ITO WARD 1, KUMBAKONAM vs. N.BALAKRISHNAN, KUMBAKONAM

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) -1, Tiruchirapalli, dated 24.10.2017 and pertains to assessment year 2011-12.

Shri V. Nandakumar, the Ld. Departmental Representative, submitted that the only issue arises for consideration is addition made by the Assessing Officer under Section 68 of the Income-tax Act, 1961 (in short 'the Act') on account of unexplained cash deposit in the bank account. The Ld. D.R. submitted that the assessee had transaction with Axis Bank, Kumbakonam Branch. According to the Ld. D.R., the assessee deposited ₹1,32,19,464/-, out of which ₹63,04,950/- was in cash. On a query from the Bench, the Ld. D.R. clarified that the assessee is engaged himself in the business of financing. The Ld. D.R. further submitted that the assessee has also received ₹37,31,260/- from M/s Sree Gokulam Chits and Finance on 27.09.2010. As per the information received from M/s Sree Gokulam Chits and Finance, the assessee has subscribed to two chits of ₹25 lakhs each. The net contribution made by the assessee was ₹18,74,000/-. Since the assessee could not explain the source for deposit in Axis Bank, according to the Ld. D.R., the Assessing Officer found that there was unexplained investment in the bank account to the extent of ₹1,32,19,464/-. The Assessing Officer has also added the contribution made to the chits to the extent of ₹18,74,000/- and after reducing the chit amount received from M/s Sree Gokulam Chits and Finance, an addition of ₹94,88,204/- was made. Therefore, according to the Ld. D.R., the CIT(Appeals) is not justified in deleting the addition made by the Assessing Officer.

On the contrary, Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that the assessee is engaged in the business of money lending. The money deposited in Axis Bank is nothing but the money rotated in the money lending business. Referring to page 4 of the assessment order, more particularly the first paragraph, the Ld.counsel submitted that the Assessing Officer himself observed in the assessment order that after arriving at the interest income of ₹9,37,135/-, the income of the assessee was again worked out at 22.73% which comes to ₹2,13,011/-. After adjustment of chit contribution and chit discounts, the net additional income on the unaccounted transactions in Axis Bank is only ₹1,44,271/-. When the Assessing Officer made a categorical finding that the unaccounted money in Axis Bank was arrived at ₹1,44,271/-, according to the Ld. counsel, he cannot make an addition of ₹1,32,19,464/-. According to the Ld. counsel, the Assessing Officer assessed excess income. During the course of assessment proceeding, the assessee filed a revised computation reconciling the entire deposits and receipts, which was accepted by the Assessing Officer. Therefore, according to the Ld. counsel, the CIT(Appeals) is right in upholding the addition to the extent of ₹19,87,135/-.

We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee is engaged in the business of money lending. From the material available on record it appears that the assessee use to lend loan varying from ₹50,000/- to ₹5,00,000/- per individual. The interest charged by the assessee comes to 12% to 15% flat. The overall rate as per the orders of the lower authorities comes to 22% to 24%. The Assessing Officer added the deposit made in the Axis Bank. Since the assessee is engaged in the business of money lending, the cash in any form is a stock-in-trade in the hands of the assessee and not investment as rightly observed by the CIT(Appeals). Therefore, only the profit has to be assessed as income and not the value of stock. Hence, the CIT(Appeals) found that the entire deposits in the Axis Bank is only a capital. Therefore, the peak credit theory has to be applied or the additional interest at the same rate at which expenses were claimed while filing return of income has to be estimated. The CIT(Appeals) found that the peak credit comes nearly to ₹2,69,250/-. The CIT(Appeals) has also found that the unaccounted deposit at the rate of 24% comes to ₹9,37,135/-. Since the interest income at the rate of 25% is higher than the peak credit, he adopted the same and sustained.

As rightly submitted by the Ld.counsel for the assessee, the Assessing Officer himself observed at page 4 of the assessment order as follows:- “However, after arriving at the interest income at ₹9,37,135/- the income of the assessee has been again worked out at 22.73% amounting to ₹2,13,011/- and after adjustment of the Chits contribution and the Chits discounts, the net additional income on the unaccounted transactions in the AXIS Bank Ltd., Kumbakonam Branch was arrived at ₹1,44,271/-.”

Therefore, the Assessing Officer cannot go back beyond his observation reproduced above and make addition of ₹1,32,19,464/-. In view of the above discussion, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

In the result, the appeal filed by the revenue stands dismissed.