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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
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.
ITA No.287/Viz/2015 Sri J.Lakshmi Narayana Kumar, Visakhapatnam
In this case, the assessee filed return of income declaring total
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/-
Aggrieved by the order of the AO, the assessee went on appeal before
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.
Aggrieved by the order of the Ld.CIT(A), the revenue is in appeal
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.
ITA No.287/Viz/2015 Sri J.Lakshmi Narayana Kumar, Visakhapatnam
The Ld. CIT(A) erred in disallowing only 10% of the expenditure claimed on account of salaries of Rs. 21,60,000/-, as against the 30% disallowed by the A.O, considering the fact that the expenditure claimed against salaries was unreasonably high.
The Ld. CIT(A) erred in disallowing only 10% of the expenditure claimed towards staff bonus paid of Rs. 1,80,000/- as against the whole amount being disallowed by the A.O, considering the fact that the assessee has failed to produce any bills or vouchers in support of his claim.
The Ld. CIT(A) erred in disallowing only 15% of the expenditure claimed towards accounting charges of Rs. 36,000/-, as Against the total amount being disallowed by the A.O, considering the fact that the assessee has failed to produce any bills or vouchers in support of his claim.
The Ld. CIT(A) erred in holding that the peak credit in the assessee's bank account with regard to cash withdrawals and deposits may be brought to tax as against the total unexplained cash credits added to the assessee's income by the A.O. Reliance is placed in this regard in the Order of the Hon'ble ITAT, Mumbai, in the case of M.H Raney vs. 110(145 lTD 573(MUM), in which the Hon'ble ITAT held that unless the assessee explains the nature of cash deposits in the bank and their utilization satisfactorily, the peak credit method is not applicable.
Any other ground that may be urged at the time of hearing.
Ground No. 1 and 5 are general in nature, which do not require
specific adjudication.
Ground No.2 is agitated against disallowance of staff salaries to 10%
against the disallowance made by the AO at 30%.
ITA No.287/Viz/2015 Sri J.Lakshmi Narayana Kumar, Visakhapatnam
Ground No.3 is related to the restriction of disallowance of staff
bonus to 10% as against complete disallowance made by the A.O.
Ground No.4 is related to the restriction of disallowance to 15% on
account of accounting charges as against total amount being disallowed by
the AO during the assessment proceedings.
During the appeal hearing, the Ld. DR supported the orders of the AO
while the Ld.AR relied on the orders of the CIT.
We have hard both the parties and perused the material placed on
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
ITA No.287/Viz/2015 Sri J.Lakshmi Narayana Kumar, Visakhapatnam
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.”
During the appeal hearing, the Ld. DR did not bring any tangaible
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.
Ground No.5 is related to the addition of Rs.43,42,300/- in respect of
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
ITA No.287/Viz/2015 Sri J.Lakshmi Narayana Kumar, Visakhapatnam
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.
Aggrieved by the order of the AO, the assessee went on appeal before
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.
Aggrieved by the order of the Ld.CIT, the revenue has filed appeal
before this Tribunal. During the appeal hearing, the Ld.DR argued that the
ITA No.287/Viz/2015 Sri J.Lakshmi Narayana Kumar, Visakhapatnam
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].
On the other hand, the Ld.AR relied on the orders of the CIT(A).
We have heard both the parties and perused the material placed on
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
ITA No.287/Viz/2015 Sri J.Lakshmi Narayana Kumar, Visakhapatnam
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 ITA No.287/Viz/2015 Sri J.Lakshmi Narayana Kumar, Visakhapatnam
In the result, appeal of the revenue is dismissed.
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