SHRI RAKESH GUPTA,MUMBAI vs. ITO 27(3)(1), MUMBAI

O R D E R SANDEEP GOSAIN, JUDICIAL MEMBER:

2.1. Aggrieved by the order of AO, the assessee preferred an appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, dismissed the appeal.

2.2 Aggrieved by the said order of the Ld.CIT(A), the assessee preferred further appeal before us, by raising the following grounds of appeal:

“1. The learned CIT(A) has erred in making addition of the Cash Deposits amounting to Rs. 51,71,000/- as "Unexplained Income" u/s 68 of the Income Tax Act without appreciating the facts of the case in the right perspective.

2. The CIT(A) has erred in making the addition of Rs. 70,48,650/- for purchase of flats without appreciating the facts of the case in the right perspective.

: 3 : 4. The learned CIT (A) has erred in disallowing 20% of Purchases and Indirect Expenses totaling up to Rs. 11,22,419/- without appreciating the facts of the case in the right perspectives.

5. The learned CIT (A) has erred in making the addition of Rs. 10,56,513/- without appreciating the facts of the case in the right perspective.

6. The learned CIT (A) has erred in issuing notice of penalty u/s 271(1) (c) of the Income Tax Act, 1961 without appreciating the facts of the case in the right perspectives.

is without prejudice to the other.

8. The appellant reserve the right to amend, alter or add to the grounds of appeal”.

3. Ground No.1: This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in upholding the additions on account of cash deposits as unexplained income u/s 68 of the Act.

4. Ld.AR reiterated the same arguments as were raised by him before Ld. CIT(A) and drawn our attention to the written submissions filed before Ld. CIT(A), which are at para no. 5.1.1.1 and the same is reproduced below:-

5.1.1.1 During the course of appellate proceedings, the AR of the appellant Smt.Malvika Bajaj, CA, filed the written submissions dated: 08.03.2018. Relevant part of the submissions read as under: - "The learned Assessing officer has made an addition of Rs. 51,71,000/- account of cash deposited in the savings bank account maintained by IDBI bank. However it is pertinent to note that the : 4 : appellant has deposited an amount 51,66,000/- and not Rs. 51,71,000/- as erroneously concluded by the appellant. In this respect, the appellant would like to humbly state the real facts as hereunder:- One Mr. Navin Kantilal Jain was travelling by Singapore Airlines- SQ/530 Hong Kong to Ahmedabad on 26th August, 2009. While collecting his checked-in baggage through Customs, he was diverted to Red Channel Counter and after examination of luggage, 6 packets containing Ruthenium were seized. The value of seized goods as reported is learnt to be Rs. 27,29,000/- (CIF) and Rs.36,84,150/- (Local Market Value). He was carrying the goods on behalf of one Mr. Subhash Patil as stated in his disclosure recorded under the provisions of Customs Act, 1962 in the office premises of Sabarmati Jail, Ahmedabad on 04th September, 2009 (Enclosed as Annexure A). The same is substantiated in plain reading of Para 12 of the Show Cause notice dated 11th February, 2010 issued by Office of Commissioner of Customs, Custom House, Navrangpura, Ahmedabad (Enclosed as Annexure B). To help himself release the seized goods belonging to Mr. Subhash Patil, he had filed an appeal with the Office of the Commissioner of Customs (Appeals), Ahmedabad. The learned Commissioner (Appeals), Customs, Ahmedabad was pleased to pass an order as under: a) Refrain from absolute confiscation of seized goods on payment of redemption fine of Rs. 2,00,000/- u/s 125(1) of the Customs Act. b) Payment of duty of Rs. 9,83,805/- u/s 28 of the Customs Act. c) Payment of penalty of Rs. 7,50,000/- u/s 112(a) of the Customs Act. (Appellate Order Enclosed as Annexure C). 1) In view of the above, a criminal case was filed by the Customs. To avoid prosecution under various sections of Indian Penal Code, 1860, he immediately arranged to pay the customs duty of Rs.37,33,805/- to the Assistant Commissioner of Customs, Air Cargo Customs, Ahmedabad on 15th November, 2011 as stated above. 2) Since the appellant also had past experience to be a licensed agent, Mr.Navin Kantilal Jain appointed the appellant as a “Processor of the Case” to represent him to give effect to the above appellate order, but for the fact that the appellant wasn't authorized to take the delivery of the seized goods.

: 5 : 3) The appellant then arranged funds temporarily from one Mr. Sandeep S. Mehta and Mr. Hitesh T. Mehta who was pleased to credit the appellant's bank account with Rs. 17,50,000/- and Rs. 2,00,000/- respectively on 15th November, 2011 (letter from IDBI Bank confirming the transactions enclosed as Annexure D). 4) It is pertinent to note that the said amount was immediately utilized by the appellant towards payment of custom duty of Rs. 37,33,805/- on 15th November, 2011 for and on behalf of Mr. Navin Kantilal Jain (Challan and certificate from IDBI confirming the remittance enclosed as Annexure E). 5) On payment of the above, the goods were released by the Custom Authorities. And Mr. Navin Kantilal Jain reimbursed the custom duty paid by the appellant in four installments amounting to cash of Rs. 9,00,000/- on 19th November, 2011, Rs. 9,50,000/- on 21st November, 2011, Rs. 9,50,000/- on 22nd November, 2011 and Rs. 9,50,000/- on 23rd November, 2011 respectively. The same is confirmed vide AFFIDAVIT OF Mr. Navin Kantilal Jain which speaks for itself (enclosed as Annexure F). 6) The appellant immediately returned the loan taken from Mr. Sandeep S. Mehta in two installments amounting to Rs. 9,00,000/- on 19th November, 2011 and Rs. 8,50,000/- on 21st November, 2011 and from Mr. Hitesh T. Mehta, Mehta in two installments amounting to Rs. 10,00,000/- on 22nd November, 2011 and Rs. 10,00,000/- on 23rd November, 2011 (Copy of confirmations of Mr. Sandeep S Mehta and Mr. Hitesh T. Mehta and their respective ITRVs enclosed as Annexure G). 10) The appellant was unable to offer the above explanation during assessment proceedings since all the above documents from Annexure A to G were lying with Mr. Navin Kantilal Jain who did not cooperate at that point of time. In view of the same the appellant humbly prays to admit the same as additional evidence under Rule 46A of Income Tax Rules, 1962. Having already explained the source of Rs. 37,50,000/- as above, the appellant has deposited cash of Rs.14,16,000/- in IDBI Bank on various dates. Your Goodself will appreciate that the appellant is already in the business of running a restaurant cum bar, the receipts whereof are majority in cash. Since he is a proprietor, he has been banking the cash sales at periodic intervals and has also been withdrawing in cash to meet his regular business expenditure like purchase of vegetables, etc from the open market in cash. Presuming : 6 : that the requirement and non requirement of cash is strictly based on need based situation, the appellant is pleased to enclose a cash summary for the entire period from 01.04.2011 to 31.03.2012 that clearly establishes that the appellant always had sufficient cash on hand as such. In view of the same the appellant humbly submits that even the balance cash on hand deposited of Rs. 14,16,000/- may please be treated as "explained. " In the ultimate analysis the learned Assessing Officer may be directed to delete the addition of Rs.51,71,000/- made to the income of the appellant."

It was also submitted that the assessee had produced 4.1 additional evidences during the course of appellate proceedings and thus Ld. CIT(A) had sought remand report from the AO, which is at para no. 5.1.1.2 and thereafter assessee had also filed rejoinder to the said report, which is at para no. 5.1.1.3 and the same are reproduced below:-

5.1.1.2 The relevant part of the AO's remand report dated 14.09.2018 is reproduced as under: “As per AIR information, there was cash deposits total of Rs.51,71,000/- in IDBI Bank. And due to not offered any explanation, the amount was treated as unexplained cash credit and been added to the total income of the assessee u/s. 68 of the I-Tax Act, 1961. During the course of this proceeding w.r.to the remand report, the assessee submitted that out of the deposits, he had taken Rs.381acs from shri Navin Jain on four times of aprox. Rs.Nine lacs each to release the goods confiscated by the Custom Department, Ahmedabad. The assessee had accepted just as a mediator to release the goods, for this the amount got deposited in his bank account. Mr. Navin Jain had worked as carrier of goods import for the third party, the purchaser or goods'owner shri Subhash Patil, and on arrest Mr. Jain got jailed therefor. Further, shri N. Jain has also said that he had earlier communicated with Shri S. Patil about carriage of goods or consignment and now, he does not know the current : 7 : whereabout or other documentary details of shri Patil who was said to be related to the consignment and its payments. Besides this, he received Rs.5lacs in cash for mortgaged deed with Shri Tushar P. Gandhi and family and deposited it in his account. The balance amount under deposits was said to be as withdrawal from current account and deposits thereof in his saving account." 5.1.1.3 The relevant part of the rejoinder dated 18.01.2019 filed by the assessee is reproduced as under: "The learned Assessing officer has made an addition of Rs. 51,71,000/- on account of cash deposited in the savings bank account maintained by IDBI bank. However it is pertinent to note that the appellant has deposited an amount of Rs. 51,66,000/- and not Rs. 51,71,000/- as erroneously concluded by the learned Assessing Officer. ' The report of the Assessing Officer is self-explanatory and hence no comments are offered."

5.1.1.4. I have considered the assessment order of the AO, submissions of the assessee, AO's remand report and rejoinder of the assessee. I find that the assessee failed to explain the source of cash deposits of Rs. 51,71,000/- before the AO during the assessment proceedings, Having been given an opportunity during the remand proceedings, the assessee again failed to satisfy the AO as to the Source of cash assessee has concocted some cock and bull story. The same story is reiterated in the aforesaid rejoinder filed by the assessee. The assessee had submitted the rejoinder in tapal and did not seek to explain his case by availing personal opportunity granted : 8 : to him. The assessee has repeatedly failed to prove the cash deposits of Rs. 51,71,000/-. He has merely mentioned some names and narrated same story. However, the source of cash has not been explained by proving the (i) genuineness of transaction (ii) Identity of creditors and (iii) the creditworthiness of the creditors. In this view of the matter, I have no alternative but to confirm the addition of Rs. 51,71,000/- made by the AO. Hence, the Ground of Appeal No. 1 is dismissed”.

7. After having gone through the orders passed by the revenue authorities and hearing the parties at length, we found that during the course of the proceedings, assessee had not filed any evidences before the Assessing Officer, therefore AO made the additions. However, during the appellate proceedings, assessee had filed additional evidences, which were admitted by Ld. CIT(A) and accordingly remand report was sought. As per the information report, there was cash deposit of Rs.51,71,000/- in IDBI Bank. Since the assessee failed to explain properly regarding the unexplained cash credit, therefore the additions were made u/s.68 of the Act. Whereas the assessee had taken specific stand, which has been explained in para 5.1.1.1 in the order of Ld. CIT(A). Detailed reasoning had been mentioned by the assessee, thereby explaining the source of Rs.37,50,000/-. Since the assessee had also deposited an amount of Rs.14,16,000/- in IDBI Bank on various dates. Therefore, in this respect, : 9 : assessee had submitted that he is running a restaurant cum bar, the receipts whereof are majority in cash. Since he is a proprietor, he had been banking the cash sales at periodic intervals and had also been withdrawing in cash to meet his regular business expenditure like purchase of vegetables etc. from the open market in cash. Therefore, in order to support his version, the assessee had also enclosed a cash summary for the entire period from 01-04-2011 to 31-03-2012, which clearly establishes that the assessee always had sufficient cash in hand as such.

8. On the contrary, the Revenue authorities had simply dismissed the claim of the assessee and made the addition of the entire amount of Rs.51,71,000/-, by holding that assessee had failed to explain the source of cash and also failed to prove the identity and creditworthiness of the creditors. In our view, assessee had made elaborate statement, thereby reflecting the factual position as to how and in what manner the amount was deposited by the assessee in his bank account. After closely scrutinizing the facts of the present case, we find that the Assessing Officer had not carried out any independent investigations with regard to the contentions : 10 : raised by the assessee and dismissed the stand taken by the assessee, which in our view is not correct. It is also important to mention here that the entire amount of Rs.51,71,000/- was not deposited by the assessee in a single day, but on different dates, which has been fully explained by the assessee in his written statement and supported by the affidavits of the respective parties from whom the amount was received, but the Assessing Officer had not carried out any investigation and had not issued any summons to those parties for ascertaining the factual position. Therefore, in our view, the Assessing Officer failed to discharge his obligation and had not carried out any investigations. It is a settled law that the assessee should not suffer because of the inaction or failure on the part of the Assessing Officer to carry out necessary investigations. Even otherewise the total amount deposited by the assessee in IDBI bank was Rs. 51,66,000/- and not Rs. 51,71,000/- as erroneously concluded by the AO. Since, the assessee had filed the factual details alongwith supportive affidavits, which have not been controverted or rebutted by the AO during the course of assessment proceeding, thus in that eventuality, the contentions raised by the assessee cannot be negated, which are supported by corroborative : 11 : evidences. Therefore considering the above facts, the addition made by the Assessing Officer and upheld by the CIT(A) are not sustainable in law, thus we delete the same.

9. Ground No.2 relates to the addition of Rs.70,48,650/- on account of purchase of flats. We have heard both the parties. Ld.AR reiterated the same argument as raised before Ld. CIT(A). Ld.CIT(A) had dealt with this ground in para No. 5.2. However, the operative portion of the same is discussed in para No.5.2.1.4, and the same is reproduced herein below:

5.2.1.4 I have considered the assessment order of the AO, submissions of assessee, AO's remand report and rejoinder of the assessee. I find that the assessee failed to explain the source of funds utilized for purchases of aforesaid properties amounting to Rs. 70,48,650/- before the AO during the assessment proceedings, Having been given an opportunity during the remand proceedings, the assessee again failed to satisfy the AO as to the source of funds used for purchase of properties. The assessee had submitted the rejoinder in tapal and did not seek to explain his case by availing personal opportunity granted to him. The assessee has repeatedly failed to prove the source of funds of Rs. 70,48,650/-. He has merely mentioned some names and narrated the same story. However, the source of funds has not been explained by proving the (i) genuineness of transaction (ii) Identity of creditors and (iii) the creditworthiness of the creditors. In this view of the matter, I have no alternative but to confirm the addition of Rs. 70,48,650/- made by the AO. Hence, the Ground of Appeal No. 2 is dismissed : 12 : 10. After having gone through the facts of the present case and hearing the counsels at length, we find that according to AO, the assessee had purchased two office spaces, but failed to prove the source of funds for the said investment. Thus additions were made. After analyzing the entire facts of the case, we find that initially, assessee had entered into an agreement for purchase of two of its office spaces for a total amount of Rs.70,48,650/-. The said purported agreement for sale, according to the assessee was without any consideration and the same was obtained by „coercive methods‟ and the possession of the premises was also not handedover to the assessee. In this respect, the assessee had filed written submissions and evidences. During the remand proceedings, Assessing Officer verified those facts from the submissions made by the assessee and had confirmed that the purchase was made in February, 2012 actually, without making any payments. The Assessing Officer had also gone through the cases/complaints lodged, civil suit filed and cancellation deed after which the properties were returned back to the builder/developer. In this way, the entire transactions made by the assessee was fully explained. Since the entire transaction was without consideration and after multiple : 13 : court cases under criminal law and civil suits, property was returned and cancellation deed dated 26.05.15 was executed. Therefore, the question of disclosing source of funds for purchase of said property do not arise, more particularly, when it was proved that no consideration was paid. AO had not carried out any investigation or verification and even did not rebut the explanation put forth by the assessee alongwith documentary evidences as detailed in submissions of the assessee at para no. 5.2.1.1 in the order of Ld. CIT(A), therefore the addition made by the Assessing Officer and upheld by the Ld. CIT(A) are not sustainable in law. Accordingly, we delete the addition.

11. Ground No.3 relates to the addition of Rs.21,05,000/- on account of unsecured loans. As far as this ground is concerned, brief facts are that during the course of assessment proceedings, it was seen by the Assessing Officer that the assessee has shown unsecured loan of Rs.21,05,000/-. The assessee was asked by the Assessing Officer to file the confirmation of loan taken and details of sundry creditors. Since the assessee failed to produce the : 14 : same before the Assessing Officer, Assessing Officer disallowed the said amount, treating the same as non-genuine and added the same to the total income of the assessee.

5.3.1.4 I have considered the assessment order of the AO, submissions of the assessee, AO's remand report and rejoinder of the assessee. I find that the assessee failed to produce the loan confirmation and details of borrowers before the AO during the assessment proceedings. Having been given an opportunity during the remand proceedings, the assessee again failed to satisfy the AO with regard to the genuineness of unsecured loans of Rs. 21,05,000/-. The assessee had submitted the rejoinder in tapal and did not seek to explain his case by availing personal opportunity granted to him. The assessee has repeatedly failed to prove genuineness of the aforesaid unsecured loans amounting to Rs. 21,05,000/-. He has merely mentioned some names and narrated same story. However, the unsecured loan has not been explained by proving the (i) genuineness of loan (ii) Identity of creditors and (iii) the creditworthiness of the creditors. In this view of the matter, I have no alternative but to confirm the addition of Rs. 21,05,000/- made by the AO. Hence, the Ground of Appeal No.3 is dismissed

: 16 : 14. Ground No.4 relates to the disallowance of 20% of purchases and indirect expenses totaling up to Rs.11,22,419/-. As far as this ground is concerned, during the course of assessment proceedings, it was seen by the Assessing Officer that the assessee had incurred the following expenses during the year:

Particulars Amount (Rs) Purchases 49,26,650 Indirect Expenses 6,85,404 Total 56,12,094 The assessee was asked by the Assessing Officer to submit the details of purchases and expenses. However, the assessee failed to provide any details in respect of the aforesaid expenses. Therefore, the Assessing Officer disallowed an amount of Rs.11,22,419/- being 20% of the above expenses and added the same to the total income of the assessee.

: 17 : “5.4.1.4 I have considered the assessment order of the AO, submissions of the assessee, AO's remand report and rejoinder of the assessee. I find that the assessee failed to produce the bills, details of purchases, explanation and expenses incurred for business purpose before the AO during the assessment proceedings. Having been given an opportunity during the remand proceedings, the assessee again failed to satisfy the AO with regard to the aforesaid expenses of Rs.56,12,094/-. The assessee had submitted the rejoinder in tapal and did not seek to explain his case by availing personal opportunity granted to him. The assessee has repeatedly failed to prove the genuineness of expenses incurred by him. In this view of the matter, I have no alternative but to confirm the addition of Rs. 11,22,419/- made by the AO. Hence, the Ground of Appeal No. 4 is dismissed”.

5.5.1.4 I have considered the assessment order of the AO, submissions of the assessee, AO's remand report and rejoinder of the assessee. I find that the assessee failed to produce any documentary evidences for the introduction of the new capital amounting to Rs. 10,56,513/- before the AO during the assessment proceedings, Having been given an opportunity during the remand proceedings, the assessee again failed to satisfy the AO as to the source of introduction of new capital. The assessee had submitted the rejoinder in tapal and did not seek to explain his case by availing personal opportunity granted to him. The assessee has repeatedly failed to prove the source of capital introduction of Rs. 10,56,513/-. He has merely mentioned some names and narrated same story. However, the source of capital introduction has not been explained by the assessee. In this view of the matter, I have no alternative but to confirm the addition of Rs. 10,56,513/- made by the AO. Hence, the Ground of Appeal No. 5 is dismissed

: 20 : 21. In these circumstances, we are of the view that the addition made by the Assessing Officer and upheld by Ld. CIT(A) are not sustainable in law. Accordingly, we delete the addition.

23. Ground No. 7 & 8 are general in nature, therefore requires no specific adjudication.