THE ITO, VISAKHAPATNAM vs. J LAKSHMI NARAYANA KUMAR, VISAKHAPATNAM

आदेश /O R D E R PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the revenue against the order of the Commissioner of Income-Tax (Appeals) [CIT(A)]-1, Visakhapatnam vide ITA No.1195/2013-14/ITO/W-3(1), VSP/2015-16 dated 22.04.2015for the assessment year 2011-12.

income of Rs.5,57,390/- on 28.09.2011. The case was selected for scrutiny

and the assessment was completed on total income of Rs.58,14,450/-.

During the assessment proceedings, the Assessing Officer(AO) made the

following additions to the returned income which were disputed by the

assessee :

(i) Unexplained cash credits - Rs.43,42,300/-

(ii) Bonus and accounting charges Rs. 2,16,000/-

(iii) Staff Salaries Rs. 6,48,000/-

the CIT(A) and the Ld.CIT(A) restricted the disallowance of staff bonus

to10% and accounting charges to15% of the expenses incurred. With

regard to unexplained cash credits u/s 68, the Ld.CIT(A) directed the AO to

make the addition of peak credit.

before this Tribunal and the revenue has raised the following grounds of

appeal : 1. The Order of the Ld. CIT(A) is contrary to the facts and to the Law applicable to the facts of the case.

specific adjudication.

against the disallowance made by the AO at 30%.

bonus to 10% as against complete disallowance made by the A.O.

account of accounting charges as against total amount being disallowed by

the AO during the assessment proceedings.

while the Ld.AR relied on the orders of the CIT.

record. Ground Nos.2, 3 and 4 are related to the disallowance of

expenditure under various heads in respect of salaries, bonus, accounting

charges. The AO disallowed 30% of the salaries paid without assigning any

reason. Similarly, in respect of bonus and accounting charges entire

amount was disallowed by the AO. Ld.CIT has considered the issue very

carefully and held that disallowance of 10% of expenditure in respect of

salaries and bonus and 15% of expenditure in respect of accounting

charges would meet the ends of justice. For ready reference, we extract

relevant paragraphs of the order of the Ld.CIT which reads as under :

“7.2 During the appeal hearing, the AR represented that the expenditure incurred towards salaries, staff bonus and accounting charges were routine expenses and considering the turnover of the assessee, the expenses claimed cannot be said to be high. The assessee filed copies of vouchers for these expenses but no credence could be given as they were not produced before the AO. The assessee also submitted information that the percentage of expenses incurred towards salaries was 3.36% of the turnover for the subject year and it was 3.57°/n for AY 2010-11 & 2.69% for AY 2009-10. The net profit declared for AY 2009-10 was 1.12%, for AY 2010-11 it was 0.36% and for the subject year it was 0.37%. Taking into consideration these details, I consider it reasonable and fair to estimate the disallowance towards salaries & staff bonus at 10% of the expenditure claimed and expenditure towards accounting charges at 15% of expenditure claimed. Accordingly the AO may recompute the total income.”

material to substantiate the disallowance of salaries at 30% and

disallowance of entire expenditure in respect of staff bonus and accounting

charges. No other material was placed on record before us to controvert

the finding of Ld.CIT(A). Therefore, we do not find any reason to interfere

with the order of the Ld.CIT(A) and accordingly ground Nos.2,3 and 4 of

revenue’s appeal are dismissed.

cash deposits made in the bank account, u/s 68 of the I.T. Act. During the

assessment proceedings, the AO found as per AIR information, that the

assessee had savings bank account No.017300100023562 in M/s Dhanalaxmi Bank, Visakhapatnam and had made cash deposits on various

dates to the tune of Rs.53,42,300/- in the bank account. The assessee

explained the cash deposits of Rs.10 lakhs which was received from Sri V.

Kondappa Naidu by way of account payee cheque on 28.04.2010 bearing

cheque No.46608 deposited in his SB Account No.017300100023562.

Therefore, the AO made the balance amount of Rs.43,42,300/- as

unexplained cash credits u/s 68 of I.T.Act after excluding the sum of

Rs.10.00 lacs.

the CIT(A) and argued that the assessee had made cash withdrawals from

his SB account which were used for cash advances to the staff members as

and when required. The Ld.CIT(A) could not rule out cash withdrawals

forming source for subsequent cash credits since there is no other evidence

placed on record to show that cash withdrawals were incurred towards

other expenses. Therefore, the Ld.CIT(A) directed the AO to compute the

peak credit to tax.

before this Tribunal. During the appeal hearing, the Ld.DR argued that the Ld.CIT(A) has erred in directing the AO to tax the peak credits instead of

the entire cash deposits. The Ld. DR argued that the assessee required to

explain the source of each deposit made in the bank account failing which

the entire cash deposits required to be brought to tax. Ld. DR relied on the

orders of the ITAT Mumbai Bench in the case of Late Mr. M.H. Raney vs.

ITO [145 ITD 573].

record. The assessee is having a bank account in Dhanalakshmi Bank and

made cash deposits to the tune of Rs.42,300/- out of which a sum of Rs.10

lakhs was explained by the assessee. The assessee argued before the AO as

well as Ld.CIT(A) that he used to give advances to the staff from the

amounts withdrawn from the SB account and the same were deposited

back into their bank account. The argument of the assessee was that the

cash deposits were made in the bank account out of withdrawals. There

was no other evidence brought by the revenue before us indicating that the

cash withdrawals were used for any other purpose either for expenditure

or for any other investments. In the absence of any other evidence as observed by the Ld.CIT(A), the possibility of cash withdrawals forming

source for the subsequent cash credits cannot be ruled out. The Ld. CIT(A)

observed from the bank statement that the assessee has withdrawn the

cash and redeposited the same in the bank account. The decision relied

upon by the revenue is distinguishable on facts in respect of inconsistency

with not only explanation of amounts being used for charitable purposes

but also the fact of same being withdrawn in cash and also by cheques

ostensibly for personal purposes on recurring basis. The Hon’ble ITAT

observed that the pattern of withdrawal revealed that account to be

employed for transfer of funds in main, i.e. deposit of cash in one place and

its withdrawal at another place and the assessee was unable to discharge

the onus of satisfactory explanation qua cash deposits. Therefore, the case

law relied upon by the revenue is distinguishable on facts and not

applicable in assessee’s case. The CIT(A) has observed that the bank

account clearly indicates the possibility of cash withdrawals forming part

of source for subsequent cash credits and no other evidence was shown by

the revenue demonstrating that the cash withdrawals are used for any

other purpose either for personal or business credits. Therefore, we do not

find any infirmity in the order of the Ld.CIT(A) and the same is upheld.

Appeal of the revenue is dismissed on this ground.

9

The above order was pronounced in the open court on 9th March,

2018.

Sd/- Sd/- (वी.दुगा�राव) (!ड.एस. सु�दर#संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यकसद�य/JUDICIAL MEMBER लेखासद�य/ACCOUNTANT MEMBER वशाखापटणम /Visakhapatnam $दनांक /Dated : 09.03.2018 L.Rama, SPS आदेशक���त&ल पअ'े षत/Copy of the order forwarded to:- 1. अपीलाथ� / The Appellant- 2. ��याथ� / The Respondent– 3. The Commissioner of Income Tax-2, Visakhapatnam 4.The Commissioner of Income Tax(Appeals)-2, Visakhapatnam 5. वभागीय��त�न*ध, आयकरअपील�यअ*धकरण, वशाखापटणम /DR, ITAT, Visakhapatnam 6. गाड�फ़ाईल / Guard file आदेशानुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM