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

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD: JUDICIAL MEMBER ITA No.3433/Del/2019 Assessment Year: 2014-15 Shri Gurcharan Singh Bhatia, Vs. ACIT, C-9, Westend Colony, Circle 47(1), New Delhi-1100 21 New Delhi (Appellant) (Respondent) (PAN:AHNPB4697E) Assessee by : S/Shri K. Sampath & V. Rajkumar, Advocates Revenue by : Shri Amit Katoch, Sr. DR Date of hearing : 29.11.2023 Date of pronouncement: 11.01.2024 ORDER PER CHALLA NAGENDRA PRASAD: JUDICIAL MEMBER This appeal is filed by the assessee against the order of the

learned Commissioner of Income-Tax (Appeals)-16, New Delhi

dated 26.03.2019 for the assessment year 2014-15. The assessee

has raised the following grounds of appeal:

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“On the facts and in the circumstances of the case and in law the Ld. CIT(Appeals) erred in confirming the following additions made to the returned income by the Assessing Officer: i. Rs.1,65,62,973/- on account of interest paid; ii. Rs.66,70,000/- on account of cash deposited in bank invoking section 68 of the Income-Tax Act, 1961. Both the above actions being erroneous unlawful and untenable it is prayed that the same must be quashed with directions for appropriate relief.” 2. The first ground of appeal relating to disallowance of

interest paid by the assessee.

the Assessing Officer noticed from P & L accounts of the assessee

that the assessee had debited Rs.1,65,65,973/- towards interest paid

on loan. The assessee in the course of assessment proceedings

explained that the nature of business of the assessee is of real-

estate and Finance business. It was also explained that assessee is

getting rental income from property, interest from savings bank

account and on FDRs. The assessee submitted that he has taken

3 ITA No.3433/Del/2019

loans for the business purposes from banks and paid interest and,

therefore, the interest paid on loans borrowed is an allowable

deduction as it was paid in the course of business of real estate.

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.

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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

5 ITA No.3433/Del/2019

submitted that all these expenses are business expenses and are

allowable under Section 37(1) of the Act.

bank loans is business expenditure and is deriving income from

business on account of real estate and finance business was not

accepted by the Assessing Officer as the assessee has not sold any

property or built/purchased any property during the current

assessment year. The Assessing Officer was of the view that the

investment appears to be interest free advances/loans to

friends/related persons and no interest income has been earned on

these advances. The contention of the assessee that he has derived

income from finance business and there is direct nexus between

interest paid and interest earned was also not accepted by the

Assessing Officer on the ground that assessee has shown interest

earned only from 4 parties out of 17 parties whereas interest was

being paid to banks and others on the entire amount of borrowed

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funds. The Assessing Officer was also of the view that a significant

part of interest free advances has been given to assessee’s own

company M/s. Khushi Trading Pvt. Ltd. as well as other relatives

or other Bhatia’s Siblings. The Assessing Officer placing reliance

on various decisions referred to in page 8 of assessment order

concluded that the investments were diverted for non business

purposes and there is no nexus between the interest paid on funds

borrowed and the income earned and, therefore, not allowable as

deduction under Section 36(1)(3) of the Act. The claim of the

assessee that the expenditure is allowable under Section 37(1) of

the Act was also denied by observing that the interest bearing

funds were not utilized wholly and exclusively for the purpose of

business or professions.

(Appeals) sustained the disallowance made by the Assessing

Officer.

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the paper book which is the copy of the order of the learned

Commissioner of Income-Tax (Appeals) for the assessment year

2009-10 submits that the issue of whether the assessee is into the

business of real estate and finance and whether the interest paid

was allowable as business expenses came up for consideration

during assessment years 2007-08 to 2009-10 and in the assessment

year 2009-10, the learned Commissioner of Income-Tax (Appeals)

has accepted the position that the assessee is into the real estate and

finance business and, therefore, there is no justification in denying

deduction of interest payments which are incurred for the purposes

of business of the assessee. The learned counsel for the assessee

submits that year after year, the assessee has adduced evidences to

show that he is into the real estate business and the expenses

claimed by the assessee have been allowed year after year,

therefore, the learned counsel submits that the observations of the

lower authorities that the assessee is not into the real estate

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business is contrary to record and perverse. The learned counsel

further submits that the learned Commissioner of Income-Tax

(Appeals) also decided the issue in favour of the assessee for the

assessment years 2011-12 to 2013-14 and the Revenue filed

appeals before the Tribunal for these assessment years and the

Tribunal dismissed the appeals of the Revenue on account of low

tax effect.

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

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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.

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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

11 ITA No.3433/Del/2019

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. 6. While the assessee has argues that the borrowed funds were used for investment in properties by him, no details of such investments were filed during the assessment proceedings. All the so called investments have been found to be nothing but “interest free advances/loans to friends and related persons” as no interest has been charged on most of such funds advanced to other parties out of the interest bearing funds. 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.

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claiming interest paid on purchase of the relevant property as business expenditure, thereby taking double deduction. 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

14 ITA No.3433/Del/2019

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”.

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.

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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. 9. The taxation of interest as submitted by the Assessee is consistent with that system. The remarks of the Authorities in this context that Assessee has inflated interest income by passing journal entries etc. are misconceived and incorrect. 9) The investment made by the Assessee for M/s Khushi Traders PrivateLtd. is for earning dividend income from that Company in due course. Advances were never extended to any Bhatia 'siblings’. The allegation of the AO in this regard is wrong. Further no specific instance has been cited by the Authorities to support his allegation.

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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.

17 ITA No.3433/Del/2019

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”.

placed before us. The Assessing Officer while completing the

assessment, denied deduction for interest expenses on the ground

that the assessee is not into the business of real estates and finance.

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

18 ITA No.3433/Del/2019

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.

Income-Tax (Appeals) for the assessment year 2009-10 which is

placed at page nos. 1 to 7 of the paper books. We observe that the

learned Commissioner of Income-Tax (Appeals) for the

assessment year 2009-10 in his order dated 24.08.2012 decided the

issue of whether the interest payments made by the assessee was

for the purpose of real estate business or not and the learned

Commissioner (Appeals) held as under:

“4.6 I have considered the order of the AO and the submissions of the assessee and I find considerable merit in

19 ITA No.3433/Del/2019

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.”

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(Appeals) has also been affirmed by the Tribunal in the appeal

filed by the Revenue in ITA No.5481/Del/2012 dated 25.10.2016

observing as under:

Ground No. 1.

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business and had taken various loans for the purchase and sale of properties and as such the assessee was eligible for the deduction of the interest payments for the various loans taken which were for the purpose of business only. It is also submitted by the ld. AR that the AO had made inquiry with the Indian Bank and the Indian Bank had given a reply stating that the loan was granted to the assessee for the purpose of purchasing the commercial building at C-9, Westend Colony, New Delhi vide Para-3 of the AO. The assessee has also relied on various case laws in support of the claim that the business of the assessee started the moment the assessee started the purchasing of the property and the process of the activity of the development of the property started and the assessee also relied on the case of Swire Holding P Ltd. vs ITO, [2006] 6 SOT 621 (BANG.) (SMC) and Dhoomketu Builders & Development P Ltd. vs Addl. CIT [2012] 49 SOT 312 (Delhi). It is submitted that in the present case the business of the assessee started on 08/03/2006 when the property was purchased and the development activity was started by the assessee immediately thereafter”. It is also submitted by the ld. AR that the assessee has been dealing with many other properties regarding the purchase and sale of property and for this purpose, advances were made to various parties. 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

22 ITA No.3433/Del/2019

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

23 ITA No.3433/Del/2019

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.”

24 ITA No.3433/Del/2019

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.

2013-14, the learned Commissioner of Income-Tax (Appeals) held

that the assessee is into the business of real estate and the interest

expenses are allowable as deduction. The Revenue’s appeals for

these years were dismissed by the Tribunal on account of low tax

effect. We further observe that the incomes/loss returned by the

assessee under the head “income from business” have been

accepted for the assessment years 2017-18 to 2022-23 by the

Revenue and in none of these years, the incomes/losses shown by

the assessee were disturbed. It is the submission of the learned

counsel that the decision of the Tribunal for the assessment year

2009-10 affirming the order of the learned Commissioner of

Income-Tax (Appeals) in holding that the assessee is into real

25 ITA No.3433/Del/2019

estate business has became final and this was accepted by the

Revenue for assessment year 2009-10. We are of the view that

simply because the assessee has not shown any business income

during the current assessment year, it cannot be held that the

assessee is not carrying on the real estate business. Thus, following

the order of the Tribunal for the assessment year 2009-10, we hold

that the assessee is into the business of real estate and finance the

interest expenditure incurred by the assessee is an allowable

deduction. Accordingly, we delete the disallowance of

Rs.1,65,62,973/- made by the Assessing Officer. Ground no.1 of

grounds of appeal raised by the assessee is allowed.

in the course of assessment proceedings, the Assessing Officer

noticed that the assessee made several cash deposits into saving

bank account with Karnataka Bank. Assessee was required to

explain the cash deposits. Assessee vide letter dated 15.11.2016

26 ITA No.3433/Del/2019

explained the sources for the cash deposits of Rs.66,70,000/-. The

assessee explained that the cash deposits in the Canara Bank

Account was out of cash withdrawal made, out of opening cash in

hand and, therefore, all the cash deposits were explained.

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.

sustained the addition accepting the contention of the Assessing

Officer that there is no proximate connection between withdrawals

made in other bank accounts and deposits made in Karnataka Bank

account.

27 ITA No.3433/Del/2019

maintaining cash book, receipts and payments were reflected in the

cash books, all the transactions are reflected in the bank

book/statement. The Assessing Officer did not reject the books of

account or did not point out any defects. The learned counsel for

the assessee referring to page 106 of the paper book, submits that

all the cash deposits into bank account are from cash withdrawals

and no part of cash deposits is on account of loan/deposits.

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.

supported the orders of the authorities below. Learned

Departmental Representative further submits that cash book is not

part of audited books. He further submits that opening balance as

on 01.04.2013 was not supported with evidence. Learned

28 ITA No.3433/Del/2019

Departmental Representative further made his submissions as

under:

“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. 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:

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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

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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.”

31 ITA No.3433/Del/2019

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.

32 ITA No.3433/Del/2019

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.”

authorities below.

before the learned Commissioner of Income-Tax (Appeals) as

under:

“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

33 ITA No.3433/Del/2019

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

34 ITA No.3433/Del/2019

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

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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

36 ITA No.3433/Del/2019

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. 8. Rs.1,50,000 17.02.2014 The assessee was having cash in hand on 01.02.2014 at 9. Rs.1,20,000 21.02.2014 Rs.9,71,565. The said cash deposit of Rs.1,50,000 on 17.02,2014 and Rs.1,20,000 on 21.02.2014 are out of cash in hand at Rs.9,71,565. The deposit in cash book are out of withdrawals from Karnataka Bank on earlier dates. 10. Rs.2,50,000 04.03.2014 The assessee was having cash

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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.

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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

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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.

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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.”

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

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Income-Tax (Appeals) rejected the documents holding that it is

only a serving document.

Assessing Officer has not given any finding that the assessee

produced only a bunch of papers and it is not cash book. On the

other hand, the reply furnished by the assessee before the

Assessing Officer shows that the assessee has filed cash book and

it is the finding of the Assessing Officer that as per cash book these

are not sufficient withdrawals and the de4posits on various dates

do not have enough proximate withdrawals. There is no finding by

the Assessing Officer that assessee did not produce cash book and

on the other hand it is observed that the Assessing Officer has

examined the cash book. It is also observed that the auditor have

not given any finding that assessee is not maintaining any cash

book. Cash and bank books are the basic documents for beginning

the audit, we are not able to see from where the learned

42 ITA No.3433/Del/2019

Commissioner of Income-Tax (Appeals) came to know that the

cash book is not a part of books listed in the audit report.

taken cognizance of the submissions of the assessee that in the first

week of April 2013, the assessee had received realization from

debtors amounting to Rs.16,21,003/- and the cash balance stood in

hand as on 16.04.2013 stood at Rs.16,55,844/- just a day before the

deposits of Rs.5,00,000/- made into bank account on 17.04.2013

and Rs.2,00,000/- on 18.04.2013 rather the Assessing Officer

simply stated that the assessee has withdrawn only Rs.1,50,000/-

on 16.04.2013 and this is the only proximate cash withdrawals for

making cash deposits of Rs.5,00,000/- and Rs.2,00,000/- on

17.04.2013. On reading of the assessment order, it is observed that

the Assessing Officer has only took note of the fact that the

withdrawals made by the assessee from the bank accounts to co-

relate with the deposits made with the bank accounts completely

43 ITA No.3433/Del/2019

ignoring the cash balances stood as on the first day of last month.

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.

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

Sd/- Sd/- ( SHAMIM YAHYA ) (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER JUDICIAL MEMBER

Dated: 11.01.2024 Mohan Lal