DCIT-CENTRAL CIRCLE-XI, KOLKATA, KOLKATA vs. SHRI MAYANK DAGA, KOLKATA

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

DCIT, CC-XI, Kol. Vs. Sh Mayank Daga Page 2 2. First issue raised by Revenue in this appeal in ground No. 1 and 2 is that that Ld. CIT(A) erred in deleting the additions made by the Assessing Officer for ₹59,62,43,650/- on account of undisclosed money u/s. 69 of the Act.

DCIT, CC-XI, Kol. Vs. Sh Mayank Daga Page 4 However, there are regular deposits as well as withdrawals in the bank accounts; and so, the addition of the aggregate deposits without allowing the benefit of withdrawals was not justified. for, the amount invested at one point of time was withdrawn subsequently and was thus availing for further deposits; and so, corresponding credit has to be allowed against subsequent deposits in the bank accounts the AO has brought no material on record to show that the amounts withdrawn had been utilized by the assessee elsewhere for the purposes of expenses or investment or otherwise. In this factual background, the combined peak credit of the bank accounts would cover the total deposits and withdrawals; and, actually represents the investment in the undisclosed bank accounts. The various decisions of the jurisdictional ITAT as well as the jurisdictional High Court also support the contention of the assessee that only the combined peak credit actually represents the undisclosed investment in the undisclosed bank accounts. In view of the above and the ratio laid down by the jurisdictional courts, the AO can only asses the combined peak credit of the bank accounts as assessee’s undisclosed investment. All the bank statements were available before the AO at the assessment stage. When the AO held that the entire money deposited in the bank accounts belonged to the assessee, then he should have assessed the combined peak credit of the said bank accounts a assessee’s undisclosed investment. I find from the statement of deposits and withdrawals of the bank accounts placed at page 8 to 10 of the paper book that the peak credit of Rs.96,01,836/- appears on 28-02-2011; and so, the addition on account of undisclosed investment in the said bank accounts has to be restricted to Rs.96,01,836/-. However, the assessee has already admitted undisclosed income of Rs.2,41,10,500/- for the relevant year. As the combined peak credit appears on 28-02-2011, the assessee should have by then earned income of Rs.2,21,01,292/- on proportionate basis which is much more than the combined peak credit of Rs.96,01,836/-; and consequently, no separate addition on account of peak credit is required. However, I find from the statement of deposits and withdrawals placed at page 8 to 10 of the paper book that there was combined credit balance of Rs.11,422/- in the said bank accounts on the date of the search, that is, 17-03-2011. Since the entire income of Rs.2,41,10,500/- was recovered in the search in the form of cash, the combined credit balance of Rs.11,422/- in the said bank accounts is assessable separately as undisclosed investment. The addition of Rs.59,62,43,650/- is therefore restricted to Rs.11,422/-. Ground no. 1 is partly allowed.”

The Revenue, being aggrieved, is in appeal before us on the following ground:-

DCIT, CC-XI, Kol. Vs. Sh Mayank Daga Page 5 “1. That the facts and in the circumstances of the case, the Ld. CIT(Appeals) has erred in law as well as in fact in deleting the addition made by the assessing officer on account of undisclosed money u/s. 69 of the IT Act of Rs.59,62,43,650 into the four undisclosed bank accounts owned-up by him, and he has not offered any explanation about the nature and source of the money.”

7. We have heard the rival contentions and perused the materials available on record. From the foregoing discussion, we find that the assessee has claimed to be the owner of 4 bank accounts by way of affidavit. In these bank accounts cash of Rs. 59,62,43,650.00 was deposited, the source of which was not explained and never reflected in the books of accounts by the assessee during assessment proceedings. Thus the AO treated the entire deposit of cash as income under section 69 of the Act and added to the total income of the assessee. However the ld CIT(A) disagreed with the action of the AO by observing that the entire cash deposit without considering the withdrawals from the bank cannot be treated as income of the assessee. The AO has not brought anything on record about the withdrawals made by the assessee suggesting any investment, expense etc. Thus the ld. CIT(A) deleted addition made by the AO.

Now the question before us arise so as to whether the entire cash deposit in the bank account of assessee amounts to undisclosed income. In this regard we find that admittedly the assessee was the entry operator and engaged in providing accommodation entries and this fact has not been disputed by the lower authorities. There were regular deposits and withdrawals from the bank DCIT, CC-XI, Kol. Vs. Sh Mayank Daga Page 6 account of the assessee. It is seen that every deposit is followed by subsequently withdrawal. The amount deposited at one point of time has been withdrawn subsequently and there was again deposit in the bank account. In such situations and circumstances the peak amount covers total deposits and withdrawals made by the assessee in the bank account. Thus the addition cannot be made by aggregating all the deposits in the bank without giving the benefit of withdrawals made by the assessee. In the aforesaid facts and circumstances, we find that various courts have held to apply the peak credit theory to tax the income of the assessee. In this regard, we rely in the order of Hon'ble Kolkata Tribunal in the case of Binod Kumar Jha Vs. ITO Ward 25(2) in ITA 577/Kol/2013 date of order 20.11.2015. The relevant extract of the order is reproduced below.

“In view of the above statement the assessee claimed that he is engaged in the business of providing accommodation entries to various parties on commission basis and this commission has all along been disclosed by him as business income in the returns of income particularly for AYs 2008-09, 2009-10 and 2010-11. Now before us assessee's counsel argued that even peak credit cannot be added in the hands of the assessee only finance commission earned by him @ 0.25% to 0.50% at the best can be assessed. Ld. Counsel for the assessee drew our attention to paper book filed by assessee and particularly pages 1 to 41, wherein extract from bank statement of six undisclosed bank accounts of Axis Bank and calculation showing peak credit after consolidation is enclosed. There is no dispute about the cash deposited in these six bank accounts maintained with Axis Bank Ltd. We find from the above statement recorded by the AO of the assessee particularly Question nos. 14 and 15 that assessee is only a conduit in a big syndicate of accommodation entry providers and he has earned only commission income for providing accommodation entry. The assessee used to receive cash and deposit the same in one of these six bank accounts and issued cheque of the same amount as can be seen from the extracts of bank statements of these six bank accounts filed by assessee in its paper book. On the very date of cash deposit, cheque is issued of the similar amount. This clearly reveals that the assessee is being used for providing accommodation entry only. All the deposits made in these six bank accounts have been transferred to Maple Advisory Services Pvt. Ltd. and in turn Maple Advisory Services Pvt. Ltd. has further transferred this amount to six Private Limited Companies namely, Gokul Distributors, Indigo Commotrade, Jupiter Tradelink, New Era Commotrade, Swift Distributors and Zenith Management and all these private limited companies are having their bank Binod Kumar Jha, AY 2009-10 accounts in the same bank branch. This modus operandi clearly reveals that the assessee is merely an accommodation entry provider and nothing else.

DCIT, CC-XI, Kol. Vs. Sh Mayank Daga Page 7 6. In view of the above facts and circumstances, the Ld. Counsel for the assessee relied on the decision of Coordinate bench in the case of ITO vs. Shri Piyush Poddar in for AY 2006-07 dated 07.09.2015, wherein exactly on similar circumstances, the Tribunal has directed the AO to assess the peak credit and by observing held as under:

"10. We have heard the rival submissions and perused the materials available on record. It is seen that the assessee apart from his regular income had a bank account with Central Bank of India which was used by him only for the limited A.Y.2011-12 Amit Agarwal vs. DCIT, CC-XXVII, Kol. Page 7 purpose of providing accommodation entries to various parties. Initially the assessee took a stand that he was deriving finance commission @.25% of all the transactions in the accommodation entry business and offered the same to tax., However, he shifted his stand by accepting the peak credit theory before the ld. CIT(A). This is evident from the fact that he had not preferred further appeal before the Tribunal against the ld. CIT(A)'s order. In accordance with the directions of the Hon'ble Calcutta High Court, we had examined the veracity of the claim of peak credit theory made by the assessee in respect of all the transactions in Central Bank of India. It is observed that the assessee had rotated his own funds in Central Bank of India for providing accommodation entries to various parties. It is not disputed that the genuineness of the transaction could not be proved by the assessee by mentioning the names, addresses, PAN, confirmation of the parties to whom the payments were made and from payments were received by the assessee. Hence it is proved that transactions contained in the bank account are not genuine. Once the transactions in the bank account are proved ingenuine then it is an accepted practice of adopting the peak credit theory for the purpose of determination of undisclosed income of the assessee. Hence, reliance placed by the ld. DR in the decision of the Hon'ble Allahabad High Court reported in 276 ITR 38 which rejected the concept of peak credit theory is not applicable to the facts of the instant case. In the case before the Hon'ble Allahabad High Court, the assessee claimed that the credits in the bank account represented genuine loans borrowed and the character of the loan transactions were not disputed and hence their lordships of Allahabad High Court held that the peak credit theory would not be applicable in that case. But in the facts of the instant case, the assessee had clearly owned up the transactions and that he is engaging himself in accommodation entry business with his own funds as well as funds received from parties to whom the accommodation entries are provided by the assessee and the names and addresses of such parties could not be provided by him for want of maintenance of books and details. This goes to prove that the genuineness of the transactions contained in the accommodation entry business as reflected in the said bank account could not be proved by the assessee. This is a distinct and crucial factor which distinguishes the decision rendered by the Hon'ble Allahabad High Court in 276 ITR 38 which was heavily relied upon by the Revenue.

Reference may also be drawn to the decision of the Hon'ble Apex Court in the case of CIT vs Smt. P.K.Noorjehan reported in 237 ITR 570(SC) wherein their lordships have held that mere unsatisfactoriness of the explanation offered by the assessee, does not, and need not, automatically result in deeming the value of investment to be the income of the assessee. That is still a matter within the discretion of the officer A.Y.2011-12 Amit Agarwal vs. DCIT, CC-XXVII, Kol. Page 8 and, therefore, of the Tribunal. In other words, the discretion has been conferred on the Income tax Officer u/s 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. The Income Tax Officer is not obliged to treat the value of investment as income in every case where the explanation offered by the assessee is found to be unsatisfactory.

12. Hence it would be unreasonable to tax all the deposits in the bank account of the assessee. To this extent, we do not appreciate the action of the ld. AO in taxing the entire credits of Rs.6,30,89,413/- as undisclosed income of the assessee for A.Y.2006-07. To put this ongoing dispute to rest, in the interest of justice and fair play, we direct the ld. AO to assess the peak credit in this case in respect of both cash as well as cheque transaction contained in the said bank account by verifying the veracity of the figures worked out by the assessee and bring to tax the same. We draw support from the decision rendered by 'C' Bench of Kolkata ITAT in for A.Y.2007- 08 dated 23.03.2012 in the case of ITO vs Shri Ganga Prasad Vyas wherein it was held that "We find that the assessee has filed statement of peak credit i.e. deposit and withdrawals from the bank account of SBBJ wherein the peak credit as on 24.01.2007 was at Rs.1,80,247/-. We further find that the money deposited in the bank account was withdrawn either on the same day or on subsequent dates. It is seen that the total addition of the aggregate deposits in the bank account after giving benefit of withdrawals is the peak amount and in that case peak amount is to be added. We find that the assessee has maintained a bank account which is admittedly not disclosed to the revenue and there is no doubt that the deposits in this bank account represents DCIT, CC-XI, Kol. Vs. Sh Mayank Daga Page 9 undisclosed income of the assessee to be assessed as undisclosed income but qua only the peak amount. The assessee has filed complete statement of peak deposit and withdrawals which is at Rs.1,87,247/- and before CIT(A). We are of the view that the CIT(A) has rightly directed the AO to restrict the addition to the extent of peak amount and we confirm the same. This issue of revenue's appeal is dismissed."

From the above, we conclude that assessee was engaged in providing accommodation entries in lieu of commission. There was no actual business carried out by the assessee and the AO has also not brought anything on record suggesting that the assessee is engaged in some business other than the activity of accommodation entries. The ld. DR has also not brought anything on record contrary to the finding of ld. CIT(A). We also find that the cash was immediately withdrawn after the deposit of the cash. This transaction shows that the money does not belong to the assessee. In view of above we find no infirmity in the order of ld. CIT(A). Thus the ground of Revenue is dismissed.

DCIT, CC-XI, Kol. Vs. Sh Mayank Daga Page 11 The reliance placed by the AO on section 44AD is also misconceived as the same was not applicable in the case of the assessee which has been admitted even by the AO in his assessment order. The estimation of income as made by the AO is arbitrary and without any basis; moreover, it is not supported by any material on record. The ratio laid down by the Apex Court as well as the jurisdictional High Court in 159 ITR 524 (SC)and 207 ITR 979 (Cal) also support the case of the assessee. In view of the above, the estimation made by the AO is neither sustainable in la nor on facts. Ground no 2 is allowed.”

The Revenue, being aggrieved, is in appeal before us on the following ground:- “3. “That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) has erred in law as well as in fact by not appreciating that in absence of books of account, Tax Audit Report u/s. 44AB and any material on record, the Assessing Officer has reasonably estimated income at Rs.6,06,444/- i.e., at rate of @ 8% of the total gross turnover of the business.”

11. Before us both parties relied on the order of Authorities Below as favourable to them.

13. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹1.50 lakh on account of bogus gifts.

14. The assessee in the year under consideration has received a gift of Rs.1.50 lakh from Smt.Chandrakala Rathi. The assessee before the AO failed to substantiate the creditworthiness of the donor. The AO also observed that the donor has filed her return of income only at Rs.1.87 lakh. In the aforesaid circumstances, AO treated the gift as undisclosed income of the assessee and added to the total income of assessee. 15. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the necessary details such as gift deed, income-tax return, balance-sheet and bank statement were duly submitted before AO at the time of assessment proceeding in response to the notice issued u/s. 142(1) of the Act vide dated 17.12.2012. The donor is a regular income tax assessee and there is no evidence available with the AO to prove that the gift is bogus. The Ld. CIT(A) after considering the submission of assessee has deleted the addition made by AO by observing as under:- “… … I have considered the rival submissions and the material placed on record. I find from the reply filed by the assessee (page 96 of the paper-book) that copy of the gift deed along with income tax return, balance sheet and bank statement of the donor was submitted in course of the assessment proceedings. The AO has neither disproved nor disputed the documents produced before him. Under the DCIT, CC-XI, Kol. Vs. Sh Mayank Daga Page 13 circumstances, the AO was not justified in his observation that the assessee failed to produce supporting documents in terms of the notice u/s. 142(1). It was argued before me that the copy of the gift deed was duly submitted before the Assessing Officer' that the gift is duly shown in the accounts of the donor who is regularly assessed to income tax; and, that the gift was received through the banking channel which is duly reflected in the bank statement of the donor. I find merit in the submission that, under the circumstances, the assessee has established the identity and creditworthiness of the donor and also the genuineness of the transactions. On the other hand, the AO has brought no positive material on record to show anything that could raise doubt or suspicion about the genuineness of the gift. I also find substance in the arguments that there is no material on record to establish that the assessee was in possession of unaccounted money which was passed on to the donor and then flew back in the form of gift. The order of the AO is not based on proper findings. The AO has summarily rejected the explanation and also the documents produced before him by the assessee more on presumption than on factual ground. The AO is supposed to make assessment on the basis of the material available on record. But, in the present case, the AO has made the addition purely on the basis of presumption and assumption. In view of the above, I am of the opinion that the addition on account of bogus gift is neither sustainable in law nor on fact. Ground no 3 is allowed.”

The Revenue, being aggrieved, is in appeal before us on the following ground:- “4. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) has erred in law as well as in fact in deleting the addition of account of bogus gift of Rs.1,50,000/-, where the assessee has failed to substantiate the creditworthiness of the alleged donor.”