LAXMI YADAV,HOOGHLY vs. I.T.O.,WARD-23(4), HOOGHLY

Though the assessee has raised as many as 11 grounds of appeal, has only pressed ground number 7& 8 wherein the assessee has raised the issue of addition of Rs.21,92,100/- made u/s. 68 of the Income-tax Act, 1961 (hereinafter referred to as the “Act).

The facts of the case as noted by the AO are that the assessee filed her return declaring total income of Rs.5,79,480/-. The case was taken up for scrutiny through CASS, which was later selected for complete scrutiny. According to AO, on perusal of the records (ITR 4) it reveals that the assessee had disclosed only one bank account i.e. ICICI Bank Ltd. in savings bank A/c. No. 100301503381. The AO noted that as per the AIR information transaction details reveals that the assessee had maintained another two bank accounts in Allahabad Bank, Rishra Branch, Hooghly where she had deposited Rs.10,16,600/- and in Axis Bank Ltd., Serampore Branch, Hooghly where she had deposited Rs.11,75,500/- during the relevant assessment year. According to AO, during the course of e-proceeding the assessee had filed the trading and P&L Account where she had disclosed net profit of Rs.6,25,670/- and had also filed computation of total income and she disclosed commission

The Ld. AR Shri Miraj D. Shah submitted that since the assessee is into the business of running a grocery shop and in these two bank accounts, the assessee used to deposit the sale consideration and used to withdraw the amounts for purchases and, therefore, these two bank accounts were used for the very same trading business and, therefore, the entire deposit should not have been added which action of AO is wrong and only the GP/NP or peak credit from the two bank accounts can be made and for that proposition he relied on the order of this Tribunal in the case of Ashok Kr. Paul Vs. ITO, dated 02.09.2016 and Ghanshyam Agarwal Vs. ITO, ITA No. 112/Kol/2011 dated 30.12.2011 and contended that in the case of Ashok Kumar Paul the Tribunal relying on the order of the Hon’ble Calcutta High Court in the case of CIT Vs. M/s. Royal Security Guarding Pvt. Ltd. whereby the Hon’ble High Court upheld the action of the Tribunal in holding that only 10% of the undisclosed receipt which were deposited in the bank account of the assessee should be added as income. The Ld. AR drew my attention to the Tribunal’s finding in the said case which is as under:

The Hon’ble Calcutta High Court in the appeal by the revenue against the order of the Tribunal, held as follows :-

Thereafter, the Tribunal in the case of Ashoke Kumar paul held as under:

The ld. DR pointed out that the Hon’ble Calcutta High Court in its decision has specifically observed that various payments were made from the deposits in the bank account. Such facts are not present in the case of the assessee and therefore the decision of the Hon’ble Calcutta High Court should not be deleted.

I have given a very careful consideration to the rival submissions. The plea put forth by the ld. Counsel for the assessee has to be accepted. As rightly contended by the ld. Counsel for the assessee the entire contract receipts cannot be added as income. The assessee derives income from executing the contract job work and in doing so is bound to incur expenses. It is not the case of the revenue that all expenses including the expenses relatable to the undisclosed receipts from execution of contract job work has already been taken into consideration while arriving at the total income of the assessee declared in the return of income by the assessee. In such circumstances I am of the view that the belief of taxing 31.75% which is the disclosed gross profit of the assessee on the undisclosed contract receipts is just and fair and the plea of the Assessee in this regard is directed to be accepted. Ground nos. 2, 3 and 5 of the assessee are partly allowed.”

As well as the Ld. AR drew my attention to the Tribunal’s order in Ghanshyam Agarwal (supra) wherein the Tribunal has directed the AO to restrict the addition to the extent of the peak credit and the observation of the Tribunal is as under:

Therefore, according to Ld. AR, action of the Ld. CIT(A)/AO was erroneous since they have made the entire addition of the deposits in the bank accounts without the AO bringing any materials to suggest that the amount withdrawn from the bank accounts were utilized elsewhere other than the business of grocery and so according to ld. AR either peak credit or G.P/N.P % of the deposit can be taxed. Per Contra, the ld. DR vehemently supported the action of AO & ld. CIT(A). According to him, the assessee failed to prove that she was only engaged in the business of grocery and therefore, the Ld. CIT(A) confirmed the action of AO and so, I should not interfere with the order of the ld. CIT(A).

Heard both the parties and have carefully gone through the records and case laws. Before me the ld. AR has submitted a table, which will give bird’s eye view about the facts pertaining to the deposit in the undisclosed bank accounts as well as turnover from grocery business etc. The table is reproduced hereunder:

From perusal of the above data, it can be discerned that the assessee had two undisclosed bank accounts i.e i) Allhabad Bank A/c (5017758203) opening balance as on 31-03-2015 is of Rs. 9,599/- and closing balance as on 31-03-2016 is Rs. 5,740/- and (ii) Axis Bank A/c ( 443010004350) opening balance as on 31-03-2015 is of Rs. 3,264/- and closing balance as on 31-03-2016 is Rs.1,154/- . There has been regular deposits and withdrawal of the amounts in both bank accounts. The peak credit in the Allahabad Bank is Rs. 1,76,281/- and Axis Bank is Rs. 2,06,690/-. According to the ld.AR, the cash flow statement would indicate that the assessee had withdrawn money from one bank and has at LaxmiYadav, AY- 2016-17 times deposited in other bank (Axis Bank) and vice-versa. Therefore, there are cross- deposits and withdrawals. And since the withdrawal from the banks have not been found to have been spent for any other purpose or has been invested in any immovable/movable property and having regard to the cash flow statement of both the undisclosed bank, I am of the considered opinion that combined peak credit of both bank accounts need to be taken to work out the element of undisclosed investments made by the assessee for the undisclosed transactions. From the opening balances in both the banks, it is understood that this is not the initial year, wherein, the assessee has made the undisclosed transaction. However, since, this is the assessment year in which the fact of undisclosed bank accounts were discovered, the undisclosed investment needs to be taxed separately. Therefore, the combined peak credit in respect of both the banks need to be taken to find out the undisclosed investments made by the assessee for the undisclosed transaction in both banks which is Rs. 2,06,690/-, which needs to be added in the hands of the assessee. Since the AO failed to bring on record any material to show that the assessee was doing any other business other than the grocery business, the inference that can be drawn is that the assessee was doing undisclosed transaction in respect of grocery from grey market without any bills etc.. Therefore, I am of the opinion that assessee was engaged in the business of grocery through these undisclosed bank accounts. Next, coming to the trade profit, which the assessee could have made from the undisclosed transaction, I note that the assessee had disclosed Gross Profit oft 8.81% and Net Profit of 4.65% of the turnover from the regular grocery business. Therefore, trade profit of the regular business i.e. G.P rate of 8.81% would be justified. In the light of the aforesaid discussion, the entire addition made by AO/Ld. CIT(A) of the total amount deposited in the two undisclosed bank accounts to the tune of Rs.21,92,100/- is erroneous. Therefore, in the light of the discussions, I direct the AO to restrict the addition to two items (i) combined peak credit of two bank accounts, which would take care of the undisclosed investment of the assessee, which is Rs. 2,06,690/- and (ii) trading profit from the undisclosed transaction needs to be added in the hands of the assessee. For that, I direct the AO to apply/adopt the GP rate @ 8.81% of the total deposits of Rs. 21,92,100/-, which comes to Rs. 1,93,124/-. Therefore, I sustain the amount of Rs.2,06,690/- towards combined peak credit for investment made by the assessee and GP rate of 8.81% of total deposits at LaxmiYadav, AY- 2016-17 Rs. 1,93,124/-, which comes to Rs.3,99,814/-and balance of addition of (Rs. 21,92,100 – Rs. 3,99,814)= Rs.17,92,286/- is directed to be deleted.

In the result, the appeal of the assessee is partly allowed.