BHARATKUMAR M YADAV,MUMBAI vs. ITO 19(1)(3),

O R D E R

PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being is directed against appellate order dated 20.02.2014 passed by learned Commissioner of Income Tax (Appeals)-22, Mumbai (hereinafter called “the CIT(A)”), for assessment year 2008-09, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 27.12.2010 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143 (3) of the Income-tax Act, 1961 (hereinafter called “the Act”) for AY 2008-09.

2. The Learned CIT (A)-22, erred while charging interest u/s 234A, 234B, 234C & 234D of Income Tax Act, which may be deleted.

before the matter is being heard by your honor.”

3. The assessee is in the business of manufacturing of Farsan. The assessee had made sales and purchases which were stated mainly to be in cash . There was deposits of cash in bank to the tune of Rs. 16,38,800/- as per AIR information, out of which the assessee was not able to explain sources of cash deposits to the tune of Rs.14,08,300/- before the AO with credible and satisfactory explanations. In the opinion of the AO , the said deposits of cash in bank does not matches with the purchases made in cash vis a vis sales made in cash , which led to the addition to the income of the assessee to the tune of Rs. 14,08,300/- as an unexplained cash credit which was deposited in bank account of the assessee u/s. 68 of the Act, vide assessment order dated 27.12.2010 passed by the AO u/s. 143(3) of the Act.

4. Aggrieved by the assessment order dated 27-12-2010 passed by the AO u/s 143(3) of the 1961 Act , the assessee filed first appeal before Ld. CIT(A) and filed certain additional evidences which were forwarded by learned CIT(A) to the AO for submission of remand report keeping in view Rule 46A of the Income-tax Rules, 1962. The learned AO submitted its remand report which is reproduced as hereunder:-

"During the year under consideration, the assesses had deposited cash in his bank account in Bhavani Sahakari Bank totalling to Rs. 14,08,300/- out of the total deposit of Rs.16,38,800/-. The assessee was asked to furnish the proof and evidence of source of funds for cash deposited in bank accounts. In response, the assessee had tried to prove the same through loan receipts of Rs. 8,65,000/- from 5 parties, but failed to furnish the source of cash deposited in his bank account. The assessee is involved in the business of manufacturing of FARSAN. He has shown more or less uniform sales and purchases monthwise. Therefore, it cannot be said that in a particular month there was a huge sale of Rs.5- 10 lacs because average monthly sale and purchase of assessee is approx, 50 to 70 thousand rupees only. Whereas the assessee in the month of August and Sept. 2007 has deposited more than Rs.5,00,000/- in bank and again in the month of January and February 2008 he has deposited more than Rs. 6,00,000/- in the bank and similar amounts have also been deposited in other months. The majority of purchase and sales of assessee are done on cash payment and receipt basis and as per balance sheet creditors are only Rs.40,846/-. Therefore, it also cannot be established that assessee has deposited entire sales proceeds of Rs. 9,99,520/- in bank and has not paid for purchase because the unpaid creditors as on 31.03.2008 are at Rs.40,846/- only as against total purchase of Rs. 7,13,250/- for the entire year. This only proves one thing that the assessee has some other source of cash generation which he has not offered for taxation and tried to evade tax, and invested that amount in some unexplained transactions and therefore Rs. 14,08,300/- is treated as unexplained cash credit u/s. 68 of the I. T.Act and added to the total income of the assessee. Now , the assessee has submitted paper book before your honour, which contains the additional evidences in the form of Memorandum of understanding between the assessee and Ramashare S. Vishwakarma, Gautam P. Singh and Gopal R. Singh for the sale of House Property at Khar for which these parties have given some advances. In this regards it is mentioned that accepting any additional evidence at this stage will amount to accepting of additional evidence in contravention to Rule 46A of the I. T.Rules. The Rule

46A(1) of the I. T. Rules, 1962 stipulates four conditions regarding admissibility of the additional evidences which are as under :- (a) where the A 0 has refused to admit evidence which ought to have been admitted; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the A O; or (c) where the appellant was prevented by sufficient cause from producing before the AO any evidence which is relevant to any ground of appeal; or (d) where the AO has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. In the instant case none of the above four conditions are satisfied. Therefore submission of additional evidences at this stage is not in compliance to Rule 46A(i) of I. T.Rules. Without prejudice to the above, during the remand proceedings vide letter dated 14.10.2013, assesses was called for examining submission made before the Ld. CIT(A). In response, Shri V.A. Mishra, C.A., the authorised representative of the assessee attended on 21.10.2013 and submitted the same details which were submitted before the A.O. during the assessment proceedings in addition to the MOU between the assessee and Ramashare S. Vichkarma, Gautam P. Singh and Gopal R. Singh for the sale of House Property at Khar for which these parties have given some advances. However, the assessee has not submitted any details or source of cash deposited in the Bank account amounting to Rs. 14,08,300/-, In view of the above, the appeal of the assessee may be decided on merits of the case."

"Sir, the ground No. 2 is the main grounds of appeal and remaining grounds of appeal are incidental to the grounds of appeal No. 2 and therefore not discussed in details. Sir, we behalf of the above appellant wish to submit the following:

1) Letter of Confirmation of the Parties (Annexure 1) with copy of I. T. Return File. 2) Bank summary 3) Cash summary of business 4) Personal - Cash Summary & Balance Sheet (Compiled now) 5) Memorandum of Understanding 6) Share Certificate of House Property 7) Return of Income of the appellant for A.Y. 2008-09 together with the Balance Sheet and Profit & Loss A/c. Further, the assessee has a house property at Khar in the relevant Ay the assessee went into an agreement with Ramashree Viskarma, Gautam P. Singh & Gopal R. Singh party for sale of house property at Khar for that purpose the party have given some advance against the property for which particulars have been submitted to the AO. The appellant has submitted the confirmations from the purchasers to the AO. However, the AO failed to appreciate the submissions and consider it while completing the assessment. All the documents pertaining to the receipt of the amount from the parties are submitted hereto to your goodself for your verification and records for your kind consideration. Further, we on behalf of the assessee submit that while appearing before the AO the appellant has explained the source of cash being deposited into the bank together with the confirmation of the parties and the copy of the income-tax return being filed by the aforesaid parties with a view to explain the: 1. Identity of the person 2. The genuineness of the transaction 3. The capacity of the person To invoke the provision of Sec.68 of the IT Act, 1961, the AO is bound to make inquiries before making any additions and will be fail to discharge his duties if no proper inquiry is being made before making up of his mind of invoking of Sec. 68 and making additions to the declared income as unexplained credit. Further, it is also well establish that no additions can be made u/s.68 if assessee furnishes acknowledgement of income tax return of persons who advance money. We rely on the following decisions :- (i) ACITvs. M/s.Kiran PalSingh (ITAT-Delhi) (ii) K.S. Kannan Kunhi vs. CIT

We on behalf of the assessee submit that the submission hereby made to your goodself for your verification, confirmation, record and kind consideration clearly establishes and explains the source of deposits into his bank account. Further, without prejudice, we submit that the AO has referred that the amount was deposited in the bank and the credits were made in the bank passbook and net the Books of Accounts of the appellant. We submit that bank pass-book is not books of accounts for the purpose of sec. 68 as held in CIT Pune vs. Bhaichand H. Ghandhi 141 ITR 67 Bombay, that the bank passbook supplied by the bank to the assessee cannot be regarded as the books of the assessee. Therefore, cash credit for the previous year shown in the assessee's pass book but not shown in the cash book does not fall in within the ambit of Sec.68ofthel.T.Act, 1961. Assessee can furnish alternative explanations : Section 68 provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the ITO, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The section, on a proper construction, does not debar the assessee from offering alternative explanations and if either of them is accepted, the cash credit cannot be charged as the income of the assessee. Therefore, an assessee can furnish alternative explanations, and if any one of them is accepted, the cash credit cannot be charged as the income of the assessee. Further, proper enquiry must be made by A.O. before making any addition u/s.68: The AO must make proper enquiry before making any addition u/s.68. Khandelwal Constructions vs. CIT 227 ITR 900 (Gau.) Further, it is also clearly established fact that the assessee is liable to explain the source of the credit in his books of accounts maintained by him for a previous year relevant to the current assessment but he is under no obligation to explain the source of the source. In the given case, the appellant has explained beyond any doubt the source from where the cash has deposited into the bank account and all the documentary evidence in support if ground of appeal is being forwarded to your goodself. We on behalf of the appellant pray your goodself to consider the submission and delete the addition being made by AO as it is against the law and natural justice to the appellant and could result into heavy financial difficulties.”

The assessee has also submitted cash flow statements before learned CIT(A) to reconcile cash deposits in bank with cash available with the assessee to enable it deposit the same with its bank to contend that no additions are warranted in the hands of the assessee. The assessee has contended firstly that cash withdrawal from bank was in-fact re- deposited with its bank. The second main source of cash for deposit in bank is stated to be an cash advance received against proposed sale of flat on signing of MOU. The assessee had claimed that the assessee received cash advances to the tune of Rs. 7,00,000/- on signing of MOU against proposed sale of flat situated at flat no. 16, Shri Chaitanaya Co-operative Housing Society Limited to three persons for total consideration of Rs. 30,00,000/- . The said sale of the flat was proposed to be completed by 30.09.2009. The assessee led additional evidences before learned CIT(A) to support and substantiate its contentions as under:-

1) Letter of Confirmation of the Parties (Annexure 1) with copy of I. T. Return File. 2) Bank summary 3) Cash summary of business 4) Personal - Cash Summary & Balance Sheet (Compiled now) 5) Memorandum of Understanding 6) Share Certificate of House Property 7) Return of Income of the appellant for A.Y. 2008-09 together with the Balance Sheet and Profit & Loss A/c.

The Ld. CIT(A) rejected the contentions of the assessee by disbelieving the entire story as setup by the assessee . The additional evidences in the form of MOU and confirmations with respect to proposed sale of flat which were filed by the assessee during the course of appellate proceedings were held to be an after-thought by learned CIT(A) to dismiss the appeal of the assessee. The assessee appeal was , thus, dismissed by Ld. CIT(A) , vide appellate order dated 20.02.2014 passed by learned CIT(A) .

1) Letter of Confirmation of the Parties (Annexure 1) with copy of I. T. Return File. 2) Bank summary 3) Cash summary of business 4) Personal - Cash Summary & Balance Sheet (Compiled now) 5) Memorandum of Understanding 6) Share Certificate of House Property 7) Return of Income of the appellant for A.Y. 2008-09 together with the Balance Sheet and Profit & Loss A/c.

The Ld. CIT(A) discarded the entire story as set up by the assessee as an afterthought . It is a matter of record that both the AO in remand proceedings as well learned CIT(A) did not made any enquiry as well verifications as to explanations submitted by the assessee before discarding the evidences filed by the assessee merely by terming the same as an afterthought. Before us , the assessee has infact raised this ground that the evidences furnished by the assessee were not duly considered by the authorities below vide ground no 1 filed in memo of appeal filed with the tribunal and prayer is made to set aside the issues to the file of the AO for verification of the evidences filed by the assessee. We have carefully gone though the appellate orders of the Ld. CIT(A) and as outlined above, it is a matter of record that no enquiry or verification was done by either learned CIT(A) and/or AO during remand proceedings with respect to additional evidences filed by the assessee and explanations submitted by the assessee. Keeping in view entire factual matrix of the case and in the interest of substantial justice, we are of the considered view that the evidences and explanations as were furnished by the assessee before learned CIT(A) need to be properly enquired into and verified by the AO and after due verification and enquiry , the matter need to be adjudicated afresh denovo by the AO on merits in accordance with law. Thus, we are setting aside and restoring the issues arising in this appeal to the file of AO for denovo adjudication on merits in accordance with law. Needless to say that primary onus is on the assessee to prove and substantiate the sources of cash deposit in its bank accounts. The AO shall grant proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. The evidences as are led by the AO in its defence shall be admitted by the AO in the interest of justice. The appeal of the assessee is allowed for statistical purposes. We order accordingly.