BISWANATH AGARWALA,KOLKATA vs. ACIT, CIR-43, KOLKATA, KOLKATA

आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-13, Kolkata dated 30.12.2015. Assessment was framed by JCIT, Range-44,Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 19.03.2014 for assessment year 2011-12. The grounds raised by the assessee per its appeal are as under:- “1. For that on the facts of the case, the order passed by the Ld. CIT(A) is completely arbitrary, unjustified and illegal. 2. For that on the facts of the case, the Ld. CIT(A) was wrong in dittoing the order of the AO and confirming the addition cash credit u/s. 68 amounting to Rs.64,05,408/- which is completely arbitrary, unjustified and illegal.

ITA No.461/Kol/2016 A.Y. 2011-12 Biswanath Agarwala Vs. ACIT, Cir-43, Kol. Page 2 3. For that on the facts of the case, the Ld. CIT(A) should have consider the acts that all deposits are against sales carried on day to day basis and sales are duly reflected in the sales register and the said sales to the 19 parties were accepted in assessment made u/s. 143(3) in the present year, therefore, no addition u/s. 68 should have been made by the AO and confirmed by the Ld. CIT(A) amounting to Rs.64,05,408/- which is completely arbitrary, unjustified and illegal. 4. For that on the facts of the case, the Ld. CIT(A) was wrong in not considering the fact that the AO without issuing notice u/s 133(6) or 131 of the IT Act has wrongly added cash credit on sales u/s. 68 and confirmed by the Ld. CIT(A) amounting to Rs.64,05,408/- which is completely arbitrary, unjustified and illegal. 5. For that on the facts of the case, the Ld. CIT(A) was wrong in dittoing the order of the AO and confirming the addition 10% out of Motor Car expenses for personal use amounting to Rs.39,738/- on estimate basis which is completely arbitrary, unjustified and illegal. 6. For that on the facts of the case, the Ld. CIT(A) was wrong in dittoing the order of the AO and confirming the addition 10% out of telephone expenses for personal use amounting to Rs.37,454/- on estimate basis which is completely arbitrary, unjustified and illegal. 7. For that on the facts of the case, the Ld. CIT(A) was wrong in dittoing the order of the AO and confirming the addition” Shri Soumitra Chowdhury, Ld. Advocate appeared on behalf of assessee and Shri Arindam Bhattacherjee, Ld. Departmental Representative appeared on behalf of Revenue. 2. Ground No.1 general in nature and does not require any separate adjudication. 3. Ground no. 2, 3 and 4 are interconnected and therefore being taken up together. 4. The first issue raised by the assessee is that ld. CIT(A) erred in confirming the order of AO by sustaining the addition for Rs. 64,05,408/- only under section 68 of the Act. 5. The brief facts of the case are that the assessee is running a proprietorship concern under the trade name M/s Muralilal Ramesh Kumar. The assessee is engaged in the business of Wholesale Sugar trading as importer & commission agent. The supply of sugar is covered under the Essential Commodities Act and West Bengal Sugar Dealers Licensing Order 2009 and is regulated by State Food & Supply Department and Enforcement Branch of West Bengal. The assessee is purchasing the sugar directly from mills and making the sales to the retailers/ wholesalers.

ITA No.461/Kol/2016 A.Y. 2011-12 Biswanath Agarwala Vs. ACIT, Cir-43, Kol. Page 3 1. The assessee in the year under consideration has shown receipt of cash from certain parties. The cash receipts from such parties was either adjusted against the sales, brokerage & salary or refunded to them during the year. The AO during the assessment proceedings to establish the authenticity of the transactions i.e. cash receipts required the assessee to produce the identification of the parties, PAN, addresses and details of complete transaction. 1.1 The assessee in compliance thereto replied that there are certain unknown traders who deposits cash with the assessee in the small quantity for the purchase of sugars before taking delivery of the same from the assessee. 1.2 These small traders come to the place of the business of the assessee from far off places to deposit the money with the assessee. The assessee used to accept the money in the small quantity before making the actual sale to such parties to avoid possibility of non-recovery of the same in future. 1.3 The assessee also claimed that it is the general practice in the trade of sugar business to accept the money in the small quantity before making the sale & delivery of the goods to such parties. 1.4 The assessee further submitted that the amount of cash received from such parties is tallying with the sales registers maintained by it along with the quantity as per the requirement of Food and Supply Department of West Bengal. 1.5 The assessee also submitted that there was no discrepancy/ mismatch in the amount of purchases, sales and closing stock. 1.6 The assessee also filed the list of 19 parties from whom the cash was accepted during the year and expressed his inability to produce such parties as the transaction with them was taken place 3 years back. Moreover these are not the regular parties of the assessee. As per the assessee these parties come from far off places once or twice in the whole year. However, the AO observed that the identification of the parties has not been furnished by the assessee.

ITA No.461/Kol/2016 A.Y. 2011-12 Biswanath Agarwala Vs. ACIT, Cir-43, Kol. Page 4 1.7 The authenticity of the mailing address furnished by the assessee during the assessment proceedings was not evidenced on the basis of the bills, cash memo & challan. 1.8 The sugar is freely available in the market therefore there was no reason that the parties from the distant places will come to the assessee to deposit the cash frequently for Rs. 20,000 or less. In view of above the AO opined that the amount of cash deposited by the parties for the Rs.54,14,842.00 represents the own money of the assessee which was earned from undisclosed sources and the same was routed in its business through unexplained cash credit. Accordingly the amount of Rs. 54,14,842.00 was treated unexplained cash credit under section 68 of the Act by the AO and added to the total income of the assessee. Similarly the assessee has shown cash receipt of Rs.5,37,250/- in respect of one party namely M/s Ganesh Traders which was adjusted against the sale of sugar Partly for Rs. 4,37,250.00 and the balance amount of Rs.1 lacs was refunded in 5 equal installments of Rs.20,000 as brokerage. However, the AO during the assessment proceedings observed that the assessee failed to furnish the necessary details / evidences for the services rendered by M/s Ganesh traders for getting the brokerage therefore the amount of cash deposit of Rs.1 lacs was treated as unexplained cash credit u/s 68 of the Act by the AO and added to the total income of the assessee. Similarly the assessee has shown receipt of cash for Rs. 6.40 lacs from 3 parties which was claimed as advance against the sale but the same was refunded to the parties on the ground that sales has not been materialized. The assessee submitted that the sales was not matured therefore the cash was returned to them and to such transactions the provisions of section 68 cannot be applied as the money was received in connection with sales transactions. But in the absence of any documentary evidence such as identification of the party and current mailing address the amount was treated as unexplained cash credit u/s 68 of the Act by the AO and added to the total income. The assessee during the year has claimed to have received a sum of Rs.1 lac from his personal account which was subsequently squared up during the year but the assessee has not produced the details/ cash flow statement to justify the source of cash.

ITA No.461/Kol/2016 A.Y. 2011-12 Biswanath Agarwala Vs. ACIT, Cir-43, Kol. Page 5 Therefore, the AO in the absence of any documentary evidence treated the sum of Rs.1 lacs as unexplained cash credit and added to the total income of the assessee. 2. The assessee during the year has shown the cash receipt of Rs.1,50,566/- from Sri Ram Sevak Mishra an employee of the assessee. But the assessee failed to furnish the identification of the person along with the current mailing address of Shri Ram Sevak Mishra. Accordingly the AO treated the same as unexplained cash credit under section 68 of the Act and added to the total income of the assessee. In view of above the AO has made the addition u/s 68 of the Act for Rs. 64,05,408/- (54,14,842.00+1,00,000.00+6,40,000.00+1,00,000.00+1,50,566.00) and added to the total income of the assessee. 6. Aggrieved assessee has preferred an appeal before Ld. CIT(A) . The assessee before the ld.CIT(A) submitted that the AO during the assessment proceeding has accepted the sales to 9 parties amounting to Rs.53,15,781/- only out of the total addition of Rs. 64,05,408/- only. Similarly the assessee has given money to Shri Ram Sevak employee of the assessee time to time. There is a debit balance in the name of such employee. Therefore there is no question of applying the provisions of section 68 of the Act to such transaction. Similarly the assessee has taken a sum of Rs.1 lac from his individual/ personal account which was squared up during the year. Therefore there is no question for invoking the provisions of section 68 of the Act to such transaction. The sale transaction in respect of 3 parties was not materialized during the year, therefore the amount received from them for Rs.6.40 lakh was returned back to them. Thus, the impugned transaction is outside the purview of the provisions of section 68 of the Act. However the ld. CIT(A) disregarded the contention of the assessee and confirmed the order of the AO by observing as under:- “I have gone through the contention of the assessee, the order passed by the AO and the submissions made by the Appellant. Ground 2,3 a& 4 relates to the addition of the AO while assessing the case demanded the identification of these persons as except serial No.2,9,10,11 were not proper. The AO has seen

ITA No.461/Kol/2016 A.Y. 2011-12 Biswanath Agarwala Vs. ACIT, Cir-43, Kol. Page 6 that the assessee has deposited cash invariably Rs.20000/- in the name of 19 persons. Persons-wise deposits in cash are as under:- Name Rs. 1. Chahya Ghosh 492548 2. Ram Sevak Mishra 150566 3 Amritlal Kundu Sitaram Kundu 470255 4 Sitaram Kundu 425643 5 Ganesh Traders 537250 6 Gurudas Gupta 202530 7 Shanker Singh 133300 8 Ram Gopal Agrawal 173043 9 Ajay Kumar Dutta 200000 10 Laliji Dubbey 320000 11 A.K. Gupta 120000 12 B Aggarwal 100000 13 Subrata Ghosh 1019200 14 Ajit Saha 145800 15 Balaknath Gupta 303590 16 Mukesh Agarwal 237165 17 Mohanlal Agarwal 707790 18 Radheshyam Gupta 314441 19 Suresh Kumar Agarwal 355287 Total 6405408 The above deposits were stated to be the cash deposit from different partiers as an advance from sugar purchases. As products of sugar are essential commodity and purchases are made directly from mills and sold the small wholesale & retailers. The above deposits is from small trader who come from father district and villages or farther places and they pay the money in advance in cash and the goods are sold later on. If the sales is not metallised the cash is repaid. The AO further observed that sugar product was available in the open market too and it was available to the purchases. It was further observed by the AO that the aforesaid purchases will not travel 50 km for depositing and getting back their amount of Rs.20000/- each time and concluded that above cash deposited are nothing but the assessee has routed his undisclosed income in the grave of credit from so called buyers. Considering the above the appellant arguments that they sale in cash to such purchases because subsequently recovery is difficult appellant as they are from further places small parties and from villages. It is merely statement which is not supported by any evidence particularly pursing around entry of Rs.20000/- deposited in the books on different date & at the end one of all entry single entry of odd figure was made, clearly shows that these deposits are not made as per the rate of sugar or the business transactions. In no case all the deposits will be made of Rs.20000/- and at the last single entry would made of odd figure just to show the total in

ITA No.461/Kol/2016 A.Y. 2011-12 Biswanath Agarwala Vs. ACIT, Cir-43, Kol. Page 7 odd figure with at least to match the price of sugar and to make non-genuine transactions of cash deposit as genuine. Hence, this ground of the appellant is dismissed and the action of the AO is upheld.” Aggrieved, assessee further comes up before us with an appeal against the order of Ld. CIT(A). 7. The Ld. AR before us filed a paper book running from pages 1 to 63 and submitted in many cases the address of the parties were duly given to the AO but he failed to issue any notice to them u/s 133(6) of the Act. The copies of the ledger containing the addresses are placed on pages 5 to 29 of the paper book.

On the other hand the ld. DR vehemently supported the order of the AO.

ITA No.461/Kol/2016 A.Y. 2011-12 Biswanath Agarwala Vs. ACIT, Cir-43, Kol. Page 8 AO before rejecting the addresses furnished by the assessee should have issued notices under section 133(6) of the Act in order to verify the authenticity of the transactions. 8.1 In the case on hand the assessee claimed to have made sales to the parties for Rs. 53,15,781/- out of total cash credit of Rs.64,05,408/- which was duly accepted by the AO. Thus in our considered view the amount of sale accepted by the AO cannot be treated as unexplained cash credit u/s 68 of the Act. In case the AO treats the amount of sale as unexplained cash credit then he has to reduce the amount of sale by the amount of cash credit which the AO has failed to do so. Therefore in our considered view the amount of cash sale for Rs. 53,15,781/- cannot be treated as unexplained cash credit u/s 68 of the Act. Similarly we note that the assessee has advanced money to its employee Shri Ram Sevak Mishra and accordingly debit balance in the name of the employee is appearing in the books of accounts of the assessee. The provisions of section 68 of the Act are attracted to entries of cash found credited in the books of accounts. But there is no entry of cash credit found in the books of accounts of the assessee in the name of Shri Ram Sevak Mishra. Therefore to such transaction the provisions of section 68 cannot be applied. 8.2 Similarly we note that the amount received by the assessee from M/s Ganesh Traders was accepted in part to the tune of Rs. 4,37,250.00 and the balance of Rs. 1 lac was treated as unexplained cash credit under section 68 of the Act. In this regard we note that the AO erred in accepting part of the cash receipt from M/s Ganesh traders and the balance was not accepted on the ground of non-identification and mailing address of the party. In the present case we are of the view that the AO erred in accepting part of the transaction. In case the AO has doubt on the identification of the party then he should have disallowed the entire amount. He cannot in such a situation accept part of the transaction and reject the part of the transaction due to non identification of the party. In respect of other transactions the allegation of the AO is that these entries have been accepted by the assessee in order to meet the need of banking transactions and for other transactions. In this regard, we observe that the AO has not brought anything on

ITA No.461/Kol/2016 A.Y. 2011-12 Biswanath Agarwala Vs. ACIT, Cir-43, Kol. Page 9 record explaining the need of the banking transactions or other business transactions for which the money was accepted in the business by the assessee. Even for the sake we assumed that there was some need of banking transaction or other business transaction then the AO should have brought such fact on record. But the AO has also not brought on record the details of cash book of the assessee to justify that the cash credit entries were taken cover-up the negative cash balance in the cash book of the assessee. In the absence of sufficient documentary evidence we do not concur with the view of the lower authorities. 8.3 Besides the above, we also note that the assessee has shown total turnover of Rs.152 crores in his audited financial statements and similarly the assessee has shown cash balance as on 31.03.2011 for Rs.19,66,095/-, therefore it can be inferred that there can be several business transactions which have not been matured during the year under consideration but that cannot lead an inference of unexplained cash credit under section 68 of the Act. Accordingly, no adverse inference can be drawn against the assessee is such circumstances. Moreover, it is also observed that the sugar comes under essential commodities Act and West Bengal sugar dealers licensing order 2009 and accordingly it regulated by State food & supply Department and enforcement branch. Therefore, we observe that the transactions made by the assessee are controlled by the Government of West Bengal. No infirmity has been reported by the State Government with the regard to the transactions carried out by the assessee during the year. It is undisputed fact that there is no dispute with regard to the Audited Balance Sheet, Books of Account, Sales Register, Purchase Register and Stock register. In view of the above and after considering the facts in totality we reverse the order of authorities below. Hence the grounds of appeal filed by the assessee are allowed. 9. The next issue raised by the assessee in ground no. 5 & 6 is that the ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of Rs.39,738/- and Rs.37,454/- in respect of motor car expenses including depreciation and telephone expenses on account of personal use of the assessee. 10. The AO during the assessment proceedings held that the personal use of motor car expenses and telephone expenses cannot be ruled out in the absence of sufficient

ITA No.461/Kol/2016 A.Y. 2011-12 Biswanath Agarwala Vs. ACIT, Cir-43, Kol. Page 10 documentary evidences justifying otherwise. Accordingly the AO has taken a view that 10% of the total expenses as mentioned above are the personal expenses of assessee. Further Assessee has preferred an appeal before Ld. CIT(A), who in turn upheld the decision of Ld.AO. Being aggrieved by this order of Ld. CIT(A) assessee further comes up before. 11. The Ld. AR before us submitted that the car expenses and telephone expenses were incurred exclusively for the purpose of the business. Therefore no disallowance can be made for such expenses on ad hoc basis. On the other hand the ld. DR vehemently supported the order of the AO. 12. We have heard both the parties and perused the materials available on records. In the present case the AO has treated the part of the expenses being a motor car expenses and telephone expenses are personal in nature. Accordingly, the same was disallowed at the rate of 10% on ad hoc basis. It is our settled provision of law that no expense can be disallowed on ad-hoc basis. From the order of the AO it is clear that the AO has not pointed out any specific details in the expenses claimed by the assessee which is personal in nature. In these circumstances, we are of view that the estimated disallowance is not sustainable in the eyes of law. In this connection, we also rely in the order of Co-ordinate Bench of ITAT Kolkata in the case of Animesh Sadhu Vs. ACIT in ITA No.11/Kol/2013 dated 12.11.2014. The relevant extract is reproduced below.:- “8. We have considered the rival submissions. A perusal of the assessment order shows that the Assessing Officer has disallowed 20% of the expenses on estimate basis on the ground that no independent verification to be made to find out the authenticity of the expenses. Ld. CIT(Appeals) has reduced the same on the same ground. However, we are of the view that no estimated disallowance scan be made for inability to make independent verification. If any specific expenditure is unverifiable or is un-vouched, then such specific expenditure is disallowable. Her no such specific identification has been done. In these circumstances, we are of the view that the estimated disallowance as confirmed by the ld. CIT(Appeals) is unsustainable. Consequently the same stands deleted. In the result, Grounds No. 2 & 3 of the assessee’s appeal stand allowed.” Respectfully, following the order of the Co-ordinate Bench (supra), we delete the addition made by the lower authorities. Hence, this ground of assessee is allowed.

ITA No.461/Kol/2016 A.Y. 2011-12 Biswanath Agarwala Vs. ACIT, Cir-43, Kol. Page 11 13. Ground No. 7 not pressed, hence, same is dismissed as not pressed. 14. Next issue in ground No.9 is with regard to interest u/s 234B/234D which is consequential. 15. Last issue in ground No.10 is general in nature and need no adjudication. 16. In the result, assessee’s appeal is treated as partly allowed. Order pronounced in open court on /03/2018 Sd/- Sd/- (�या%यक सद'य) (लेखा सद'य) (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member *Dkp, Sr.P.S )दनांकः- 21/03/2018 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant- Biswanath Agarwala, 52/1/2, Strand Road, 1st Floor, Kol-07 2. ��यथ�/Respondent-ACIT, Cir-43, 3, Govt. Place (West), Kolkata-001 3. संबं,धत आयकर आयु-त / Concerned CIT 4. आयकर आयु-त- अपील / CIT (A) 5. .वभागीय �%त%न,ध, आयकर अपील�य अ,धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड2 फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary Head of Office/DDO आयकर अपील�य अ,धकरण, कोलकाता