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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-4, Ahmedabad in Appeal no. CIT(A)4/10010/2015-16 vide order dated 26/12/2018 passed for the assessment year 2009-10.
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The assessee has taken the following grounds of appeal:- “1. The learned CIT(A) has erred in law and on facts of the case in making disallowance of Rs.5,98,100/- u/s 68 of the Act in the total income of the Appellant. 2. The learned CIT(A) has erred in law and on facts in not properly appreciating and considering various submissions, evidences and supporting documents placed on record during the course of the proceedings and not properly appreciating various facts and law in its proper perspective. 3. Your appellant craves leave to add, alter, amend, and/or delete any grounds as mentioned above during the course of appeal hearing.”
The brief facts of the case are that the assessee is engaged in the business of diamond trading during the AY 2009-10 and he is working with many unorganized traders for his business. The appellant filed return of income for Asst. Year 2009-10 on 16/09/2009 declaring total income at Rs.2,26,832/-. This included Income from Business at Rs.2,14,832/- and income from other source at Rs.12,000/-, after claiming deduction under chapter VIA of Rs.65,837/-. Appellant's case was selected for scrutiny and during the course of assessment proceedings, Ld. Assessing Officer noted that a total sum of Rs. 23,92,400/- was deposited in cash in the assessee’s ICICI bank account No. 062505000118 and ICICI bank account No. 034501000058 and Ld. Assessing Officer asked the assessee why the same should not be treated as unexplained cash credit u/s. 68 of the Act and thus added in his total income. As the assessee did not offer any explanation or source of cash deposit, Id. AO disallowed the cash deposited in the bank account amounting to Rs 23,92,400/- under section 68 of the Act considering the cash deposited as unexplained cash credit.
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Being aggrieved, the appellant has preferred appeal before CIT(A) -4, Ahmedabad only on the grounds of addition of cash deposited of Rs 23,92,400/-. The appeal was disposed of vide order dated 26.12.2018 allowing the appeal partly and the Id. CIT (A) restricted the disallowance to 25% of additions made by Ld. Assessing Officer. The Ld. CIT(A) made the following observations while passing the order: “6. DECISION: I have carefully considered the assessment order and the submissions of the appellant. The grounds no. 4 to 6 are relating to dition made by AO of Rs.23,92,400/- u/s. 68 of the Act. The appellant has submitted as under: "5.During the year appellant had ' withdrawn cash amounting to Rs 23,69,098/- but ITO has erred in making disallowance of the same as Appellant has also deposited the cash amounting to Rs 24,32,4007- as per attached ledger of contra entries in appellant's books of account for your reference. Whereas appellant operates in such market in which appellant has to pay to suppliers in cash and received amount from customer in cash because the laborers who polishes diamond, they are very unorganized and they don't have their sales tax number and even pan number. Due to which appellant has to make payment in cash for which appellant needs to withdraw cash from bank account because he deposit cash which he receives. So as per above explanation your good self may consider the fact that due to necessity of the business appellant needs to transact in cash only which forces him to deposit and withdraw cash from bank account frequently. Further to that appellant has not concealed any income as he already shows cash received and cash paid in his cash book and offered income for taxation purpose."
The appellant claimed that his small business of diamond polishing is labour intensive and is quite informal wherein payment in cash are only accepted as the vendors do not have sale tax/PAN etc. The appellant that the receipts are also mostly in cash and there is a cash withdrawal of Rs.23,69,098/- and cash deposited of Rs.24,32,400/-. AR submitted that cash deposits can also be partly explained through cash withdrawal.
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On the other hand the AO has mentioned that the necessary details of persons had not been submitted and cash has been deposited in the name of different persons but for amount less than Rs.20,000/- each. The appellant could not furnish address/confirmation/PAN of such persons, therefore, this office was urge to confirm the addition in this case. The appellant has also claimed opening cash balance of Rs.4,88,098/- which is not properly vouched through independent evidences.
However, the business structure and business model for the appellant, being individual unorganized jeweller, has to be kept in mind as the same would determine the allowability of any expenditure or otherwise. Thereof is no question raised on the sales of the appellant which have been considered while computing taxable income. Therefore, it is fairly presumed that appellant's sales are not under question. As a corollary to it, it is concluded that whole of the sales are accounted in the books of accounts whereas commensurate part purchases to the extent of Rs.19,12,402/- are not above board. I find that a similar case has been handled by jurisdictional ITAT and the undersigned like to take guidance from its ratio. In the case of M/s. Vijay Proteins Ltd. Vs. ACIT 58 ITD 428, Hon'ble ITAT, Ahmedabad has observed as under:
"It is well known that if purchases are made from open market without insisting for the genunine bills, the suppliers may be willing to sell those products at a much lower rate as compared to the rate at which they may charge in case the dealer has to give a genuine sale invoice the respect of that sale and supply the goods. There may be a saving on account of sales tax and other taxes and duties which may be leviable respect of manufacturers make a substantial saving in the income tax in respect of income from sale of unaccounted goods produced and sold by them. His may also be one of the factors due to which the seller may be willing to charge lower rates for unaccounted goods as compared to accounted goods. Keeping all these factors in mind, 25% of the purchase accounted for in the books of account through such fictitious invoices in the name of 33 bogus parties should be disallowed out off the
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amount of purchases shown to have been made from 33 bogus suppliers."
6.1 In view of the above facts of the case and keeping in mind the observation of the Hon. ITAT, Ahmedabad on this issue mentioned above, out of the questioned purchases(payment made in cash) of Rs.23,92,400/- for which the appellant has no proper documentation as per IT. Act, 1961, 25% of the such purchases i.e. Rs.5,98,100/- is hereby confirmed, which is considered to meet the ends of justice. Therefore, the total addition confirmed is of Rs.5,98,100/- out of total Rs.23,92,400/-. The ground no. 4 to 6 are partly allowed.
Before us, none appeared on behalf of the assessee. We note from the above facts that the assessee is working in the unorganized sector where most of trading is carried out in cash. During the year under consideration, we note from the assessment order, that while the assessee has deposited a sum of Rs. 23,93,400/- in cash in his bank accounts held with ICICI Banks (two accounts), but the assessee has also during the year under consideration withdrawn a sum of Rs. 23, 69,098/- from his bank account. It has been held in a number of ITAT decisions that unless the Assessing Officer brings any material on record to show that the cash withdrawn was utilized / used for other purpose, it could not be said that such cash withdrawals might not have been redeposited in the bank account. This proposition was upheld in the case of ITO v. M/s. Murlidhar Ice-cream & Sweet Parlour I.T.A. No.531/Ahd/2012 wherein it was held that the disallowance of interest should be proportionately reduced taking into account the amount not utilized for business. Again, in the case of ITO v. Shri Vishan Lal ITA No.634/LKW/2014, the Lucknow ITAT held that where the cash deposit and withdrawal in the bank account was made regularly by the assessee during the year, it is very reasonable to say that the same was business
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turnover outside books and therefore, only gross profit addition is justified in the facts of the present case. This proposition was also upheld in the case of Shri B. Jenson Thanaraj v. ACIT [2017] 83 taxmann.com 243 (Chennai - Trib.) where it was held that where cash deposited in bank account of assessee was treated as unexplained cash credit by Assessing Officer but Commissioner (Appeals) having found that money withdrawn by assessee from bank account might be available for subsequent deposit, directed Assessing Officer to take only peak credit, there was no infirmity in order of Commissioner (Appeals). In the case of C. Vamsi Mohan v. ITO ITA.No.469/Hyd/2014 the ITAT held that said withdrawal having been made by the assessee just before a week, the same can reasonably be treated as available with the assessee for cash deposit especially when there is nothing to show that the said amount was utilized by the assessee for some other purpose. In the case of ITO v. Deepali Sehgal I.T.A .No.- 5660/Del/2012 it was held that merely because there was a time gap between withdrawal of cash and its further deposit to the bank account, the amount can not be treated as income from undisclosed sources u/s 69 of the Act in the hands of the assessee. In the case of ITO v. Shri Rajeev Kumar Gupta ITA No. 273/Agra/2013, the ITAT held that held that the entire amount of deposit made in the bank account cannot be said to be unexplained because after deposit of the cash amounts, there are withdrawals. In the case of Smt. Satya Bhama Bindal v. ITO ITA No.713/Chd/2012, ITAT held that that the concept of peak theory needs to be applied both in respect of the opening introduction of cash in hand and various transactions of cash deposits and withdrawals during the year under consideration. The above proposition was also laid down in the case of
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ITO. Ward-51(4),Kol vs Deb Kumar Jana ITA No.263/Kol/2012 and also in the case of Jagdish N. Thakkar v. ITO ITA No.1475/Mum/2009.
Now, in the instant facts, it needs to be appreciated that while making the disallowance, the assessee’s set of facts and the nature of business he is engaged has to be given due consideration while making any disallowance. In the case of ACIT v. ArmeeInfotech [2022] 136 taxmann.com 128 (Ahmedabad - Trib.), the Ahmedabad ITAT after taking into consideration the assessee’s set of facts, the line of business he was engaged in, the typical gross profit earned in such line of business etc. restricted the disallowance on account of bogus purchase to 7%, with the following observations:
We have looked into all these details. Before the ld.CIT(A), assessee has produced decision of Hon'ble Gujarat High Court in the case of CIT v. Gujarat Ambuja Export Ltd. [Tax Appeal No. 840 of 2013, dated 10-2-2014] and also relied upon in the case of Mayank Diamonds (P.) Ltd. v. IT Officer [Tax Appeal No. 200 of 2003, dated 7-11-2014]. It further relied upon decision of ITAT, Ahmedabad Bench in the case of ACIT v. Kulubi Steel [IT Appeal No. 1568 (Ahd.) of 2008, dated 16-12-2010]. In the case of Gujarat Ambuja Export Ltd. (supra), the AO disallowed 25% of the bogus purchase, which has been reduced to 5% at the level of ITAT. This decision of the ITAT was challenged before the Hon'ble Gujarat High Court, the Hon'ble Court did not interfere in the finding of the Tribunal. Similarly, in the case of Mayank Diamonds (P.) Ltd. (supra), GP rate of 5% was taken by the Tribunal, which has been upheld by the Hon'ble High Court. In
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the case of Kulubi Steel (supra), the Tribunal has again restricted the addition at 12.5%. In all these cases, Vijay Proteins Ltd. (supra) has been considered. A perusal of the decisions would reveal that major factor which weighed with the ITAT as well as Hon'ble High Court was estimation of profit in a particular transaction after considering particular line of business. Here, in this case, the assessee has purchased batteries and replaced. Quantity was not in dispute. In the past, whatever provisions remained unutilized was offered as income by the assessee. Therefore, we are of the view that there is nothing with the ld.CIT(A) to estimate the profit at 17% of the alleged bogus purchase. The ld.CIT(A) has made reference to the GP percentage shown by the assessee in the different assessment years. But while working out 17%, he has nowhere referred whether it is net profit of Rs. 3.48 crores or GP out of this. GP has been shown by the assessee at 14.35% in this assessment year. But net profit is only 2.38%. The assessee has not disputed if 2.38% is being estimated as undue profit earned by it from purchase of these batteries amounting to Rs. 1.56 crores. Calculation by the ld.CIT(A) are not based on any scientific formula or any evidence. There is no reference that in purchase and sale of computer batteries there could be profit margin is of 17%. It is also pertinent to note that whenever any estimation is required to be made guesswork would always be there. But such guess work should be in consonance with overall profit shown by the assessee. It has achieved a turnover of more than Rs. 102 crores, and returned income of Rs. 4.13 crores. These factors are also to be kept in mind. Taking into consideration all these facts, we estimate disallowance out of
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these bogus purchase at 7%. In other words, 7% of the alleged bogus purchase of Rs. 1,56,78,802/- will be disallowed. This ground taken by the Revenue is rejected; whereas the ground of appeal taken by the assessee is partly allowed.
6.1 In view of the above decisions and considering the assessee’s set of facts, in the interests of justice, we are restricting the disallowance to 10% of the deposits made.
In the result, the assessee’s appeal is partly allowed.
Order pronounced in the open court on 17-06-2022
Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 17/06/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद