GURCHARAN SINGH BHATIA,NEW DELHI vs. ACIT CIRCLE-47(1), NEW DELHI

The assessee also explained that he is into the real estate business and finance business since assessment year 2007-08 and the fact of carrying on this business has already been accepted while framing regular assessment for the assessment years 2007-08 and 2008-09 and subsequent assessment years. The assessee explained that he is booking space, shops in malls, flats and plots and advancing money for earning business income. The assessee also explained that he is also advancing money for earning interest income. For investment in the above business, the assessee had raised funds from banks, financial institutions and from relatives and private parties. The assessee also explained that he had advanced amounts to various parties for earning interest income. In that process, an amount of Rs.17,52,681/- was earned as interest from finance business.

4. The assessee further explained that he could not sell any booking on account of fall in real estate business and the advance is remained as advance. It is also explained that no new loans have been taken from the banks during the year. The assessee explained that he has secured bank loans which were used in business and for construction of business properties, it was also explained that the property could not be sold on account of fall in real estate business by more than 40%. It was further explained that the assessee instead of keeping the property idle, it has given on rent for earning rental income and for payment of loan, interest and EMIs to banks. It was further explained that during the year, the assessee earned rental income of Rs.1,96,20,000/- which was declared under the head “income from house property”. The assessee also earned interest of Rs.17,52,681/- from finance business and he has incurred expenses of Rs.2,07,13,188/- including bank charges, electricity, interest on secured loan, loan processing charges, travelling expenses, repair and maintenance expenses etc. It was submitted that all these expenses are business expenses and are allowable under Section 37(1) of the Act.

6. On appeal, learned Commissioner of Income-Tax (Appeals) sustained the disallowance made by the Assessing Officer.

8. In so far as findings of the learned Commissioner of Income- Tax (Appeals) for the assessment year 2009-10, they became final as the Tribunal decided the issue in assessee’s favour and Revenue has accepted that the assessee is into the business of real estates and finance. The learned counsel further submits that the returns filed by the assessee were also accepted by the Revenue even for the assessment years 2017-18 to 2022-23 accepting the income/loss return by the assessee under the head “business”.

Learned counsel for the assessee further submits that 17 parties to whom loans and advances have been given were never for earning interest in all those cases. It is only 4 parties from whom interest was expected to be earned on loans extended to them. Interest earned from these four parties was offered for taxation. The other thirteen parties from whom interest has not been earned are those with whom properties have been booked for purchase and later on for sale at an appropriate time and, therefore, the allegation of the Assessing Officer that the assessee did not charge interest from all these seventeen parties and charged only from four parties is not correct. The learned counsel, therefore, submits that this is a covered matter as learned Commissioner of Income-Tax (Appeals) for the assessment year 2009-10 and subsequent assessment years held that the assessee into the real estate business and the interest expenses are allowable as deduction. The Tribunal sustained the order of the Ld. CIT(A) for assessment year 2009-10.

9. On the other hand, learned Departmental Representative referring to para 3.8 of the assessment order submits that it is the finding of the Assessing Officer that the loans were not used for any business purposes, no agreements were produced and, therefore, the interest expenses are not allowable as deduction. The learned Departmental Representative also submits as under:

“ It is respectfully submitted that the following facts and arguments may kindly be taken into consideration - 1.The assessee has not transacted in any property during the year. The claim of the assessee that he is engaged in the business of buying and selling of property and that he takes loans to buy properties stands disproved from the fact that no property has been purchased by him since 2006. This is clearly proven by the submission of the assessee himself as reproduced in the order of Ld. CIT(A) at Page 16 of his order. 2.The Ld. CIT(A) has further observed at page 16 that the AO has clearly recorded that the assessee did not file any documentary 3. proof to authenticate his claim that some loans were used to book properties. He has further observed very clearly that the Balance Sheet is NIL against “Investments” column which clearly proves that the claims of the assessee are factually incorrect. The assessee’s own documents are clearly showing that he has been misleading the Revenue regarding the state of his affairs. 4.Even the interest received by the assessee is largely from the FDs. 5.In respect of the loans and advances of Rs. 8.17 crore advanced by the assessee, the interest earned is only Rs. 12.10 lacs approx.

7. The details provided by the assessee show that interest has been shown from only 4 out of 17 parties to whom the assessee has collectively given Rs. 8.17 crore loan out of interest bearing loans that he has availed.

8. Further, even the interest claimed from 4 out of 17 parties has actually NOT BEEN RECEIVED at all and only entries in the ledger accounts have been made.

9. A significant part of interest free advances have been given by hin to his own company M/s Khushi traders private Ltd or other Bhatia siblings.

12. As mentioned clearly by the Ld.CIT(A) at page 17 of his order, it was specifically enquired if the property C- 9, Westend Colony purchased/constructed during 2006- 11 was sold off as the assessee has claimed interest on loan taken for purchase/construction as BUAINESS EXPENDITURE. The assessee claimed that as the property could not be sold, so l/4th of the said property was being used as the personal residence of the assessee while 3/4th has been given out on rent. The Ld.CIT(A) has thus rightly concluded that in these facts , only deduction u/s24(b) could have been allowed and not claim of interest payment as business expenditure which the assessee has wrongfully done over several years.

13. Further, the CIT(A) has rightly observed at page 17 of his order that the assessee has himself submitted that for loan of Rs. 10 crore from syndicate bank, the bank had taken collateral charge on the property in CP, Delhi and he had paid loan of Reliance Capital used in construction of property at C-9, Westend Colony. Hence the loan is, therefore, inextricably linked with purchase of property C-9 and, therefore, double deduction cannot be allowed.

14. The Ld CIT(A) has further rightly observed that the top up loan of RS. 22.79 lacs from ICICI was also used for purchase of shops on which the assessee is earning

rental income and hence the interest paid on such loan cannot be allowed as business expenditure. 15. The assessee has thus been consistently defrauding the Revenue by claiming interest paid on loan as business deduction and also standard deduction from the income that has been earned by letting out such properties”.

10. The learned counsel for the assessee filed his rejoinder as under:

“The Submissions are as under:- Para 1) It is true that there was no property transaction during the year. Assessee has been explaining to the Assessing Officers (AO hereafter), year after year and inclusive of the subject year, that the Real Estate business had become in-conducive and loss-making. The decline of prices in the reality sector was nearly about 40%. Consequently the properties or 'interest in property’ as acquired in the preceding years were continued to be held for sales at an appropriate time in future when the market would revive. It needs appreciation that any business is a continuous process. Business does not begin with the commencement of the financial year to end with the conclusion of that financial year. The beginning and the end of financial years are two points which are relevant only for the purpose of profit determination for a year. Business, however, is a continuing, integral and uninterrupted process which is spread after over several years after its commencement. Business terminates only the business activity is wholly given up. Thus the submission made by the Revenue that since the Assessee had not transacted in any property during the year and so the assessee was not engaged in any business is misconceived, misleading and fallacious.

2 & 3) In the first place it needs to be clarified that the Assessee is not an investor in properties. Assessee is a trader of properties. The properties held for trade are reflected under the head current assets, fixed assets in the Balance Sheet placed at page 10 of the main Paper Book. The averment of the Revenue in this regard is per se erroneous. 4) Investing in FDRs is one amongst the several business activities of the Assessee. No objection can, therefore, be taken to the receipt of interest from FDRs by the Assessee. 5) The loans and advances comprise both of loans provided to customers for earning interest and also paid for the booking of moce^es. ^e advances paid for booking properties do not fetch any interest. The figures under the two heads, therefore, cannot be aggregated to argue insufficiency of income from interest receipts. 6) The allegation of interest free advances / loans to friends and related persons is misconceived and untrue. No specific case has been brought on record by the Revenue with proper evidence. 7) The 17 parties to whom loans and advances have been given were never for earning interest in all those cases. It is only 4 parties from whom interest was expected to be earned on loans extended to them. Interest so earned has been submitted for taxation. The other 13 parties from whom interest has not been earned are those with whom properties have been booked for purchase for sale at an appropriate time. 8) Assessee's accounts are subject to assessment on accrual basis, Therefore, irrespective of the receipt of the interest amount, they get To be taxable on the due dates. The AO in the assessment order in the Cause Title has clearly mentioned the method of accounting of the Assessee as mercantile in column No.

10) The shuffling on loans and advances has been done out of business compulsions. The swan-cry of the Authorities that meagre interest has been shown is incorrect and is not in accordance and is contrary to the facts of the case. The interest earned is proportionate to the loans extended during the year. As pointed out above, most of the advances are for acquisition of properties on which, as per market practice, no interest was due and so not earned. The allegation of fhe Revenue that “the Assessee is deliberately engaged in booking losses on account of interest outgo for purposes not related to business at all is misconceived and erroneous and not borne out by the facts of the case and the material on record. 11&15) The allegation of the Revenue that fraud has been perpetrated by the Assessee is stoutly denied. The allegation is malicious and obnoxious. In fact the Assessee has suffered continuously because of incorrect and improper actions of the Authorities culminating in disallowances year after year in the past. All that has happened due to the ignorance of the Authorities as to business practise and conventions and due to the complete absence of a requirement in the system for accountability and answerability. The compilation of 59 pages detailing the case history from AY 2009-10 to AY 2013-14 at pages 1-19 of the compilation clearly evidences the unfair treatment meted out to the Appellant by the several Assessing Authorities in the past. 12) The Ld. CIT(A) has contradicted herself by saying that the property investments at CX9, Westend Colony, New Delhi-110027 was personal even though she herself has taken note of fhe fact that 3/4h of that property was earning rent and only the rest of the 'A th was occupied by the Assessee. Double deduction of any sort has not been claimed at any time by the Assessee. The allegation is false. The deduction as permitted by S.24(a) of the Income-tax Act, 1961 (the Act) to the Assessee is not for any interest paid on loans for purchasing a property. Deduction for interest paid on loans availed for acquiring properties is covered separately under S.24(b) of the Act. No such claim has been made by the Assessee u/s. 24(b). All interest outgoings have been claimed solely against business income. There is thus no question of any double deduction. 13) As a business entity, Assessee has the unfettered right to arrange his affairs according to his prudence and discretion. Any objection by the Revenue in this regard is inconsequential and redundant. The apex Court decisions in Walchand & Co. P. Ltd. (1967) 65 ITR 381 and J.K.

Woollen Manufacturers (1969) 72 ITR 612 stand solidly to support this proposition. 14) The CIT(A) s observation regarding the interest charge on the top up loan of Rs. 22.79 lacs from ICICI is ex facie erroneous, in as much as, the property has been acquired out of an interest bearing loans and so interest has rightly to be allowed against the business income resulting from the same. Irrespective of assessment as rental income the income will not lose its identity as a receipt from business activity. 15) This allegation emanates out of a basic ignorance on the part of the Revenue Authorities as to the manner of treatment on the part of the Revenue Authorities to the manner of treatment of interest paid on loans obtained for acquisition of properties held as current assets. The basic principle that the nature of the activity giving rise to the income cannot be ignored as perhaps not been understood by the Revenue Authorities. The decision of the apex Court in Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 explains the principle applicable in such cases”.

The learned Commissioner of Income-Tax (Appeals) agreed with the contentions of the Assessing Officer. The learned counsel placing reliance on the orders of learned Commissioner of Income- Tax (Appeals) for the assessment year 2009-10 submits that the issue of as to whether the assessee is into real estate and finance business was already decided in the assessment year 2007-08 onwards and in the assessment year 2009-10, it is the finding of the learned Commissioner of Income-Tax (Appeals) that the assessee is into real estate business and, therefore, the interest expenses have to be allowed as deduction and this decision of the Ld. CIT(A) has been sustained by the Tribunal.

“4.6 I have considered the order of the AO and the submissions of the assessee and I find considerable merit in the submission of the assessee that the assessee is in the real estate business. It is also apparent that the assessee purchased the property on 08/03/2006 for Rs.3,56,40,000/- and thereafter the assessee has demolished the old structure and had constructed a new building by making the new investments of Rs.1,02,50,064/- in the AY 2007-08, Rs.1,20,94,513 and the AY 2008-09 and Rs.1,05,16,509/- in the A.Y 2009-10 and as such it is very much apparent that the assessee was in a real estate business venture. So it is apparent that the motive of the assessee is to be in the real estate business. There is also considerable merit in the submissions of the assessee that the property could not be sold because of the poor market conditions. It is also apparent that the assessee is in the real estate business and for this purpose only the old property was purchased on 08/03/2006 and the assessee has constructed a new building on the same property after demolishing the old building. It is apparent from the above facts and circumstances of the case that the business activities of the assessee started with the purchase of the property on 08/03/2006 and as such the assessee is eligible for the deduction of the interest payments which are for the purpose of business. 4.7 After considering all the case facts and circumstances of the case, I am of the view that there is no proper justification for the AO for disallowance of the interest payments and accordingly, the appeal of the assessee is allowed and the addition made by the AO is deleted.”

Ground No. 1.

3. Apropos Ground No. 1, the ld. DR supported the orders of the assessing officer and submitted that the CIT(A) was not justified in deleting the addition of Rs. 1,26,62,318/- by ignoring the facts the expenses of interest are for the prior period before the commencement of business and are not allowable as a normal business.

5. We have heard the rival submissions and have carefully perused the relevant material on record. From the facts emanating from the order of the AO and the submissions of the assessee it is an undisputed fact that the assessee was having a property at C-2 & 3, Premji House, Connaught Place, New Delhi which had been given on rent and the assessee was receiving rental income. The assessee has also purchased a property on 08/03/2006 for a consideration of Rs 3,56,40,000/- at C-9, Westend Colony, New Delhi and the property had been purchased by taking loans from Canara Bank and Indian Bank etc. The ld. AR submitted that the assessee hands demolished the old building/property and has constructed a new building at the same premises i.e C-9, Westend Colony, New Delhi. The investment in the new property had been made after taking loans and investment of Rs 1,02,50,064/- has been made in the AY 2007-08, Rs 1,20,94,531/- has been invested in the AY 2008-09 and Rs 1,05,16,509/- has been invested in the AY 2009-10 respectively. The assessee had taken loan from Kotak Mahindra Bank and has repaid the earlier old loans of Indian Bank etc. The assessee had also subsequently taken loan from Reliance Capital Ltd to repay the old loans of Kotak Mahindra Bank etc. The assessee has paid the interest amount of Rs. 1,26,62,318/- for the loans taken from Reliance Capital Ltd. During the course of assessment proceedings the assessee claimed the interest payments under the head ‘business expenses’ on the ground that the assessee was in the real estate business and the loans were taken for the purpose of purchasing and constructing a commercial property. Earlier the assessee had claimed the interest payments and had adjusted the expenses against the house property income. The AO disallowed the payments of interest on the ground that the assessee is not doing any real estate business and even if the real estate business is being done, the expenses of interest are for the prior period before the commencement of the business and as such the interest expenses are not allowable as a normal business expense vide the order of the AO. When the assessee went in appeal against the order of the AO and submitted that the AO was not justified in disallowing the interest payments as the same were paid for the purpose of business, the ld. CIT(A) deleted the same. Now the aggrieved Revenue is in appeal against the action of the ld. CIT(A) in granting relief to the assessee.

6. After considering the rival submissions, we find that the ld. CIT(A), at para 4.6 and 4.7 has discussed the issue and has come to the following conclusion as reproduced hereunder:

“4.6 I have considered the order of the AO and the submissions of the assessee and I find considerable merit in the submission of the assessee that the assessee is in the real estate business. It is also apparent that the assessee purchased the property on 08/03'2006 for Rs 3,56,40,000/- and thereafter the assessee has demolished the old structure and had constructed a new building by making the new investments of Rs 1.02,50,064/- in the AY 2007-08, Rs 1,20,94,531/- in the AY 2008-09 and Rs 1.05.16,509/- in the AY 2009-10 and as such it is very much apparent that the assessee was in a real estate business venture. So it is apparent that the motive of the assessee is to be in the real estate business. There is also considerable merit in the submissions of the assessee that the property could not be sold because of the poor market conditions. It is also apparent that the assessee is in the real estate business and for this purpose only the old property was purchased on 08/03/2006 and the assessee has constructed a new building on the same property after demolishing the old building. It is apparent from the above facts and circumstances of the case that the business activities of the assessee started with the purchase of the property on 08/03/2006 and as such the assessee is eligible for the deduction of the interest payments which are for the purpose of business. 4.7. After considering all the case facts and circumstances of the case, I am of the view that there is no proper justification for the AO for disallowance of the interest payments and accordingly, the appeal of the assessee is allowed and the addition made by the AO is deleted.”

7. From the above conclusion of the ld. CIT(A), it is apparent that the assessee is in the real estate business and for this purpose only the old property was purchased on 08/03/2006 and the assessee has constructed a new building on the same property after demolishing the old building. It is also apparent that the business activities of the assessee started with the purchase of the property on 08/03/2006 and as such the assessee is eligible for the deduction of the interest payments which are for the purpose of business. The ld. CIT(A) was quite justified and correct in deleting the addition so made by the A.O in view of his findings. We find no lacunae in his order and thus we uphold the same. Accordingly, there being no merits in the ground No. 1 raised by the department, the same is dismissed.

However, not convinced with the submissions of the assessee, the Assessing Officer treated the cash deposits of Rs.66,70,000/- on the ground that the assessee did not show any expenditure against cash withdrawals from banks ignoring the submission of the assessee that the cash was withdrawn whenever required from other banks to meet the requirement or to honour the cheques issued by the assessee in any of the banks.

Learned counsel further submits that this was clearly explained before the authorities below and they have failed to appreciate that these cash deposits are from cash withdrawals.

“In respect of cash deposits, the several observations of the CIT(A) as enlisted by the Sr. DR are inconsistent with facts of the case and are incorrect. The correct position on facts and in law would be as under:-

1. 1. The deposits in the Karnataka Bank account are required to be seen and assessed and evaluated on the basis of the entries in the cash boo9k and the books of account in this regard. There is no principle which prescribes proximate connectivity between the withdrawals and deposits as the icon.

2. The assessee has the clear option of conducting his business transactions in the manner he wishes, no matter what the current electronic age may propose or provide.

3. The A.O carried out the examination of the cash deposits and formed his preposterous opinion by deviating from the standard verification procedure adopted by the Department. The entirety of the cash deposits in Karnataka Bank are relatable to business receipts deposited with banks which have been rechanneled after withdrawals made therefrom form time to time. The further observations of the CIT(A) are all misconceived and erroneous as under: i) The balance sheet has been read partially by the CIT(A) and so the error in the findings. ii) |The best evidence of cash-in-hand as on 01.04.2013 is the audit report as on 31.03.2013 which forms part of the records of the case. iii) The CIT(A) perhaps was ignorant of the fact that without a cash book, there cannot be an audit of th books of account. iv) The ‘bunch of papers’ as per the monenclature supplied by the Authorities is a partial printout of the cash book which was desired for checking the antecedents of the cash which was desired for checking the antecedents of the cash deposits. The so called ‘bunch of papers’ is on integral part of the cash book which has been misunderstood by the lower authorities. v) The Sr. DR errs in describing the CIT(A) is “He”. It is actually a lady CIT(A) who has passed the order which basic fact the Sr. DR has omitted to note. This point regarding interest being submitted on for taxation accrual basis has already been dealt in point 8 above. The several cases cited by the A.O, as pointed out during the course of the hearing on behalf of the assessee, are totally distinguishable on facts and so inapplicable to the subject case. Rest of the observations of the Sr. DR being repetitious and inane, which require the separate comments subject to the caveat. That the order of the CIT(A) dated 26.03.2019 complaining non-compliance by the Assessee on 26.03.2019 requires to be quashed as precipitous and arbitrary in terms of the decision of the Madras High Court in S. Velu Palander (1972) 83 Income Tax Return 683.”

3. The AO carried out the examination of the cash deposits and formed his preposterous opinion by deviating from the standard verification procedure adopted by the Department. The entirety of the cash deposits in Karnataka Bank are relatable to business receipts deposited with banks which have been rechanneled after withdrawals made therefrom from time to time. The further observations of the CIT(A) are all misconceived and erroneous as under:- (i) The balance sheet has been read partially by the CIT(A) and so the error in the findings. (ii) The best evidence of cash-in-hand as on 01.04.2013 is the audit report as on 31.03.2013 which forms part of the records of the case. (iii) The CIT(A) perhaps was ignorant of the fact that without a cash book, there cannot be an audit of the books of accounts. (iv) The bunch of papers’ as per the nomenclature supplied by the Authorities is a partial printout of the cash book which was desired for checking the antecedents of the cash deposits. The so called 'bunch of papers' is an integral part of the cash book which has been misunderstood by the lower Authorities.

(v) The Sr. DR errs in describing the CIT(A) is “He”. It is actually a lady CIT(A) who has passed the order which basic fact the Sr. DR has omitted to note. This point regarding interest being submitted for taxation on accrual basis has already been dealt in point 8 above.

The several cases cited by the AO, as pointed out during the course of the hearing on behalf of the Assessee, are totally distinguishable on facts and so inapplicable to the subject case. Rest of the observations of the Sr. DR being repetitious and inane which require no separate comments subject to the caveat. That the order of the CIT(A) dated 26.03.2019 complaining non-compliance by the Assessee on 26.03.2019 requires to be quashed as precipitous and'arbitrary in terms of the decision of the Madras High Court in S. Velu Palander (1972) 83 ITR 6«^ Placed for the most favourable consideration.”

“Ground no.2: That the Ld. ACIT has erred in making addition of cash of Rs.66,70,000 deposited in small amount on different dates in Karnataka Bank out of cash in cash book without any cogent reasons. Whereas cash in cash book is out of realization of outstanding from parties and cash withdrawals from bank account. All the cash deposits in bank account are out of accepted sources of income and as such making addition of cash deposited in Karnataka Bank is not justified. That the Ld. ACIT has made an addition of Rs.66,70,000 of cash deposit in Karnataka Bank Saving Fund account no. 5372500103694201. The said addition is wrong. The appellant is maintaining regular books of accounts consisting of cash book, ledger, bank account and vouchers. All the books of accounts were produced before him. The summary of source of cash withdrawal from bank account for deposit in the bank account is as under: S.No. Particulars Cash withdrawn from bank during the year 1 Opening cash in hand as on Rs.49943 01.04.2013 2. Cash withdrawn from Karnataka Rs.5630720 Bank 3. Cash withdrawn from Canara Rs. 95,000 Bank 4. Cash withdrawn from Indian Rs.4,60,000 Bank 5 Cash received from debtors Rs.1847003 Rs.8094723 Total Less: Deposit in Karnataka Bank Rs.6670000

Withdrawals used for expenses Rs.1424723

The cash deposit of Rs.6670000/- are out of accepted sources of income. There is no unexplained cash deposit in bank account. The appellant was having following monthly cash in hand out of which cash was deposited in bank account:

S. Month Cash in hand in cash book(Rs.) No. 1 April 2013 49,992 2 May 2013 11,13,845 3 June 2013 12,28,845 4 July 2013 23,97.065 5 August 2013 29,64,065 6 September 2013 39,12,965 7 October 2013 40,30,065 8 November 2013 34,28,065 9 December 2013 54,98,064 10 January 2014 21,79,565 11 February 9,71,565 12 March 2014 8,90,565 The details of date wise cash deposit in bank account is as under: Statement of source of Cash of Rs.66,70,000 deposited in Karnataka Bank SB a/c. no. 5372500103694201 S.no Cash amount Dated Sources . deposited 1 Rs.5,00,000 17.04.2013 The assessee is having cash in hand of Rs.16,28,819 as on 2 Rs.2,00,000 18.04.2013 01.04.2013 including opening cash in hand received sum of Rs.16,21,003 in the first week of April 2013 from debtors. Total cash in hand as on 16.04.2013 was at Rs.16,55,844. The assessee has deposited cash of Rs.5,00,000 on 17.04.2013 and Rs.2,00,000 on 18.04.2013 out of above cash in Karnataka Saving Bank account. 3 Rs.6,50,000 03.10.2013 The assessee has deposited Rs.6,50,000 on 03.10.2013 in Karnataka Saving Fund Account. The source of the same of cash in hand in books at Rs.40,30,065 out of which Rs.6,50,000 was deposited in Karnataka Bank on 03.10.2013.

4. Rs.30,00,000 06.12.2013 The assessee has deposited cash of Rs.30 lacs on 06.12.2013 in Karnataka Saving Bank account. |The sources of the same was out of opening cash in hand on 01.12.2013 at Rs.54,98,065.

5. Rs.3,00,000 30.12.2013 The said deposit is out of opening cash in hand on 01.12.2013 at Rs.54,98,065. Copy of Bank book is filed.

6. Rs.9,00,000 17.01.2014 Both the said deposits are out of opening cash in hand on 7. Rs.6,00,000 01.01.2014 at Rs.21,79,565.

10. Rs.2,50,000 04.03.2014 The assessee was having cash

in hand on 01.03.2014 at Rs.8,90,565. The deposit in Karnataka Bank is out of cash in hand. Rs.66,70,000 Total cash deposit.

NOTE: i) The source of cash in hand was out of opening cash in hand. Interest income declared as income in previous year received in cash on 01.04.2013 from the parties and other amount received from outstanding debtors. Cash withdrawals from Canara Bank for business purposes out of rental income of Rs.1,96,20,000. ii) Copies of cash book is filed. iii) Hardcopy of Karnataka Bank saving fund account is filed with sources of deposit and w3ithdrawals.

The Karnataka Bank saving fund account no.5372500103694201 is in the books of accounts. He had examined the same. No defection was pointed out. No books of account was rejected. Copy of cash book was filed before the ACIT and filed here (copy at page no. 59 to 67 of paper book). All the cash deposit in Karnataka Bank saving funds account no. 5372500103694201 were out of cash book. The source of cash in cash in cash book was out of withdrawals from other bank account and realization of sundry debtors and outstanding interest income Rs.21,50,581 of previous year. The appellant had paid tax on the same in last year.

9) All the cash deposited in the Karnataka Bank saving fund account was out of books of accounts. The Ld. ACIT did not point out any cash deposit in cash book of unexplained sources. The summary of monthly cash in hand in cash book is as under: SUMMARY OF MONTHLY CASHJ IN HAND IN CASH BOOK S.No Months Opening Deposit Withdrawa Net . Balance ls Balance of cash in hand 1 April 49942 1827003 763100 1113845 2 May 1113845 190000 75000 1228845 3 June 1228845 1218220 50000 2397065 4 July 2397065 622000 55000 2964065 5 August 2964065 1018000 70000 3912065 6 Septemb 3912065 183000 65000 4030065 er 7 October 4030065 98000 700000 3428065 8 Novemb 3428065 2120000 50000 5498065 er 9 Decemb 5498065 81500 3400000 2179565 er 10 January 2179565 342000 1550000 971565 11 February 971565 241000 322000 890565

12 March 890565 162000 300000 752565

From the above monthly cash summary of cash book it is clear that the appellant was having enough cash in hand. No addition could be made on suspicion basis. The Ld. ACIT is wrong in holding that no cash expenditure has been claimed by the appellant when the appellant has withdrawn cash from cash book. The Ld. ACIT is wrong in saying that there are other modes of transfer. Such as online transfer, through NEFT/RTGS by which the appellant can transfer the funds amongst his bank account. The contention of the Ld. ACIT is wrong. He could not guide the appellant time to time how to do his business. In the case CIT vs. Dalmia Cements (P) Ltd. (2002) 254 Income Tax Return 337 (Delhi), it has been held that modus of doing business is the privilege of appellant. The Ld. ACIT in para no.4.3 from a to h at pge no. 11 & 12 of the assessment order has stated certain details which are only for making addition. He did not take into account the copy of cash book. He did not give any cognizance to the detailed explanation filed. He has not taken into account the opening cash in hand in the books on the Ist of every month. If he would have taken into account the opening cash in hand on the Ist day of every month is much more. There is no shortage of cash book for depositing in Karnataka Bank saving bank account.

In view of the above stated facts and excess monthly cash in hand, the addition of Rs.66,70,000 deserves to be deleted. The relief of the same may be allowed.”

22. It is the observations of the learned Commissioner of Income-Tax (Appeals) that there is no authentication with respect to month-wise figure of cash in hand as cash book is not the part of the books listed as having been audited. He also observed that only a bunch of pages were submitted and it cannot be accepted as cash book. It is also the finding of the learned Commissioner of Income- Tax (Appeals) that entries in the cash book pertained to interest receivable and no interest received and such interest accrued and credited cannot be available for the use by the assessee. It is the observation of the learned Commissioner of Income-Tax (Appeals) that this makes clear that the cash book has been created to explain the cash deposits and is not a genuine reflection of the cash in hand available to the assessee. Thus, the learned Commissioner of Income-Tax (Appeals) rejected the documents holding that it is only a serving document.

Therefore, the entire exercise made by the Assessing Officer appears to be futile. It is not in dispute that the cash book filed before the Assessing Officer and the Assessing Officer failed to examine the entries thoroughly and co-relate the deposits made into bank accounts vis-à-vis the cash balances as on first day of every month in the cash book. It appears that Assessing Officer not even examined detailed submissions made by the assessee.

Therefore, as the Assessing Officer did not consider the cash balances and the realization of debtors and has simply gone by the just withdrawals, the addition cannot be sustained merely on that basis when the assessee had clearly demonstrated that the cash deposits were all made out of withdrawals, opening cash balance and realization of debtors. Thus, we direct the Assessing Officer to delete the addition made under Section 68 of the Income-Tax Act, 1961. Ground no.2 of the appeal of the assessee is allowed.

Order pronounced in the open court on 11/01/2024.