ITO, NEW DELHI vs. SH. KRISHNA KUMAR SETHI, NEW DELHI

The only issue for consideration relates to the deletion of addition of Rs. 36,80,000/- made by the Assessing Officer on account of cash credit under section 68 of the Income-tax Act, 1961 (in short ‘the Act’).

The facts in brief of the case are that the assessee, an individual, filed return of income for the year under consideration on 12/08/2005 declaring total income of Rs. 4,05,265/- comprising of income under the head ‘income from house property’ and ‘income from business and profession’ of dealing in financing of three wheeler/scooters on commission basis. The case of the assessee was selected for scrutiny. During the course of scrutiny the Assessing Officer observed from the Annual Information Return (AIR) that the assessee had deposited cash amounting to Rs. 92,80,000/- in bank accounts maintained with the UTI bank in the name of the assessee and his minor sons Master Sahil Sethi and Master Sarik Sethi. From the perusal of the bank statements, the Assessing Officer observed that cash was regularly deposited in the bank accounts in reference. He also noted that cash deposited was withdrawn from time to time. Though the assessee was granted opportunity, the assessee did not provide any logical reason for deposit and withdrawal of the cash in bank accounts. In view of the facts, the Assessing Officer worked out the peak cash credit of Rs. 36,80,000/- based on cash deposits and withdrawal in the bank accounts and in absence of any explanation from the assessee added the same as unexplained cash credit in terms of section 68 of the Act.

4. Before the Ld. Commissioner of Income-tax (Appeals), it was explained by the assessee that bank accounts in the name of his minor sons Master Sahil Sethi and Master Sarik Sethi were operated by the assessee as a Guardian. It was further explained that the assessee owned a property No. F. 2/25, Krishna Nagar, New Delhi alongwith his wife Smt Jyoti Sethi. It was stated further, that the assessee and his wife, Smt. Jyoti Sethi entered into agreements for sale of the property with Sh. Anuj Garg and Sh. RK Garg, Sh. Gaurav Gupta and Sh. Dinesh Garg for a total consideration of Rs. 45,00,000/- and the assessee and his wife received a sum of Rs. 33,00,000/- as advance from them. It was explained that the assessee had deposited this advance amount in the bank accounts of his sons Master Sahil Sethi and Master Sarik Sethi on various dates. The assessee withdrew the cash from the bank on various dates and again re-deposited the same into bank accounts. It was further submitted that the buyers parties could not arrange the balance amount with the result that deal for the sale of property did not mature and the assessee had to pay back the amount received as advance from the said buyers. It was further explained that the balance amount of Rs.

The Ld. Commissioner of Income-tax (Appeals) forwarded the additional evidences filed by the assessee for comments of the Assessing Officer. The comments of the Assessing Officer were forwarded to the assessee. In the rejoinder, the assessee reiterated the facts submitted earlier before the learned Commissioner of Income-tax (Appeals) and further stated that the property in reference was given on rent to the Axis Bank and the assessee derived rental income, which was reflected in the income tax return. After considering the submissions made by the assessee, the ld. Commissioner of Income-tax (Appeals) concluded that the assessee had furnished satisfactory explanation in regard to the transaction made in the aforesaid bank accounts and, therefore, he deleted the addition of Rs. 36,80,000/-. Aggrieved, the Revenue filed appeal before the Tribunal, raising the grounds as under:

The Tribunal, after considering the arguments of the both parties set aside the order of the Ld. Commissioner of Income-tax (Appeals) and restored that of the Assessing Officer. The relevant findings of the Tribunal are as under: “7. We have heard both the parties and gone through the material available on record. There is no dispute that the assessee had been making cash deposits in the UTI Bank in the names of his two minor sons. The assessee is engaged in the business of financing three-wheelers. The assessee has alleged to have received Rs. 33,00,000- as advance out of total sale consideration of Rs.45,00,000/- for sale of property, which was let out to UTI Bank. No evidence has been brought on record by the assessee to suggest that the amounts deposited on various dates have come out from the sale consideration received in advance from the prospective buyers. The Id. CIT (A) has not recorded any Rs. 30,00,000/- received from buyers was deposited on different dates. If the transaction was genuine, the deposit should have been a one-time affair. It is unbelievable that a party, who can pay 75 per cent of the amount as advance would not be able to arrange 25 per cent of the amount. Moreover, the property was let out to AXIS Bank [UTI Bank]. Definitely the property is a commercial property and nobody would like to part with the property and a purchaser having made arrangement of Rs.33,00,000/- and paid as advance would not be in a position to arrange further sum of Rs. 12,00,000/- for execution of the sale deed. In our considered opinion, the said agreement is an after-thought in order to explain the source of deposit in the bank account in the name of his two minor sons. The assessee had deposited Rs. 92,80,000/- on various dates peak thereof worked out to Rs.36,80,000/-. Another amount of Rs.3,80,000/- has been explained from the past savings for which no evidence has been filed. The Id. CIT (A) has deleted the addition merely on the basis of explanation offered by the assessee. No nexus has been established either before the Id. CIT(A) or before us that the amount of Rs. 33,00,000/- received from sale agreement for property let out to AXIS Bank was deposited in the bank accounts of minor sons of the assessee. The assessee also could not file any evidence to suggest that the bank was informed about the sale of the property. All the fact goes to prove that the alleged sale deed in respect of property No. F.2/25, Krishna Nagar, Delhi, let out to AXIS Bank was an after- thought, for the purpose of explaining the source of deposits in the bank account during the year under consideration. Therefore, in our considered opinion, the learned CIT(A) was no justified in deleting the addition. We, therefore, set aside the order of the learned CIT(A) and restore the order of the Assessing Officer.”

Aggrieved, the assessee carried the matter to the Hon’ble High Court of Delhi by filing an appeal under section 260A of the Act. Before the Hon’ble High Court, the counsel of the assessee pleaded that the appeal was heard by the Tribunal without the paper book and without even giving chance to the assessee to file the papers. After hearing the ld. counsel of the parties, the Hon’ble High Court in judgment dated 07/02/2011, restored the matter to the Tribunal to hear the parties afresh in taking into consideration the said material to decide the issue again. The relevant paragraphs of the judgment are reproduced as under: “3. Learned counsel for the appellant has produced certain papers indicating that in the appeal notice was issued to the assessee for 11th January, 2010, when the assessee appeared. However, on that date the representative of the Department filed an application for adjournment on the ground that he wanted to see the assessment records. Case was adjourned to 16th March, 2010. On that date again, the departmental representative sought an adjournment stating that he intended to file a paper book. Acceding to his request, the case was again adjourned to 5th May, 2010. It is pointed out by Mr. Kapoor, learned counsel for the appellant, that paper book was not filed, which could have contained the material/document on the consideration whereof CIT(Appeal) had deleted the addition. However, on 5th May, 2010, the appeal was heard without the paper book and without even giving chance to the assessee to file the papers, the Tribunal has allowed the appeal inter alia stating that no evidence had been brought on record by the assessee to suggest that amounts deposited on various dates had come out from the sale consideration received in advance form the prospective buyers. His submission is that there was sufficient evidence, which was produced before the CIT(Appeal) and since the Revenue was the appellant before the Tribunal, it was for the Revenue to file the entire paper book. Even if the Revenue had not filed the paper book, it is submitted that in those circumstances chance should have been given to the assessee to place the papers on record.

After hearing the learned counsel for the parties, we find substance in the aforesaid submissions: In these circumstances, without commenting upon the merit of the order passed by the Tribunal, we set aside the said order on the aforesaid ground giving liberty to the assessee to file the paper book containing the documents on which the appellant wants to rely in support of his submissions. The Tribunal shall hear the parties afresh and take into consideration the said material to decide the issue again.”

In compliance to the above directions of the Hon’ble High Court, in hearing before us, the assessee filed paper book containing documents as under: Sl. No. Particulars 1. Photocopy of Agreement for Sale dt.27.08.2004 in r/o portion of property no. F-2/25 Krishna Nagar, Delhi-51, executed between the assessee and Sh. Anuj Garg 2. Photocopy of Agreement for Sale dt.27.08.2004 in r/o portion of property no. F-2/25 Krishna Nagar, Delhi-51, executed between the assessee and Smt. Jyoti Sethi and S/Sh. R. K. Garg, Gaurav Gupta, Dinesh. 3. Photocopy of confirmation of Sh. Anuj Garg (PAN: AHEPG 5644F) 4. Photocopy of confirmation of S/Sh. R.K. Garg (PAN: AEFPG 8392G), Gaurav Gupta (PAN : AHKPG 1405G), Dinesh (PAN: ABKPK 0853A) 5. Photocopy of Purchase Deed dt.20.09.1996 in r/o southern portion of property no. F- 2/25 Krishna Nagar, Delhi-51 .executed in favour of the assessee. 6. Photocopy of Purchase Deed dt.20.09.1996 in r/o Northern Portion of Property No. F- 2/25 Krishna Nagar, Delhi-51, executed in favour of Smt. Jyoti Sethi. 7. Photocopy of written submissions 8 Cash Flow Statement submitted by the assessee before the Id. CIT(A)

On the direction of the bench, the Authorized Representative of the assessee also filed following documents before the bench: Documents filed vide letter dated. 02.08.2012: i. Remand report submitted by the Assessing Officer before Commissioner of Income Tax(A)-XXVII in pursuance to application for admission of additional evidence U/s. 250 r/w Rule 46A.

We have heard the rival submissions and perused the material on record including the paper book and the documents submitted by the ld. AR before the bench. We find that the ld. Commissioner of Income-tax (Appeals), had forwarded the additional evidences to the Assessing Officer for his comments.

The Assessing Officer in his remand report dated 12/12/2008 objected to the admission of the additional evidences and sought for further clarification from the assessee. The relevant part of the remand report, which is available in the documents supplied by the ld. AR before the bench is as under: “Kindly refer to your goodself’s letter F. No. DEL/CIT(A)-XXVII/A.P. No. 142/2008-09/dated 11/12/2008 on the above mentioned subject forwarding therewith additional evidence filed by the appellant u/s 250 read with rule 46A of the I.T. Rules 1962 directing me to furnish my comments on the same. In this connection, it is humbly submitted that the following points need to be considered:-

It is settled law that for discharging the onus under section 68 of the Act, the assessee is required to furnish identity and creditworthiness of the creditors and the genuineness of the transaction. In the instant case, the assessee did not furnish any evidences during the course of assessment proceedings to discharge its onus under Section 68 of the Act. In remand proceeding, the Assessing Officer objected admission of the additional evidences and requested the Ld. Commissioner of Income-tax (Appeals) to call for certain documents from the assessee like receipt of payments made by the proposed buyers to the assessee, cancellation of the sale agreement, original copy of documents etc, however, Ld. Commissioner of Income-tax (Appeals), decided appeal without considering the request of the Assessing Officer. The Tribunal in the order dated 14/05/2010 held that no evidence had been brought on record by the assessee to suggest that the amounts deposited on various dates have come out from the sale consideration received in advance from the prospective buyers.

The Tribunal observed that the ld. Commissioner of Income Tax(Appeals) did not record any findings as why the amount of Rs. 33 lakh received from the buyers was deposited on different dates in the bank accounts because in the normal circumstances, if the transaction was genuine, the deposit should have been a one-time affair only. Further observed that the property was a commercial property, it was unbelievable that a party, who can pay 75% of the amount as advance could not be able to arrange balance 25% of the amount. Moreover, the property was let out to the Axis Bank and the assessee could not file any evidence to suggest that the Bank was informed about the sale of property. No evidence in respect of amount of Rs. 3,80,000/- stated as saving, were filed. In view of above findings, the Tribunal held that a sale deed in respect of property, which was let out to Axis Bank, was an afterthought for the purpose of explaining the source of deposit in the bank account during the year under consideration and accordingly set aside the order of the Ld. Commissioner of Income-tax( Appeals).

Before the Hon’ble High Court, the assessee pleaded that appeal was heard without the paper book and without even giving a chance to assessee to file the papers. It was submitted that there were sufficient evidence with the assessee and which were produced before the Ld. CIT(A), but since the Revenue was the appellant before the Tribunal, the assessee could not produce paper book before the Tribunal.

On the perusal of the paper book and the documents submitted by the assessee, we find that assessee has not produced any document which could rebut the findings of the Tribunal in order dated 14/05/2010. The assessee has not produced any receipt of advance payments by the proposed buyers. It is seen from the page 31 of the paper book that the cash was deposited in the bank accounts from 03/09/2004 to 23/03/2005, i.e., for a period of almost seven- month. The assessee has not been able to explain before us why it did not deposit entire amount in bank accounts immediately after receipt from the proposed buyers. In view of the above facts and circumstances, the genuineness of the transaction is doubtful and the assessee has failed to discharge its onus with regard to the genuineness of the transaction.

Further from the Income-tax return of Sh. Anuj Garg, who was the proposed buyer (Page 8 of the assessee’s paper book), it is seen that his total income in assessment year 2004-05 was only Rs. 1,48,185/-. Similarly, total income of Rajendra Kumar Garg (Page 10 of the assessee paper book ) was only Rs. 1,54,000/-. Further the total income of another proposed buyer Sh. Gaurav Gupta (page 11 of the assessee paper book) was merely Rs. 69,616/-. No evidence in support of income of Sh. Dinesh Gupta is filed in the paper book submitted by the assessee. No other documents evidencing the financial capacity of the proposed buyer to advance the money were submitted. Looking to the amounts of total income of the proposed buyers, the creditworthiness of the creditors is also not getting established.

In view of the above, the assessee has failed to discharge its onus in respect of the genuineness of the transaction as well as creditworthiness of the creditors and, therefore, in our opinion the Ld. Commissioner of Income-tax (Appeals) was not justified in deleting the addition made by the Assessing Officer under section 68 of the Act for the peak amounts of deposits in bank accounts, accordingly we set aside the order of the ld. Commissioner of Income- tax (Appeals) and restore the order of the ld. Assessing Officer.

In the result, appeal of the Revenue is allowed. The decision is pronounced in the open court on 8th July, 2016.