SHRI.SYED ABUBACKER RIYAZ vs THE PRINCIPAL COMMISSIONER OF INCOME TAX

Income Tax Appellate Tribunal, PANAJI

IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 20TH DAY OF NOVEMBER, 2017 PRESENT THE HON’BLE MRS. JUSTICE S.SUJATHA AND THE HON’BLE Dr. JUSTICE H. B. PRABHAKARA SASTRY

INCOME TAX APPEAL NO.100148/2015

BETWEEN:

SHRI.SYED ABUBACKER RIYAZ, C/O S M STEELS, KARNATAKA GARAGE, 4278, PATIL GALLI, BELAGAVI. ... APPELLANT (BY SRI SANGRAM S. KULKARNI, ADVOCATE)

AND

THE PRINCIPAL COMMISSIONER OF INCOME TAX, 3RD FLOOR, PHIROZ KHIMJI COMPLEX, OPP. CIVIL HOSPITAL, DR.AMBEDKAR ROAD, BELAGAVI-590001. ... RESPONDENT (BY SRI Y.V.RAVIRAJ, ADVOCATE)

THIS ITA IS FILED U/S.260A OF THE INCOME-TAX ACT 1961, PRAYING TO ALLOW THE APPEAL BY ANSWERING THE SUBSTANTIAL QUESTION OF LAW IN FAVOUR OF THE APPELLANT AND SET ASIDE THE ORDER DTD:05.08.2015 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL PANAJI IN ITA NO.165/PNJ/2015 ALSO SET ASIDE THE ORDER DTD:25.03.2015 PASSED BY THE PRINCIPAL COMMISSIONER

2 OF INCOME TAX, BELAGAVI IN NO.F. NO.27/263/CIT/BGM/ 2014-15/1684 U/S. 263 OF THE INCOME TAX ACT, 1961 AND CONFIRM THE ASSESSMENT ORDER PASSED BY THE INCOME TAX OFFICER WARD 1(2), BELAGAVI DATED 20.12.2012 FOR THE ASSESSMENT YEAR 2010-11.

THIS APPEAL COMING ON FOR ADMISSION THIS DAY, S.SUJATHA J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal is filed by the appellant-assessee under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) against the judgment and order passed by the Income Tax Appellate Tribunal, Panaji in ITA No.165/PNJ/2015 dated 05.08.2015 for the assessment year 2010-11.

The substantial questions of law that arises for consideration are as under: 1. Whether the respondent erred in considering that the income assessed by the assessing officer was on the basis of the peak profit and therefore the highest profit was considered for collection of tax

3 by the assessing officer and the same cannot be termed as erroneous? 2. Whether the impugned order passed by the respondent is in violation of the amended provisions of Section 263 of the Income Tax Act, 1961? 3. Whether the respondent and the Tribunal have committed an error by interfering with the order passed by the AO based on investigation and enquiry?

The appellant-assessee is carrying on business at Patil Galli, Belagavi in the name and style as M/s S.M.Steel. For the assessment year 2010-11, the assessee filed his original return of income on 19.10.2010. The case was selected for scrutiny manually to verify the cash deposits of Rs.53,13,450/- made on various dates during the said assessment year in Union Bank of India, Mapuca Goa. In response to the notice issued under Section 143(2) of the Act, the assessee-appellant came forward and filed a revised return declaring additional income of Rs.16,13,257/- and paid additional tax of Rs.6,47,860/-.

4 After considering the explanation offered, the assessing officer concluded the assessment accepting the income returned by the assessee in his revised return of income on the basis of peak (deposit) credit. The Principal Commissioner of Income Tax invoking the provisions of Section 263 of the Act, revised the order of the assessing officer and enhanced the assessment by Rs.58,75,690/-. Being aggrieved by the said order, the appellant-assessee preferred an appeal before the Income Tax Appellate Tribunal, Panaji Tribunal, Panaji, which came to be dismissed. Hence, this appeal.

The learned counsel appearing for the appellant-assessee submitted that Commissioner of Income Tax can exercise powers under Section 263 of the Act only when the order of the assessing officer is erroneous and prejudicial to the interest of the Revenue. Inviting the attention of this Court to Explanation 2 to Section 263 of the Act, submitted that an order shall be

5 deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue, if the order is passed without making inquiries or verification which should have been made. The assessing officer while concluding the assessment under Section 143(3) of the Act had verified the cash deposits of Rs.53,13,450/- made on various dates with Union Bank of India, Mapuca-Goa during the relevant assessment year. On considering the explanation offered by the assessee as regards sources for the above cash deposits and accepting that these transactions relates to business done and the cash deposits relates to sales realization, concluded the assessment. In such view of the matter, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue. The Commissioner of Income Tax had wrongly exercised the power under Section 263 and the same has been confirmed by the ITAT without considering the source of deposits explained by the assessee. The learned counsel submitted that the income assessed by the assessing

6 officer was on the basis of peak profit and hence the highest profit was considered for collection of tax and the same cannot be considered as erroneous. It was argued that when two views are possible, the decision of the assessing officer cannot be considered as erroneous and prejudicial to the interest of the Revenue.

Learned counsel Sri Y.V.Raviraj appearing for the Revenue justifying the impugned order submitted that no evidence was placed on record by the assessee to substantiate the source of the deposits made in the bank. The explanation offered by the assessee that he was carrying on retail business in steel was not supported by any material evidence. The unexplained deposits of the assessee has to be treated as income and liable to tax in terms of Section 69 of the Act. It was contended that it is only on the query made by the assessing officer as regards these unexplained bank deposits, the assessee had come forward to declare additional income, but failed to disclose

7 the source of these deposits. The tax liability fixed on this undisclosed investment is in accordance with law and does not call for any interference by this Court.

Heard the learned counsel for the parties and perused the material on record.

It is in view of the assessee’s case being selected for scrutiny, the assessing officer sought for the verification of the financial transaction i.e. bank deposits. For which the assessee has taken a contention that he was carrying on retail business in iron and steel, but failed to substantiate the same. The business of sale and purchase of iron and steel products is not declared to Sales Tax Department and no tax is paid, no balance sheet, profit and loss or income and expenditure account is maintained, no evidence of business is placed on record except the bank statements. The modus operandi of the assessee in making the deposits and withdrawing the same indicates that the cash has been deposited

8 frequently on daily basis or every 2-3 days in amounts of thousands, the total of the entire deposits after 20-25 days is withdrawn in a single transaction in lakhs. This manner of deposits and withdrawals does not indicate the existence of any turnover.

It is pertinent to note that the assessee has never disclosed the details of any bank accounts even after issuance of notice under Section 143(2), the aspect of retail business of the assessee in iron and steel was also not disclosed. All along it was the contention of the assessee that he had no income except income from partnership firm. It is only during the enquiry under Section 133(6) of the Act unexplained investment in bank deposit was unearthed, the enquiry which was required to be made by the assessing officer if not done, the same has to be considered as an erroneous order prejudicial to the interest of the Revenue in terms of Section 263 of the Act. No enquiry was made by the assessing officer as regards

9 the retail business said to have been carried on by the assessee. Thus, exercise of power under Section 263 of the Act by the Commissioner of Income Tax is justifiable.

The last fact finding authority (ITAT), having considered the explanation offered by the assessee as regards the source of investment i.e. carrying on retail business of iron and steel negated the same for want of material evidence. There is no dispute on the legal proposition that the burden is on the assessee to show that the deposits made in the bank are not taxable, providing the books of accounts and the related material. In the absence of the same, it can be inferred that the assessee has failed to explain the source of investment of the deposits with the bank and the same requires to be considered as an income under Section 69 of the Act. Accordingly, the view of the Income Tax Tribunal upholding the order of Commissioner of Income Tax cannot be faulted with.

10 10. In view of the aforesaid, the questions of law raised are answered in favour of the Revenue and against the assessee.

In the result, appeal stands dismissed.

Sd/- JUDGE

CLK/-

SHRI.SYED ABUBACKER RIYAZ vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX