SH. GULSHAN KUMAR PROP. G.K. RESORTS,LUDHIANA vs. DCIT CIRCLE-2, LUDHIANA

Briefly stated, the facts of the case are that the assessee is an individual who has filed his return of income on 04.08.2017 declaring total income of Rs. 30,40,160/- under the head “income from salary”, “income from house property”, “income from business/profession” and “income from other sources”. The case of the assessee was selected under CASS on account of large cash deposits made during the demonetization period for complete scrutiny, thereafter notices u/s 143(2) and 142(1) were issued calling for the information/documentation. Further, during the course of assessment proceedings, the assessee was also issued a show cause dated 19.12.2019 as to why the amount of cash deposits in the demonetization period amounting to Rs. 1,20,58,272/- should not be considered as unexplained cash credit and added to his income u/s 68 of the Act. In response to the show cause, the

Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) has given part relief of Rs. 15,60,000/- and remaining addition of Rs. 95,55,371/- has been sustained. Against the said findings and order of the ld. CIT(A), the assessee is in appeal before us.

During the course of hearing, the ld. AR submitted that out of Rs 1.20 crores deposited during the demonetization period, there was opening cash in hand of Rs. 94.39 lacs and the details thereof are as under:- Financial Year 2015-16 Amount (in Rs.) Opening cash as on 01.04.2015 as per cash 11,17,667/- (Page no. 59) book Add: Total Withdrawals (As per bank 25,24,500/- statement) Add: Rental Income (shown in ITR) (Page No. 6,60,000/- 2

It was submitted that the Assessing Officer has stated that the opening balance of Rs. 94.39 lacs as on 01.04.2016 is unverifiable and without any documentary evidences. It was submitted that regarding the opening balance as on 01.04.2016, the source along with all the evidences were duly submitted and explained before the Assessing Officer during the course of assessment proceedings. However, Assessing Officer without any finding of fact against the assessee made the addition. It was submitted that the assessee, in addition to the books of accounts related to his business, also maintain the personal books of accounts. Further during assessment proceedings, personal cash book of the assessee was duly submitted before the Assessing Officer. It was submitted that the personal books of accounts are never subject to audit and neither there is any requirement in law to get the personal books of accounts audited. It was accordingly submitted that the action of the Assessing Officer is highly unjustified for rejecting the personal cash book merely on the ground that the same is not audited and that too, when the law does not impose any compulsory audit of the personal books of accounts. It was submitted that the cash deposits were made out of the cash balance in the cash book. It was further submitted that the cash balance is being carried forward from the preceding year but the Assessing Officer without properly analyzing the cash deposits made the addition. It was submitted that the assessee is regularly assessed to tax and

Further with respect to the each of the individual entries in the cash flow statement so submitted by the assessee, it was submitted that the cash deposits and withdrawals as per cash book are from the regular bank account mainly HDFC A/c number 5520 which is already disclosed in the income tax return. Further, the deposits in the HDFC bank account are from the regular source of income already disclosed in the income tax return and it is clearly noticeable that the credit entries in the bank account are mainly from M/s GKS Infrastructure and the maturity of fixed deposits. Further, it is submitted that assessee is a Director in M/s GKS Infrastructure Ltd and receives salary from the company. Further, there are transactions of loan taken and repayment thereof. It was accordingly submitted that all the transactions are routed through banking channel and it is not a case where the assessee has unexplained credits and the source of the credit entries in the bank accounts are not available. Regarding rental income, it was submitted that the assessee has let out various properties from where assessee earns monthly rental income of Rs. 55000/- which has been duly reflected in the return filed for F.Y 2015-16 and the Assessing Officer has merely rejected the explanation of the assessee on the ground that no TDS has been deducted on the rental income. It was submitted that the TDS is not applicable since rent from one property does not exceed the threshold limit 4

It was further submitted that assessee has received the agricultural income in the captioned year i.e 2016-17 and in the preceding year i.e. F.Y 2015-16. In addition, a confirmation from the cultivating tenant has also been filed by the appellant during the assessment proceedings indicating the amounts paid by him to the assessee during the captioned year involved in this appeal. It was submitted that amount has already been taken as income by the assessee in his return of income as agricultural income and the Assessing Officer has no authority in law to change the source of income as income from undisclosed sources, unless something to the contrary is established by him. It is submitted that when the assessee has furnished evidence to support his claim of agricultural income during the years in question and further, the same has not been controverted by the Assessing Officer by bringing any adverse material on record, the explanation of the assessee cannot be rejected.

Regarding gifts from two sons, it was submitted that Assessing Officer treated the cash gifts as an afterthought story merely on the basis of sequential stamp paper and held that the assessee has fabricated the cashbook to explain the cash deposits of his unaccounted money. It was submitted that the during course of assessment proceedings, sufficient documentary evidence in the form of gift deed, returns of income filed by the donors of the gift along with their cash book were furnished and the same have never been denied by the Assessing Officer. Further, on perusal of cash book of the donors of the gift, it is clear that there was enough balance with the donors to make the gifts. Further, the gift has been made by the donors from their regular source of his income which is duly reflected in the cash book submitted with the authorities. Further, furnishing of PAN no. along with the copy of ITR’s clearly established that the donors are genuine and regular income tax assessee and subject to the assessment. It was submitted that in

It was further submitted that assessee is a sole Proprietor of M/s G. K. Resorts which is into the business of renting of halls for marriages and other activities. During the F.Y 2015-16, assessee withdraws Rs. 12 lacs from his capital account and the same is clearly evident from the capital account of the assessee which has been duly submitted before the Assessing Officer. Further, it was submitted that assessee is regularly assessed to tax on income from house property, income from business and agriculture income in previous assessment years also and during the course of appellate proceedings, it was submitted that in the year under appeal, nothing new has been brought on record by the assessee during the course of appellate proceedings which creates doubt or suspicion in the mind of the Assessing Officer. The Assessment Order for the A.Y 2011-12, A.Y 12-13 & A.Y 13-14 are placed on record. It was submitted that the assessment has been done by the same Assessing Officer as for the year under appeal and further, the income has been declared under the same sources by the assessee and well accepted by the Assessing Officer. But in the year under appeal, the same sources have been denied by the Assessing Officer without any material evidence on record. It was accordingly submitted that the opening cash in hand amounting to Rs. 94.39 lacs represents the declared source of income and the said cash has been deposited during the demonetization period.

Further, our reference was drawn to the cash book prepared for F.Y 2016-17 and contents thereof as below.

In this regard, it was submitted that the item wise explanation of the entries reflected in the cash book were duly submitted before the Assessing Officer. It was submitted that the cash deposits and withdrawals are from the regular bank account which is already disclosed in the income tax return. It was submitted that the assessee has let out various properties from where assessee earns monthly rental income of Rs. 55000/-. Similarly the agricultural income of Rs. 5.45 lacs which has already declared in the return of income, further, the assessee has received cash gift from his wife amounting to Rs. 2.20 lacs and in support of the gift transaction, sufficient documentary evidence was filed by the assessee in the form of valid return of income of the donor along with the cash book but the same was never confronted or denied by the Assessing Officer. It was accordingly submitted that the closing balance as on 07.11.2016 amounting to Rs. 98.58 lacs therefore stand duly verified.

It was submitted that the assessee has duly explained cash deposits in the regular bank account with all the supporting evidence. It was submitted that it is not a case where the assessee has any unrecorded money outside 7

It was further submitted that the Assessing Officer without pointing out any defect in the above cash flow chart and other supporting evidences/ documentation so furnished by the assessee has rejected the explanation so furnished and has made the addition in the hands of the assessee which is totally unwarranted. It was submitted that even before the ld. CIT(A) each and every entry of the cash withdrawal and sources of rental income, agriculture income, gifts from sons and other evidences were furnished along with capital account in the proprietorship concern as submitted before the Assessing Officer. It was further submitted that the ld. CIT(A) thereafter in his wisdom deputed the Inspector working in his office for detailed verification of documents as submitted by the assessee and a report was submitted by the Inspector at page 19 of the impugned order and no defects have been pointed out in various entries of the cash flow for the F.Y 2015-16 and 2016-17 viz a viz bank accounts for both the years and have repeated the same observations to the ld CIT(A) as made by the AO and for which again, a detailed submission was filed before the ld CIT(A) which also find mention in at pages 19-25 of the impugned order.

It was submitted before the ld CIT(A) that the assessee had relied upon the cash flow for the financial year 2015-16 and 2016-17 and all the bank accounts and even the income declared by the assessee for A.Y 2013-14 to

It was submitted that the submission so filed by the assessee however did not fully find favour with the ld. CIT(A) and he has sustained part addition made by the AO. Regarding the findings of the ld. CIT(A), our reference was drawn to the assessee’s written submission and the contents thereof read as under:

It was accordingly submitted that the confirmation of the addition by the ld. CIT(A) is arbitrary and against the principle of natural justice because the documentary evidences have been brushed aside without assigning any reasons and especially after having verified in detail, each & every narrative entry in the cash flow for the F.Ys 2015-16 & 2016-17 by the Inspector working under his charge, the whole basis for confirmation of addition, deserves to be deleted.

Further, reliance was placed the Co-ordinate Jaipur Benches decision in the case of Sh. Sunil Mathur (ITA No. 660/JP/2019 dated 01.11.2021), wherein under the similar facts & circumstances, where the assessee was not maintaining any books of accounts and all transactions were made in the cash were duly reflected in the cash flow for which a detailed cash flow statement was maintained, a finding has been given by the Tribunal and it had been held that where the cash flow statement for previous financial year depicting individual transactions of receipts & payments/withdrawal having been given, no addition is liable to be made. Reliance was placed on another decision of Coordinate Jaipur Benches in the case of Smt. Pinki Devi (ITA No. 515/JP/2018 dated 16.01.2019), where certain gifts were given by the family members and in support of such cash deposit received by way of gifts, documentary evidences were found and basis thereof, the addition was deleted. Further, reliance was placed on the decision of Lucknow Benches of the Tribunal in the case of Satish Chandra Pandey (ITA No. 525/LKW/2010 dated 30.03.2011), wherein assessee was regularly filing the return of income and the amount has been reflected in the cash flow statement and which did not pertain to the year under consideration, the addition was deleted. It

The ld. DR in her submissions supported the order and the findings of the Assessing Officer as well as ld. CIT(A). Regarding the contention of the ld. AR that the addition on account of opening cash in hand cannot be made in the year under consideration, it was submitted that the same cannot be accepted for the reason that it is the assessee claim that cash deposited during the year under consideration was out of opening cash in hand and given that where the said claim of the assessee regarding reopening cash in hand was not found substantiated and rejected by the Assessing Officer, the addition was made by him. It was further submitted that the assessee has made a cashbook with huge opening cash of Rs. 94.39 lacs which is an arbitrarily figure of cash in hand which cannot be accepted until and unless, these are reflected in the regular books of accounts of the assessee or declared/intimated to the Department before selection of case for scrutiny. It was submitted that such cash in hand is not substantiated by any documentary evidence in the firm of withdrawals from the bank account or withdrawals from regularly maintained books of accounts which were never got audited and its authenticity which is thus not established. It was submitted that the cash book/cash flow produced by the assessee during the assessment proceedings is only a self-serving document and the assessee has not filed any documentary evidence to substantiate opening in cash in hand which was any way declared in any documents filed before the Department from which this figure can be independently verified.

Coming to the rental income which has been claimed as one of the sources of cash deposits by the assessee, it was submitted that the assessee has contended that the TDS provisions are not applicable. However, the same is not factually correct as the assessee in his computation of income for A.Y 2016-17 has shown income from various properties which varies from Rs 1.8 lacs to Rs 6.95 lacs where the TDS provisions are clearly applicable.

We have heard the rival contentions and purused the material available on record. The issue under consideration relates to source of cash deposits in the bank accounts maintained by the assessee during the demonetization period and the reasonableness of the explanation so submitted by the assessee explaining the source of such cash deposits. For the purposes, it is relevant to note the nature of activities being undertaken by the assessee, the books of accounts being maintained by him, if any and the status of disclosure thereof by way of tax filings and acceptance or otherwise by the tax department. In this regard, it is noted that the assessee is in the business of renting of halls for marriages and other functions which he runs in his capacity as sole proprietor in the name and style of M/s G.K Resorts and for which he maintains his separate books of accounts and separate bank accounts. The assessee is also a director in M/s GKS Infrastructure Ltd 15

Further, it has been submitted by the ld AR that these documentation have been examined by the AO where each and every entry has been duly explained, thereafter, he has asked certain queries and which were duly responded, however, the AO without pointing out any defect in the documentation and other evidences so submitted has summarily rejected the explanation so submitted by the assessee. It has been further submitted that during the appellate proceedings, the documentation so submitted by the assessee were again subject to examination and verification by the Inspector deputed by the ld CIT(A) who after examination has submitted his report where no defects have been pointed out by him. However, without taking into consideration the report submitted by his own Inspector, the ld CIT(A) has sustained the majority of the addition so made by the AO allowing only a partial relief.

In our view, the test of reasonableness of the explanation has to be examined in the context of nature of business and other financial dealings of the assessee and how the assessee has maintained documentation in that regard. There cannot be a uniform test which can be applied in each and every situation. Where there is no statutory mandate to get the books of accounts audited, insisting that the books of accounts or for that matter, the cash book is not audited and consequent cash flow statement is not reliable, we find that it is a case where the authorities have not been reasonable in their expectation rather than the case where the assessee has not provided

Now coming to the specific explanation regarding various sources of income constituting the opening cash in hand and availability thereof as on 1.04.2016, it has been submitted by the assessee that the same relates to opening cash in hand as on 1.04.2015, rental income, agricultural income, gifts from his two sons, cash received from M/s GK Resorts besides net of withdrawals and deposits from his bank accounts and it needs to be seen 19

Regarding opening cash in hand as on 1.04.2016, the assessee has submitted that as per his return of income for three years namely, A.Y 2013-14 to A.Y 2015-16, he has shown cumulative income of Rs 86,37,670/- and out of which, cash-in-hand is of Rs 11,17,667/- which constitute 12% of his past earnings which has been kept to take care of any unforeseen contingencies. The tax filings are matter of record and savings as a percentage of earnings seems reasonable to us in absence of anything contrary on record. The rental and agriculture income has been accepted by the ld CIT(A) and the same are not in dispute. Regarding gifts received from his two sons, it is noted that documentation in form of personal cash book maintained by both the sons, their bank statements, copies of their tax returns, assessment orders and gift deed by way of duly attested affidavits have been submitted and on perusal thereof, we find that the assessee has duly discharged the onus cast upon him in terms of identity, genuineness of the gift transaction and the creditworthiness of his two sons, and the explanation regarding receipt of gift from the sons to the father out of love and affection deserve to be accepted. Regarding cash received from M/s GK Resorts, the assessee has submitted copies of balance sheet and profit/loss account of M/s G K Resorts as well as copy of capital account in name of the assessee which is maintained in the books of M/s G K Resorts and we find that the entries therein demonstrate withdrawal of capital by the assessee and the explanation regarding receipt of cash by way of withdrawal from his capital account therefore deserve to be accepted. Besides the above, there are other regular withdrawals and deposits transactions from the bank accounts maintained by the assessee which have been duly disclosed and reflected in the cash book and cash flow statement and have not been disputed by the authorities. We therefore find that the assessee has not just provided a reasonable explanation to explain the source of cash deposits but the said explanation has been adequately supported by adequate documentation 20

In the result, the appeal of the assessee is allowed.