PAWAN KUMAR MEHTA vs. THE DEPUTY COMMISSIONER OF INCOME TAX

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 19TH DAY OF JULY 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.561 OF 2015 BETWEEN: PAWAN KUMAR MEHTA NO.5, 2ND FLOOR, MIDDLE SCHOOL ROAD V.V.PURAM BANGALORE - 560 004 ... APPELLANT (BY SRI.A.SHANKAR SR. ADV. FOR SRI.ANNAMALAI S. ADV.) AND: THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2(2) C.R.BUILDING, QUEEN'S ROAD BANGALORE - 560 001. ... RESPONDENT (BY SRI.K.V.ARAVIND, ADV.) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 08.05.2015 PASSED IN ITA NO.1761/BANG/2013, FOR THE ASSESSMENT YEAR 2010- 11, PRAYING TO: (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AS STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE APPELLATE. (II) TO ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE ITAT, BENGALURU BENCH IN ITA NO.1761/BANG/2013

2 RELATING TO ASSESSMENT YEAR 2010-11 VIDE ITS ORDER DATED 08.05.2015. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee against the order dated 08.05.2015 passed by the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The subject matter of the appeal pertains to the Assessment year 2010-11. The appeal was admitted by a bench of this Court on the following substantial questions of law: (i) Whether the tribunal is justified in law in confirming the addition of Rs.56,32,161/- on account of peak cash deficit worked out by the revenue authorities without considering the actual cash balance as per the books of account on the date of search when the same books of account was part of the seized material and the same was also not rejected and s in fact relied upon the

3 income tax authorities and consequently gave a perverse finding on the facts and circumstances of the case? (ii) Whether the assessment proceedings under Section 153A of the Act are valid in law when neither any incriminating material were found in the course of search nor any addition has been added in the assessment on the basis of materials seized in the course of search in the case of the appellant? (iii) Whether the tribunal is justified in law in not holding that the search in the case of the appellant is not a valid search and the conditions contemplated under Section 132 of the Act have not been complied and more so when no addition was made in the case of the appellant based on materials seized in the course of the search of the search of the appellant on the facts and circumstances of the case? (iv) Whether the tribunal is justified in law in presuming absence of existence of cash

4 merely because the same was not located during search and more so when there is no such legal presumption in law under the Income Tax act on the facts and circumstances of the case? 2. Facts leading to filing of this appeal briefly stated are that the assessee is an individual carrying on business as distributor of R & D Ghutka and Pan Masala. A search was conducted under Section 132 of the Act on 10.10.2009. In the course of search, cash amounting to Rs.45,40,000/- was seized from the assessee and thereafter a statement of the assessee under Section 131 of the Act was recorded on 27.10.2010. The assessee filed return of income for the Assessment Year 2010-11 on 20.09.2010 and declared total income of Rs.79,443/-. Thereafter notice under Section 153A of the Act was issued. The assessee filed a reply by which Assessing Officer was requested to treat the return filed on 20.09.2010 as return in response to the notice under Section 153A of the Act. The Assessing Officer passed an

5 order under Section 143(3) read with Section 153A of the Act on 26.12.2011 and made an addition of Rs.55,54,521/-, same being peak cash deficit in the cash book. 3. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 25.09.2013 dismissed the appeal and enhanced the addition to Rs.56,32,132/-. The assessee thereupon filed an appeal before the tribunal. The tribunal by an order dated 08.05.2015 has dismissed the appeal. In the aforesaid factual background, this appeal has been filed. 4. Learned Senior counsel for the assessee submitted that the nature of business in which the assessee engaged itself such that huge collections are made in cash from vendors / hawkers and are deposited in the bank. It is further submitted that that books of accounts of the assessee are audited under Section

6 44AB of the Act for the years ending on 31.03.2009 and 31.03.2010. It is also submitted that Assessing Officer did not reject the books of accounts of the assessee and has used the same cash book for calculating the peak deficit in cash. It is also submitted that the Assessing Officer chose to disbelieve only cash balance as per books of accounts and accepted books of accounts including the cash book for all other purposes. It is also pointed out that in response to the show cause notice, the assessee vide communication dated 13.12.2011 had clarified that balance cash was in the house but the same was not found by officers who carried out the search. It is also urged that when running cash balance as per the books has been accepted in subsequent years, there appears to be no reason to assess the peak credit for Assessment Year alone in question. It is also argued that alleged difference in cash balance neither falls under Section 68 nor under Section 69 of the Act. It is also submitted that there is a presumption about

7 the books of accounts, which may be found in possession of control of any person during the course of search that such books of accounts belong to him, the contents of books of accounts are true and signature in parts of books of accounts, documents which purport to the handwriting of any particular person are in handwriting of that person. It is submitted that there is no presumption in law that what has not been found does not exist. It is also pointed out that cash on hand is not an incriminating material as the same was not found in books of accounts and there is no material on record to indicate the incriminating material, which was relied to make addition. It is also urged that books of accounts have not been rejected by the Assessing Officer. It is further submitted that assessee does not intend to raise any contention with regard to validity of the proceeding under Section 132 of the Act. In support of aforesaid submissions, reliance has been placed on decisions in 'MEHTA PARIKH & CO. VS. CIT', (1956) 30 ITR 181

8 (SC), 'LAKSHMI RICE MILLS VS. CIT', (1974) 97 ITR 258 (PATNA), 'CIT VS. MR P FIRM', (1965) 56 ITR 67 (SC) and 'PULLONGODE RUBBER VS. STATE OF KERALA', (1973) 91 ITR 18 (SC). 5. On the other hand, learned counsel for the revenue submitted that the assessee despite being afforded an opportunity to offer the explanation was unable to explain the cash difference of Rs.1,06,26,309/-. It is further submitted that cogent reasons have been assigned to assess the peak cash deficit in the cash book and the aforesaid order has been affirmed by Commissioner of Income Tax (Appeals) and the tribunal. The orders passed by the authorities under the Act do not suffer from any infirmity and the findings cannot be said to be perverse. 6. We have considered the rival submissions made on both sides and have perused the record. Admittedly, during the course of the search at the

9 residential premises of the assessee on 09.10.2009, cash of Rs.45,40,000/- was found and was seized. The assessee was unable to explain the source of cash and cash book was updated only upto 30.09.2009. The cash balance as per the cash book on the date of search i.e., 09.1.2009 reflects the cash balance of Rs.1,51,66,209/-. The assessee was asked to explain the cash difference of Rs.1,06,26,309/-. The assessee was unable to offer any explanation and in his statement admitted that cash balance of Rs.45,40,000/- was seized from his residence and was available at his residence. The assessee was unable to explain the cash difference to the extent of Rs.1,06,26,309/- and could not explain where the balance case of Rs.1,06,26,309/- was kept. The Assessing Officer therefore, assessed the peak cash deficit in the cash book at Rs.55,54,521/- and assessed the aforesaid amount to tax for 2010-11. The said order was affirmed in appeal by the Commissioner of Income Tax (Appeals) and it was held that the cash shown by

10 the assessee in his books is not the real figure. The tribunal has held that despite opportunity being afforded to the assessee, the assessee did not explain the difference between the cash and of Rs.45,40,000/- found and seized at the premises and the cash mentioned in the cash book. Thus, it was held that the Commissioner of Income Tax (Appeals) has rightly held that the addition of Rs.56,32,161/- has been made in respect of peak cash deficit subsequent to search and the cash balance after seizure of Rs.45,40,000/- is ‘NIL’. It was further held that the addition has rightly been made for cash payments received in excess of cash receipts after the date of search and the amount of Rs.56,32,161/- was rightly brought to tax in the hands of the assessee. 7. The aforesaid findings are findings of fact recorded by the authorities under the Act and the same cannot be said to be perverse as the findings of fact are based on meticulous appreciation of evidence on record.

11 In the result, the substantial question of law Nos.1, 2 and 4 are answered against the assessee and in favour of the revenue. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss