HSIIDC, Kundli, Haryana. For claiming deduction u/s 54F the assessee claimed that he purchased residential property at B-B10/28A, TDI city, Kundli, Haryana. The AO asked the inspector to do a spot verification. On verification it was found that B-B10/28A, TDI City, Kundli, Haryana was a open piece of land without any construction. The AO confronted this information with the assessee. The assessee in his reply claimed that his intention was to construct a residential house on this piece of land. However, the assessee admitted that till date the house could not be constructed as the map for construction of the house was not approved by the competent authority. During the appellate proceedings the AIR admitted that the construction could not be carried out by the assessee as the map was not sanctioned by the competent authority till date. Deduction u/s 54F is available when long term capital gain is invested in a residential property within the time period specified. Since the assessee has not invested long term capital gain in a residential property the AO was absolutely right in rejecting the claim of deduction u/s 54. Therefore, the ground no. 3 is rejected.” 12. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
The Ld. Counsel for the assessee submitted that the denial of exemption, issue would arise only after the completion of 3 years i.e. in AY 2015-16 and hence, the claim of the assessee should not be disturbed in this year. For the above proposition, he relied on
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the decision of the Kolkata Bench of the Tribunal in the case of Mahesh Pal Arora vs. ITO vide ITA No. 206/Kol/2013, wherein it has been held that un-utilized amount should be taxed after the expiry of 3 years. He, accordingly, submitted that the addition made by the AO and sustained by the CIT(A) should be deleted.
The Ld. DR, on the other hand, strongly supported the order of the CIT(A). He submitted that assessee had filed bogus purchase bills for claiming the deduction u/s 54F. Further, the amount has not been deposited in the capital gain account scheme with any specified Bank. Therefore, the Ld. CIT(A) is fully justified in sustaining the addition made by the AO.
We have considered the rival arguments made by both the sides and perused the orders of the authorities below. We have also considered the various decisions relied on by both the sides. We find the AO made addition of Rs. 9,54,544/- by rejecting the claim of deduction made u/s 54F out of the long term capital gain on sale of property on the ground that assessee has not fulfilled the conditions of the said section by not constructing the house property as claimed. We find the CIT(A) upheld the action of the AO, the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the Ld. Counsel for the assessee that as per the provisions of section 54(1) of the I.T. Act, 1961, the assessee is entitled to utilize the long term capital gain for construction of a house property within a period of 3 years and, therefore, addition, if any, can be made only in the AY 2015-16
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and no addition can be made in this year. For the above proposition, he relied on the decision of the Kolkata Bench of the Tribunal in the case of Mahesh Pal Arora vs. ITO vide ITA No. 206/Kol/2013 order dated 29.03.2016. However, we do not find any merit in the above argument of the Ld. Counsel for the assessee. We find neither the assessee has constructed the house property during the year as claimed nor deposited the long term capital gain of above amount in the specified capital gain accounts scheme. Therefore, when the assessee has not fulfilled the conditions laid down in section 54F the argument of the Ld. Counsel for the assessee that the same can be taxed only in the AY 2015-16 i.e. after the expiry of 3 years is not acceptable as not being in accordance with law. Therefore, the order of the CIT(A) on this issue is upheld and the ground raised by the assessee are dismissed.
Ground of appeal no. 4 reads as under: “4. That the Ld.CIT(A) erred in law and on facts in confirming the disallowance of Rs. 44721/- out of depreciation claimed by the assessee by ignoring relevant facts placed on record in the facts and circumstances of the case. The total assessed income of the assessee should have been reduced by Ld. CIT(A) by Rs. 193417/- as per details verified by him.” 17. After hearing both the sides, we find the AO disallowed an amount of Rs. 44,721/- being excess depreciation claimed on plant and machinery. The Ld. CIT(A) upheld the action of the AO by observing as under: -
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“Ground no. 6 & 6: are against excess claim of depreciation. The AO noticed that the assessee had sold machinery worth Rs. 209100/- from Arihant Packaging to Arihant Industries. The assessee had claimed depreciation @ 7.5% in the books of Arihant Packaging and also in the books of Arihant Industries. The assessee admitted during the assessment proceedings that it was a mistake. No depreciation could be allowed in the books of Arihant Packaging as the machinery was sold on 26.03.2011. Depreciation @ 7.5% only was allowable in the books of Arihant Industries. Thus, the AO has rightly disallowed Rs. 44721/- out of depreciation claimed by the assessee. This ground is therefore rejected.” 18. It is the submission of the Ld. Counsel for the assessee that only an amount of Rs. 15,383/- has been claimed as excess depreciation and not Rs. 44,721/- as held by the AO and upheld by the CIT(A) and, therefore, this matter may be set aside to the file of the AO. In view of the above submission by the Ld. Counsel for the assessee and after considering the argument of the Ld. DR, we deem it proper to restore this issue to the file of the AO with a direction to verify the records and restrict the depreciation to the actual amount of excess claim. This ground of assessee is partly allowed.
Ground of appeal no. 5 reads as under: “5. That the Ld. CIT(A) erred in law and on facts in confirming the ad-hoc addition of Rs. 80979/- being disallowance @ 1/5th out of expenses claimed under the heads of car insurance, communication expenses, interest on car loan, vehicle running & maintenance expenses and depreciation on car in the facts and circumstances of the case.”
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After hearing both the sides, we find the AO disallowed an amount of Rs. 80,979/- being 20% of the following expenses for want of details and probable personal use: - 1. Car Insurance Rs. 16,054/- 2. Communication Exp. Rs. 57,212/- 3. Interest on car loan Rs. 92,567/- 4. Vehicle running & maintenance Exp. Rs. 45,470/- 5. Depreciation on car Rs. 1,93,590/- Total Rs. 4,04,893/-
We find the Ld. CIT(A) upheld the action of the AO for which the assessee is in appeal before the Tribunal.
We have heard the rival arguments made by both the sides. It is an admitted fact that the AO disallowed 20% of the above expenses on account of probable personal use on estimate basis, which has been upheld by the CIT(A). In our opinion, the disallowance at 20% of the expenses on ad-hoc basis appears to be on the higher side. We, therefore, restrict the disallowance to 10% of the expenses i.e. Rs. 40,489/- as against Rs. 80,979/- upheld by the CIT(A). The ground raised by the assessee is partly allowed.
Ground of appeal no. 6 was not pressed by the Ld. Counsel for the assessee for which the Ld. DR has no objection. Accordingly, this ground is dismissed as not pressed.
Ground of appeal no. 7 being general in nature is dismissed.
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In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open Court on 01/07/2019
Sd/- Sd/- (KULDIP SINGH) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 01/07/2019 *Kavita Arora