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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 328/JP/2014
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:-
“On the facts and in the circumstances of the case, Ld. CIT(A) has grossly erred in confirming the addition of Rs.65,46,664/- u/s 68 of the Income Tax Act, 1961 arbitrarily, without appreciating submission made and evidences adduced merely on assumptions and
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.
The facts of the case are that the appellant is a partnership firm
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.
Being aggrieved, the assessee preferred an appeal before Ld.
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
During the course of hearing, the ld. AR submitted all these
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.
On the other hand, Ld. DR vehemently argued the matter and
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.
In case of Anantharam Veersinghaiah, the Hon’ble Supreme Court
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.”
In case of Tyaryamal Balchand (supra), the Hon’ble Rajasthan
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. ..”
In case of R.S Rathore (supra), the Hon’ble Rajasthan High Court
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.”
In light of above, it is clear that the addition to the book profits in the
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.
In this regard, firstly, what needs to be noted is that the amount
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
Now coming to the AO’s findings for the year under consideration
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.
Now coming to the findings of the ld CIT(A), he has stated that
“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.
In light of above discussions and respectfully following the
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