MOOMAL MOTORS,JAIPUR vs. ITO, KISHANGARH

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 328/JP/2014 fu/kZkj.k o"kZ@Assessment Year : 2009-10 cuke M/s Moomal Motors, Income Tax Officer, Vs. Near Ram Mandir, Behind Bus Stand, Kishangarh. Madanganj, Kishangarh. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAOFM 0830 C vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agrawal (CA) jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 03/01/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 08/02/2017 vkns'k@ ORDER

PER: VIKRAM SINGH YADAV, A.M.

This is an appeal filed by the assessee against the order of

CIT(Appeals), Ajmer dated 31/03/2014 for the assessment year

2009-10, wherein the assessee has taken the following grounds of

appeal:-

2 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

presumptions, thus the addition sustained deserves to be deleted in toto. 1.1 That the Ld. CIT(A) has further erred in confirming the addition without appreciating the fact that the appellant made surrender of Rs.47,10,000/- on account of advances from customers in case of assessment year 2007-08 and said amount were repaid in A.Y. 2008-09 in the books available with the appellant and out of which deposits were made during the year under appeal and balance of Rs.17,86,646/- has already been surrendered by the appellant during the course of assessment proceeding to buy the peace of mind and to avoid prolonged litigation which is duly verifiable from the cash account of surrendered income. Thus the addition sustained deserves to be deleted in toto. 1.2 That the Ld. CIT(A) has failed to appreciate the fact that amount surrendered in assessment year 2007-08 was in circulation in the books of accounts of the assessee under the head advance from customers and assessee is entitled for benefit of set off of surrendered income towards deposits made during the year and the said amount was finally credited in the books in assessment year 2010-11 therefore benefit of set off of surrendered income be allowed to the appellant and the addition sustained deserves to be deleted.

having authorized dealership of M/s Eicher Tractor and other vehicles

and also running a service centre for all types of automobile vehicles

besides having sale of spare parts. The return of income was filed u/s

3 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

139(1) and assessment was completed by AO by passing order u/s

143(3) dated 27.12.2011 at a total income of Rs.65,49,330/- after

making addition of Rs.65,46,664/- treating the cash deposits in the

name of various parties as unexplained.

CIT(A), which was decided against the assessee vide order dated

31.03.2014 and his relevant findings are reproduced as under:

“I have considered the contentions of the appellant as well as

assessment order. It is seen that consequent to result of enquiries by

the AO, appellant surrendered the creditors to the extent of

Rs.65,46,664/- and claimed set-off in respect of surrender of

Rs.47,10,000/- made for A.Y. 2007-08. The assessee’s contention is

that assessee may be allowed set-off of amount of Rs.47,10,000/-

surrendered in A.Y. 2007-08 on account of bogus advances from the

customers against the addition made by the AO on account of

creditors/advances from the customers of Rs.65,46,664/- in the year

under consideration. The assessee claimed that amounts surrendered of

Rs.47,10,000/- in A.Y. 2007-08 was shown as advance from customers.

This amount was repaid in A.Y. 2008-09 in the books meaning thereby

4 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

that funds were kept by assessee in cash with him. The same cash

balance was used for depositing the fund as advance from customers in

A.Y. 2009-10. However, the assessee’s contention is not acceptable as

there is no correlations between the amount surrendered in A.Y. 2007-

08 and bogus credits/deposits shown in A.Y. 2009-10. The amount

surrendered in A.Y. 2007-08 of Rs.47,10,000/- is represented by the

various assets in the balance sheet for A.Y. 2007-08. It has not been

shown that corresponding assets are bogus or have been liquidated.

Further, as per the assessment order for A.Y. 2007-08, assessee has

not given any address of the persons from whom the advances were

shown and repayments were claimed to have been made in next year

and assessee surrendered the above advance from customers of

Rs.47,10,000/- instead of giving the address of the said clients. The AO

has also mentioned that above amount surrendered of Rs.47.10 lacs

was introduced in the cash book on 21.12.2009.

In view of above discussions and findings of the AO as mentioned in the

assessment order, set-off of Rs.47,10,000/- as claimed by the assessee

is not allowable against the surrendered income of Rs.65,46,664/- in

the year under consideration and addition made by the AO is confirmed.

Accordingly, this ground of appeal is dismissed.”

5 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

grounds of appeal are in relation to non-allowance of benefit of

telescoping of Rs.47,10,000/- claimed by the assessee being the

amount of additional income offered for taxation in AY 2007-08.

4.1. It was submitted that during the year under consideration,

assessee had shown closing balance of advances received from

customers at Rs.34,62,272/- under the head “Current Liabilities” in

Balance sheet as on 31.03.2009. During the course of assessment

proceedings, assessee had submitted the complete details of the parties

from whom the advances were received. In respect of cash receipts of

more than Rs.20,000/-, enquiries were made by Ld. AO u/s 133(6). In

some of the cases, letters were returned by parties, whereas in some

cases, confirmations were not reconciled. Accordingly, show cause

notice was issued by ld. AO, to furnish confirmations in respect of

parties from whom deposits were received. In response to show cause,

since assessee was not able to furnish confirmations, however it

furnished list of cash receipts and payments made in A.Y. 2009-10

(reproduced at page 8 para 5 of Assessment order), according to which

total receipts were of Rs.71,41,664/- and deducting the payments of

6 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

Rs.37,55,000/-, closing balance remained at Rs.33,86,664/-. Since the

assessee could not prove the advances in the manner ld. AO desired,

maximum peak balance of Rs.64,96,646/- was work out of which

benefit of telescoping of Rs.47,10,000/- was claimed being the amount

surrendered in A.Y. 2007-08 and balance sum of Rs.17,86,646/-

(64,96,646 – 47,10,000) was offered for taxation in the year under

consideration.

4.2. It was further submitted that during A.Y. 2007-08, assessee had

received certain advances of Rs.47,10,000/- towards the booking of

vehicles from casual customers and when supplies from company was

not made available, advance money was refunded to the customers in

subsequent period. However, during the course of assessment

proceedings for A.Y. 2007-08 when the assessee was not able to

produce the parties, in order to buy peace and avoid litigation, amount

of Rs.47,10,000/- was offered for taxation though these amounts come

claimed to have been refunded meaning thereby that refund was

available with assessee. The said cash was available with it which was

introduced in the guise of cash deposits received from various

customers in the year under appeal and thus telescoping of the same

7 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

claimed however, Ld. AO rejected the plea of the assessee and made

the addition of entire cash deposits of Rs.65,46,664/- made during the

year under appeal.

4.3. With regard to the allegation of the ld. AO that the benefit of

surrender income has been allowed in F.Y. 2009-10 and the same may

not be allowed for F.Y. 2008-09, i.e. A.Y. 2009-10, it was further

submitted that assessee furnished cash book dated 21.12.2009,

wherein surrender amount of Rs.47,10,000/- was included. Your

honours would appreciate that entry for booking income in respect of

income surrendered would always be made on the date of conclusion of

proceedings, in which income was offered. The Ld. CIT(A), rejected the

claim of the assessee observing that amount surrendered in A.Y. 2007-

08 must have been represented by various assets and in the absence of

liquidation of the same, no correlation could be proved in respect of

money surrendered and cash deposits made during the year by grossly

ignoring the fact that all such advances of Rs.47,10,000/- were claimed

to have been refunded in A.Y. 2007-08 relevant to A.Y. 2009-10.

8 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

4.4 It was further submitted that in the instant case, assessment for

A.Y. 2007-08 was completed on 21.11.2009, therefore, income on

account of surrender made was shown in cash book on the said date,

however, that does not imply that benefit of surrender income has been

taken in A.Y. 2010-11. In the case of assessee, as is evident from page

2 para 2 of assessment order for A.Y. 2007-08 (APB 8), the accounts of

parties from whom advances were shown to be received, were settled

by cash payments in F.Y. 2007-08 itself. Accordingly, when surrender

was made of the advance receipts, the subsequent repayment of of the

same in cash at Rs 47,10,000 stood available with the assessee which

was utilized by the assessee in the manner he desires. Therefore,

assessee’s contention that the cash circulated in assessment year under

appeal pertains to surrender made during A.Y. 2007-08 is well within

law. In support of contention, assessee submitted extract of cash

account incorporating cash available with assessee on surrender of

income in A.Y. 2007-08 and its effect in A.Y. 2008-09 and further

circulation in A.Y. 2009-10. Further, contention of Ld. CIT(A) that in the

absence of liquidation of any assets corresponding to surrender made,

correlation cannot be proved also does not hold good as it is crystal

clear that “Cash” is the only asset getting affected in respect of these

9 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

transactions, which cannot be earmarked as to whether the same is

money surrendered or some other unaccounted money. Further,

observation of Ld. CIT(A) that assessee has not given address of the

persons from whom advances were shown in A.Y. 2007-08 and

payments were made in A.Y. 2008-09 is not relevant as for whatever

reason surrender was made, the same becomes part of pool of funds

available with the assessee as soon as it is admitted and the same can

be adjusted by assessee wherever he deems appropriate.

4.5 It was further submitted that whenever addition on account of

cash deposit is made, the maximum amount that can be disallowed is

the peak balance in respective account. In the instant case also,

assessee was in possession of sufficient cash balance out of income

offered in A.Y. 2007-08, which is not proved to be utilized elsewhere,

thus deposits to that extent may please be treated as explained.

4.6 The ld AR further placed reliance on the following rulings: a. Shri Foods V/s ACIT (ITAT, Jpr) 22 TW 675: - Peak credit theory becomes applicable unless Assessing Officer proves destination of withdrawals elsewhere.-

10 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

b. Rameshchand Modi Vs. ACIT (JP), 21 TW 510: -While making addition for unrecorded sales, adjustment for rotation/recycling/reinvestment/telescoping, credit purchases and peak credit should be given.

c. Sandeep Loomba V/s ACIT (ITAT, Jpr) 26 TW 288: - Peak credit theory becomes applicable unless Assessing Officer proves destination of withdrawals elsewhere.

supported the order of the lower authorities and further referred to the

decisions of the Hon’ble Supreme Court in case of Anantharam

Veersinghaiah reported in 123 ITR 57, Hon’ble Rajasthan High in case

of Tyaryamal Balchand reported in 165 ITR 453 and in case of R.S

Rathore reported in 212 ITR 390.

has laid down the following proposition in law:

“When an “intangible” addition is made to the book profits during an

assessment proceeding, it is on the basis that the amount represented

by that addition constitutes the undisclosed income of the assessee.

That income, although commonly described as “intangible”, is as much

a part of his real income as that disclosed by his account books. It has

11 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

the same concrete existence. It could be available to the assessee as

the book profits could be.”

“The secret profits or undisclosed income of an assessee earned in an

earlier assessment year may constitute a fund, even though concealed,

from which the assessee may draw subsequently for meeting

expenditure or introducing amounts in his account books. But it is quite

another thing to say that any part of that fund must necessarily be

regarded as the source of unexplained expenditure incurred or of cash

credits recorded during a subsequent assessment year. It is a matter for

consideration in each case whether the unexplained cash deficits and

the cash credits can be reasonably attributed to a pre-existing fund of

concealed profits or they are reasonably explained by reference to

concealed income earned in that very year. In each case, the true

nature of the cash deficit and the cash credit must be ascertained from

an overall consideration of the particular facts and circumstances of the

case. Evidence may exist to show that reliance cannot be placed

completely on the availability of a previously earned undisclosed

income. A number of circumstances of vital significance may point to

the conclusion that the cash deficit or cash credit cannot reasonably be

related to the amount covered by the intangible addition but must be

12 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

regarded as pointing to the receipt of undisclosed income earned during

the assessment year under consideration. It is open to the revenue to

rely on all the circumstances pointing to that conclusion. They must be

such as can lead to the firm conclusion that the assessee has concealed

the particulars of his income or has deliberately furnished inaccurate

particulars. The burden remains on the revenue of proving the

existence of material leading to that conclusion.”

High Court following the decision of Hon’ble Supreme Court in case of

Anantharam Veersinghaiah (supra) has held as under:

“It is clear from the law discussed above, that the ITO was within his

right to tax the amount of Rs. 16,950 as income from undisclosed

sources. Even though he had added the amount of Rs. 18,117 in

addition to the profit shown by the respondent-firm in their account

books. However, in the present case, the respondent was well within his

rights to plead that this amount of Rs. 16,950 is covered from the

intangible income assessed at Rs. 18,117 and added in the income of

the firm and apart from this, since for the last preceding 3 years,

substantial additions amounting to Rs. 32,797 have been added, the

13 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

amount of Rs. 16,950 could be taken as having come out of such

intangible additions. In the case of Anantharam Veerasinghaiah & Co.

(supra), their Lordships of the Supreme Court have held that the

additions made to the book profits in earlier years are the real income

and can be treated as available for use in subsequent years or even in

the same year. ..”

has held as under:

“Section 68 refers to cash credits which are found in the books of the

assessee. If the explanation offered by the assessee is not satisfactory

then the sum so credited may be charged to income-tax as income of

the assessee in the previous year. The burden, therefore, is on the

assessee to explain satisfactorily with regard to the amounts which have

been credited in the books of account by the assessee. The source and

the nature of the receipt has to be proved by the assessee and if he

fails to prove satisfactorily the source and nature of the amount

received, the assessing authority is entitled to draw an inference that

the receipt is assessable as income of the assessee.”

“While explaining the various credits and investments, it may be

possible that the assessee may be successful in explaining some of

14 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

them but that does not by itself mean that the entire investments has

to be considered as explained. Even lapse of time or inability of the

assessee would not make the unexplained investment an explained one.

It is each and every individual entry on which the mind has to be

applied by the taxing authority when an explanation is offered by the

assessee. If no explanation has been offered in respect of a particular

entry, the taxing authority will be justified in coming to the conclusion

that the said investment is unexplained. It is not the totality of the

credit entries which are to be allowed or to be disallowed. This work

has to be done on the basis of explanation offered for different entries

and if the explanation of the assessee is acceptable on the basis of the

evidence produced before the taxing authority, the Tribunal can come

to the conclusion that such investment is fully explained.”

earlier year could constitute a fund from which the assessee might draw

subsequently for meeting expenditure or introducing amounts in the

books of account and the benefit of telescoping is available in general.

At the same time, before such a benefit is given, what needs to be

examined in the instant case is that whether unexplained cash deposits

15 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

during the year under consideration could be reasonably attributed to

the pre-existing fund of surrendered income in AY 2007-08 or they were

reasonably explained by reference to concealed income earned during

the year, taking into consideration all the relevant facts and

circumstances of the case.

surrendered in AY 2007-08 is shown as cash advances from customers

which remain unexplained. As per the AO’s finding in assessment order

for AY 2007-08 which are final and binding, these were assessee’s own

money to the tune of Rs 47,10,000 which were shown in the books as

advances against booking of vehicles in name of various unknown

persons. So, there were cash funds to the tune of Rs 47,10,000 which

were surrendered and available with the assessee. Though the

surrender was made during the course of assessment proceedings for

AY 2007-08 which was concluded by passing of assessment order on

21.12.2009 and a corresponding entry was made in the books of

accounts on the same date, the surrender would be considered effective

as on the last date of the financial year relevant to AY 2007-08.

16 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

wherein the AO has stated that cash deposited in the current financial

year relevant to AY 2009-10 is different cash other than the

surrendered amount in AY 2007-08. The AO also stated that the

assessee has taken complete benefit of surrender income of Rs

47,10,000 in AY 2010-11 given that the entry for such surrender income

was made in the cash book on 21.12.2009. The AO also stated that the

contention of the assessee cannot be accepted as assessee has

deposited the cash in different names in the financial year relevant to

AY 2007-08. In our view, none of the objections raised by the AO are

relevant. What is relevant to determine is whether assessee was in

possession of sufficient cash out of surrendered income at the

beginning of the current financial year or not. In this regard, the

assessee has contended that the cash circulated in assessment year

under appeal pertains to surrender made during A.Y. 2007-08 is well

within law and in support of its contention, the assessee has submitted

extract of cash account incorporating cash available with assessee on

surrender of income in A.Y. 2007-08 and its effect in A.Y. 2008-09 and

further circulation in A.Y. 2009-10. However, we donot find any finding

17 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

given by the AO in response to the said contention raised by the ld AR

and the same remain uncontroverted.

“there is no correlation between the amount surrendered in

A.Y. 2007-08 and bogus credits/deposits shown in A.Y. 2009-10. The

amount surrendered in A.Y. 2007-08 of Rs.47,10,000/- is represented

by the various assets in the balance sheet for A.Y. 2007-08. It has not

been shown that corresponding assets are bogus or have been

liquidated. Further, as per the assessment order for A.Y. 2007-08,

assessee has not given any address of the persons from whom the

advances were shown and repayments were claimed to have been

made in next year and assessee surrendered the above advance from

customers of Rs.47,10,000/- instead of giving the address of the said

clients.” In response, the ld AR has contended that “Cash” is the only

asset getting affected in respect of these transactions, which cannot be

earmarked as to whether the same is money surrendered or some other

unaccounted money and the same becomes part of pool of funds

available with the assessee as soon as it is admitted and the same can

be adjusted by assessee wherever he deems appropriate. In our view,

18 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh

the amount surrendered by the assessee is represented in the form of

cash deposits in the books of accounts and not any other tangible

assets. So, it is the cash pool which is available with the assessee and

what is required to be investigated by the Revenue in order to hold its

ground is that the assessee has exhausted the cash pool and was not in

possession thereof at the beginning of the financial year under

consideration. However, we donot see any findings given by the ld

CIT(A) and the contention of the assessee that it was in possession of

sufficient cash balance out of income offered in AY 2007-08 and which

was circulated in AY 2009-10 remain uncontroverted.

decision of Hon’ble Supreme Court and Hon’ble Rajasthan High Court in

decisions referred supra, we hold that the assessee shall be eligible to

claim benefit of amount surrendered in AY 2007-08 amounting to

Rs 47,10,000 and to this extent, the addition stand deleted. The

remaining addition of Rs 18,36,664 is not disputed and the same is

hereby sustained.

The appeal filed by the assessee is thus partly allowed.

19 ITA No.328/JP/2014_ M/s Moomal Motors Vs. ITO, Kishangarh Order pronounced in the open court on 08/02/2017.

Sd/- Sd/- ¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Kul Bharat) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 08/02/2017. *Sanjeev*. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- 2. izR;FkhZ@ The Respondent- 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File {ITA No. 328/JP/2014) vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत