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Income Tax Appellate Tribunal, “SMC-C” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee which is directed against the order of ld. CIT(A) – 5, Bangalore dated 28.04.2016 for Assessment Year 2010-11.
The grounds raised
by the assessee are as under. “The Appellant filed his Return of Income for the Asst. Yr. 2010-11 on 30/07/2010 declaring Total Income of Rs.2.58,530/-. The said Return was processed u/s.143(1) on 19/07/2011. The case was selected for scrutiny. The Assessment was concluded by the I.T.O Ward-14(5) u/s.143(3) on 28/03/2013 determining the Total Income at Rs.11,81,890/- thereby making the following two additions:
1. Rs.2,28,460/- being 8% of business receipts of Rs.28,55,200/- brought to tax u/s.44AF of the Act as the Business Income and 2. Rs.2,25,045/- being payments made against credit card bills with Deutsche Bank treating it as unexplained income from Other Sources Being aggrieved by the above action of the AO, the Appellant preferred an Appeal u/s.246A(1)(a) of the Act before the CIT
Page 2 of 7 (Appeals) and the CIT(Appeals)-V, Bangalore vide his order in dated 28/04/2016 enhanced the income by directing the AO to treat entire cash deposit u/s.44AF as income unexplained apart from treating the cash deposit of Rs.28,55,200/- as unexplained u/s.69 of the Act, on the premise that the Appellant was not at all carrying any business and consequently the provisions of sec.44AF was not attracted. Being aggrieved by the above action of the CIT(Appeals), the appellant prefers this appeal u/s.253(1)(a) of the Act on the following among other grounds of appeal
1. The impugned order is illegal. improper, injured and much against all canons of law.
2. The CIT (Appeals) at paragraph 5 (page 6) of his order ha stated as under: "Therefore, by virtue of power u/s. 251 (2). 1 hereby propose to enhance the income by treating the balance cash deposit as unexplained and assessed u/s. 69 of the Act".
3. Sec.251(2) states as under: “The CIT(Appeals) shall not enhance an assessment or a penalty full unless the appellant has had reasonable opportunity of showing cause against such enhancement." In the instant case. the CIT(Appeals) has never whispered or issued any show cause notice proposing to enhance the income assessed. Thus, on this very count itself the appellate order requires to be annulled.
4. The CIT(Appeals) has further held that the AO ought not to have invoked the provisions of sec.44AF of the Act. In this connection, the AO in her order clearly stated that the balance unexplained cash deposits is treated as assessee's business receipts u/s.44AF of the Act 1961 and 8% of such receipts is brought to tax as assessee's Business Income (paragraph 6 of Assessment Order).
5. In other words the appellants explanation that he has explained his sources were cash deposits by way of confirmation being receipts from friends as out of earlier withdrawals and the balance amount of cash deposits may be adopted on tax has been accepted by the AO. In this view of the matter, the CIT's opinion formed without even providing an opportunity to explain as to how this will not amount to business activity is improper.
6. The appellant has paid appeal fees of Rs.10,000/- vide challan enclosed.
7. WITHOUT PREJUDICE TO THE ABOVE, the Appellant submits that the CIT's opinion that sec.69 attracted is illegal since the receipts have been explained duly supported by confirmation letters on whose behalf the Appellant has carried on these transactions. However, solely with the intention of purchasing peace and to avoid protracted litigation, the Appellant has agreed for adoption of 8% net profit.
8. WHEREFORE, the Appellant prays that for the reasons stated above and which are going to be urged at the time of hearing. This authority may be pleased to annul the 1st appellate order and directing the AO to accept the income returned in the interest of justice and equity.” 3. Brief facts are that the assessee filed return of income on 30.07.2010 declaring a total income of Rs. 2,58,530/-. The case was taken up for scrutiny under CASS and accordingly, notice u/s. 143(2) was issued by the AO and served on the assessee. Further notice u/s. 142 (1) was issued by the AO and it was also served on assessee. It is noted by the AO in para no. 5 of the assessment order that the assessee appeared on 28.03.2013 and furnished a letter stating that since he had explained sources for the cash deposits by way of confirmation from friends to the extent of Rs. 9,92,408/- and Rs. 16,42,075/- as out of earlier withdrawals, the balance amount of unexplained cash deposits of Rs. 17,05,162/- may be treated as business receiptsu/s. 44AF of the IT Act and a net profit at 8% may be adopted and taxed. In the subsequent Para, the AO has stated that in respect of cash deposits in Citi Bank, N.A., out of the total cash deposits of Rs. 17,92,800/-, cash deposits stands explained as out of earlier withdrawals to the extent of Rs. 5.31 Lakhs and the balance unexplained cash deposits with Citi Bank N.A. is Rs. 12,61,800/-.
4. Regarding cash deposit in ICICI Bank, it is noted by AO that out of Rs. 22,50,900/- being total cash deposits, Rs. 6,57,500/- stands explained as out of earlier withdrawals and hence, the balance unexplained cash deposits with ICICI Bank is Rs. 15,93,400/-. Thereafter, the AO has noted in para no. 6.3 of the assessment order the names of ten persons along with their PAN from whom the assessee has furnished confirmation in respect of receipt of money of Rs. 9,92,043/-. Thereafter, in the next para, he has stated that out of these
Page 4 of 7 confirmations, cash confirmations are only to the extent of Rs. 3,25,789/- and the assessee has merely furnished the names of the lenders along with PAN without furnishing any evidence as to how the above persons have sourced these funds. In this manner, the AO held in Para no. 6.4 of assessment order that out of the total cash deposits of Rs. 40,43,700/- with ICICI Bank and Citi Bank N.A., the assessee has explained sources to the extent of Rs. 11,88,500/- and he has held that balance amount is unexplained cash deposits of Rs. 28,55,200/-. The AO made an addition of Rs. 2,28,416/- u/s. 44AF of the IT Act at the rate of 8% on this amount of alleged unexplained cash deposit in bank.
In addition to this, the AO has made addition of Rs. 2,95,045/- in respect of expenditure incurred through credit card bills with Deutsche Bank AG stating that the assessee has not furnished a proper copy of the statement nor explained the sources. Being aggrieved with these two additions, the assessee carried the matter in appeal before CIT(A). Before CIT(A), this contention was also raised that once the assessee has furnished PAN and names, the onus cast on the assessee is discharged and the AO ought to have examined further genuineness and credit worthiness of such parties, if doubted. In spite of this, ld. CIT(A) has not given any finding on this aspect of the matter that how the explanation given by the assessee by filing confirmation of various persons along with their PAN is not acceptable as explanation of sources of cash deposit in bank. The ld. CIT(A) has held in para no. 7 of its order that the assessee being a salaried employee with M/s. Thomas Reuters, it is surprising to see that the AO treated the balance unexplained cash deposits in the bank as business income, computing profits and gains u/s. 44AF of the Act as if there was retail business carried out by the assessee, instead of treating the balance cash deposits of Rs. 28,55,200/- as unexplained u/s. 69 of the IT Act. He has further stated that the AO by just presuming that the assessee is engaged in some business activity and thereby invoking the provisions u/s. 44AF has accepted this amount as business receipts and added only 8% thereof u/s 44AF.. He has further noted that in the appellate proceedings, the assessee was asked as to whether he was carrying out any business in the year under consideration, the assessee denied for having done any business.
Page 5 of 7 The ld. CIT(A) has further noted in para no. 6 of his order that notice was issued to the assessee to explain as to why the assessment should not be enhanced. Thereafter, he enhanced the assessment by making addition of Rs. 28,55,200/- as unexplained investment u/s. 69 of the IT Act. In addition to this, addition made by the AO of Rs. 2,28,416/-, there is no finding given by him regarding the objection of the assessee in respect of addition made in respect of credit card payments and receipt on account of secured loan from several persons from whom confirmation with PAN was filed before the AO. Now the assessee is in further appeal before the Tribunal.
At the very outset, it was submitted by ld. AR of assessee that even as per the order of CIT(A), Shri N. Suryanarayana the ld. AR of assessee had appeared before the CIT(A). He submitted that Mr. Suryanarayana has expired on 19.02.2017 and the assessee is not aware as to whether any notice u/s. 251 was served by CIT(A) on him but no such notice was served on the assessee. He submitted an affidavit of the assessee dated 09.01.2018 in which it is stated by the assessee that the CIT(A) has stated in his order dated 28.04.2016 that the show cause notice for enhancement of assessment was issued and that the assessee has made submissions in response to the same. The assessee has further stated in the affidavit that he is not aware of the notices received and replies filed by the ld. AR of assessee. But no such notice was served on the assessee personally. He has further stated that he was only signing the replies by late Shri Suryanarayana and he is not aware about the contents of the replies filed by him before CIT(A). The ld. AR of assessee submitted that under these facts, in the interest of justice, the matter may be restored back to the file of AO for fresh decision after providing adequate opportunity of being heard to assessee so that the assessee can bring the required material on record and issue may be decided after considering all those materials. The ld. DR of revenue supported the order of CIT(A).
I have considered the rival submissions. I find that as per the order of CIT(A), Shri Suryanarayana the ld. AR of assessee has appeared before CIT(A) in the course of appellate proceedings. As per the affidavit of the assessee brought
Page 6 of 7 on record by the ld. AR of assessee, the said AR Shri Suryanarayana had expired on 19.02.2017 and as per the assessee, he is not aware about any enhancement notice issued and served by CIT(A) because the same was not served on him personally and if it is served on late Shri Suryanarayana, the assessee was not aware about that. It is also seen that no categorical finding is given by CIT(A) regarding the claim of the assessee that an amount of Rs. 9,92,043/- is received by him as loan from ten various persons of whom the name and PAN is available on page no. 3 of the assessment order and out of that, only Rs. 3,25,789/- has been accepted by the AO without making any further enquiry from the concerned persons, he has rejected the claim of the assessee regarding the receipt of loan from these persons. Considering the facts of the present case in its entirety and in the interest of justice, I feel it proper to restore the entire matter back to the file of AO for fresh decision and accordingly, I set aside the order of CIT(A) and restore the entire matter back to the file of AO for fresh decision. The assessee has to bring the evidence on record in support of its explanation regarding sources of cash deposit in the bank in the form of earlier withdrawals from bank in and the form of receipt of various loans from various persons. If any claim is not accepted by the AO, he should pass a speaking and reasoned order as towhy he has not accepted the claim of the assessee. Regarding the claim of the assessee that the remaining unexplained cash deposit should be treated as business receipts and income should be added to the extent of 8% of the said receipts u/s. 44AF of the IT Act, I feel that this objection of the CIT (A) is not valid that since the assessee as a salaried employee, there cannot be any business transaction. A salaried person can also be doing a part-time business in the remaining time when he is not in the office and therefore, merely because a person is a salaried employee, it cannot be stated that there cannot be any business receipt of such an assessee. Regarding the addition made by the AO of Rs. 2,95,045/- in respect of payment made against credit card bills with Deutsche Bank, I find that the order of AO is also very cryptic and the CIT(A) has not even referred to this issue in the impugned order and therefore, on this issue, a speaking and reasoned order should be passed by the AO after considering the explanation of the assessee in this regard.
I direct the AO to pass necessary order as per law in the light of above discussion after providing reasonable opportunity of being heard to assessee and the order passed by him should be a speaking and reasoned order.
In the result, the appeal filed by the assessee stands allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.