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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Shri Waseem Ahmed, AM]
1 IT(SS)A No. 08-09/Kol/2013 & CO No.41-42/K/2013 & ITA No.832/Kol/2013 M/s. Bhagdev Roy., AYs 2009-10 & 2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA [Before Shri A. T. Varkey, JM & Shri Waseem Ahmed, AM]
I.T.A No. 832/Kol/2013 Assessment Year: 2008-09 Shri Bhagdev Roy Vs. Assistant Commissioner of Income- (PAN:AHYPR7096Q) tax, Central Circle-XII, Kolkata. Appellant Respondent & I.T(SS).A No. 08/Kol/2013 Assessment Year: 2009-10 Deputy Commissioner of Income-tax, Vs. M/s. Bhagdev Roy Central Circle-XII, Kolkata (PAN: AHYPR7096Q) Appellant Respondent & C.O. No. 41/Kol/2013 In I.T(SS).A No. 08/Kol/2013 Assessment Year: 2009-10 M/s. Bhagdev Roy Vs. Deputy Commissioner of Income-tax, Central Circle-XII, Kolkata Appellant Respondent & I.T(SS).A No. 09/Kol/2013 Assessment Year: 2010-11 Deputy Commissioner of Income-tax, Vs. M/s. Bhagdev Roy Central Circle-XII, Kolkata (PAN: AHYPR7096Q) Appellant Respondent & C.O. No. 42/Kol/2013 In I.T(SS).A No. 09/Kol/2013 Assessment Year: 2010-11 M/s. Bhagdev Roy Vs. Deputy Commissioner of Income-tax, Central Circle-XII, Kolkata Appellant Respondent
Date of Hearing 08.02.2017
2 IT(SS)A No. 08-09/Kol/2013 & CO No.41-42/K/2013 & ITA No.832/Kol/2013 M/s. Bhagdev Roy., AYs 2009-10 & 2010-11 Date of Pronouncement 31.03.2017 For the Assessee Shri Miraj D. Shah, A.R For the Revenue Shri John Vincent Donkupar Langstich, CIT, DR
ORDER Per Shri A.T.Varkey, JM
These are appeals of the assessee and the Revenue against the order of Ld. CIT(A), Central-II, Kolkata dated 23.10.2012 which is a combined order for AY 2008- 09, 2009-10 and 2010-11 and the Cross Objection by the assessee in support of the decision of relief given to him and also against the claim made on addition based on peak credit.
The assessee’s appeal in ITA No. 832/Kol/2013 for AY 2008-09 is time barred by 47 days and assessee has filed a condonation petition stating the reasons for the delay and prayed before the bench to condone the delay. Ld. DR has not objected to this prayer of the assessee and since the Ld. DR has given concession to condone the delay, we condone the delay and admit the appeal for hearing.
In all appeals, the assessee has raised the 1st, 2nd and 3rd grounds against the 3. legal validity of proceedings initiated u/s. 153C of the Act which has not been pressed before us, therefore, we dismiss the same as not pressed.
The ground no. 4 of assessee’s appeal is against the addition of Rs.38,64,870/- as peak credit in AY 2008-09; whereas the revenue’s appeal (ground no. 1) for both AYs 2009-10 and 2010-11 is against the action of the Ld. CIT(A) in allowing set off of the said amount ( peak credit confirmed for AY 2008-09) while calculating peak credit for AYs 2009-10 and 2010-11, that is the Revenue is assailing the telescoping of peak credit confirmed by him in AY 2008-09 while computing the peak credit for AYs 2009-10 and 2010-11. And the CO of the assessee is against the peak credit addition sustained by the Ld. CIT(A) and in support of the relief given to him by Ld. CIT(A). The second ground raised by the revenue in both the AYs. 2009-10 and 2010-11 is
3 IT(SS)A No. 08-09/Kol/2013 & CO No.41-42/K/2013 & ITA No.832/Kol/2013 M/s. Bhagdev Roy., AYs 2009-10 & 2010-11 against the action of Ld. CIT(A) deleting the commission income of Rs.9,56,825/- for AY 2009-10 and Rs.28,84,292/- for AY 2010-11. Since all the grounds are interlinked, the same are adjudicated together.
Brief facts of the case as noted by the Ld. CIT(A) which have not been disuted before is that a search operation u/s. 132 of the Act was conducted in “Fortune Ispat Group of cases” on 16.02.2010. During the course of search documents marked as FI/Office/1&2 were seized which belonged to the assessee i.e. Shri Bagdev Roy. The documents seized were in the form of a pocket diary and loose papers which contained the details of various bank accounts pertaining to a number of firms and companies managed by Shri Bhagdev Roy. The seized documents also contain some bank deposit slips. The statement of the assessee was recorded in the course of search in which he stated that he has been engaged in the activities of providing accommodation entries and earning of commission income through the firms and companies managed by him, though, on record names of other persons are there as proprietors and directors etc. The said other persons also admitted that all the firms and companies along with their bank accounts were managed by Shri Bhagdev Roy. Consequently, search operation was conducted on various bank accounts on 12.04.2010 and 13.04.2010. As a result of search amount deposited of Rs.2,02,39,629/- was seized from various bank accounts as detailed in the assessment order.
Thereafter, we note that during the course of assessment proceedings the Ld. AR of the assessee submitted a revised computation on 13.12.2011 which according to the AO reflected undisclosed income based on the peak credit balance in the 32 bank accounts controlled by the assessee and thereafter, the AO brought the peak credit deposit in the 32 bank accounts in a chart form for AY 2007-08 to 2009-10 as given below:
FINANCIAL YEAR DATE Peak Deposit during the year 2007-08 07.03.2008 3,264,870.00 2008-09 14.02.2009 12,997,672.36 2009-10 20.12.2009 26,022,588.20 Total : 42,285,130.36
4 IT(SS)A No. 08-09/Kol/2013 & CO No.41-42/K/2013 & ITA No.832/Kol/2013 M/s. Bhagdev Roy., AYs 2009-10 & 2010-11 And thereafter, the AO treated the said amounts as undisclosed income of the assessee. On appeal when the assessee challenged the addition made of the said amount (Rs.34,64,870/-) for AY 2008-09 as peak credit, the Ld. CIT(A) did not accept the contention of the assessee and was pleased to confirm the peak credit of Rs.34,64,870/- for AY 2008-09. However, gave partial relief to the assessee by giving the benefit of telescoping of income assessed in the AY 2008-09 to the peak credits for AY 2009-10 and 2010-11. Thus, the Ld. CIT(A) confirmed the addition on account of peak credit arrived at by the AO at Rs.1,29,97,972/- for AY 2009-10 which was reduced by giving set off of Rs.34,64,870/- so, the Ld. CIT(A) confirmed Rs.95,33,102/-. Similarly, in AY 2010-11 the peak credit addition was confirmed to the extent of Rs.1,30,24,616/- i.e. (Rs.2,60,22,588 – Rs.1,29,97,972). Aggrieved by the said addition confirmed for AY 2008-09, assessee is in appeal whereas the revenue is in appeal against the partial relief granted to the assessee for AY 2009-10 and 2010-11. The COs of the assessee are against the peak credit addition sustained for AYs 2009-10 and 2010-11 and in support of the order passed by the Ld. CIT(A) for AYs 2009-10 and 2010-11.
The AO after making the additions of peak credit deposit in the bank account as aforestated, estimated the commission based on different statements of the assessee, at 0.25% the deposit in the bank account and made an addition of Rs.19,036/- for AY 2008-09; Rs.9,56,825/- for AY 2009-10; and Rs.28,84,292/- for AY 2010-11. Aggrieved, the assessee preferred an appeal before Ld. CIT(A) who was pleased to delete it by taking note that since he has confirmed the addition made by AO adopting the peak credit of deposit in the bank accounts, therefore, according to Ld CIT(A), the addition on the basis of commission obtained by the assessee need to be deleted. Aggrieved by the said action of the Ld. CIT(A), the Revenue is before us. As said earlier, both the issues are interlinked, so we are adjudicating it together.
We have heard rival submissions and perused the material available on record. The main grievance of the assessee is against the adoption of peak credit deposited in the bank accounts as his income. We note that in the course of search, documents were found which established that the assessee was operating 38 bank accounts in the names
5 IT(SS)A No. 08-09/Kol/2013 & CO No.41-42/K/2013 & ITA No.832/Kol/2013 M/s. Bhagdev Roy., AYs 2009-10 & 2010-11 of various firms and companies through which accommodation entries were being provided. In the statement recorded in the course of search, the assessee admitted that he was engaged in providing accommodation entries and for this purpose, money belonging to third parties were routed through the bank accounts operated by him. According to the Ld. AR, from a perusal of the assessment order it can be gathered that this contention of the assessee has been accepted because the AO has estimated the commission earned @ 0.25% on the quantum of cash deposits made in all the bank accounts found during the course of search. Therefore, according to the Ld. AR, once the AO has accepted the factual explanation of the assessee that the money deposited in the bank accounts belonged to others and he was merely a name lender and for which commission was charged, then, according to the Ld. AR, principle of applying the peak credit to fasten the liability on the assessee is patently wrong. According to the Ld. AR, the principle of peak credit proceeds on the fundamental premise that the money deposited and/or withdrawn from the assessee’s bank account belongs to the assessee or in respect of which ownership vest in the assessee. Therefore, according to the Ld. AR, ownership of the fund is a pre condition for invoking the principle of peak credit theory and, therefore, unless the AO makes a factual finding that the assessee himself was the owner of the money, theory of peak credit cannot be applied. It was brought to our notice that admittedly, the AO has made addition on account of commission derived by the assessee from his name lending activity and such commission income has been worked out with reference to cash deposit in the bank accounts operated by the assessee. So, according to the Ld. AR, from the very fact that the AO has computed the commission with reference to the cash deposited in the bank accounts indicates that the AO has accepted in principle that the monies belonged to the third parties from whom the assessee earned commission. It was argued by the Ld. AR that had it been the case that the cash deposited in the bank accounts belonged to the assessee then there would have been no question of assessee earning any commission income from his own cash deposited in the bank accounts. Therefore, the Ld. AR urged before us that the AO erred in treating the peak cash credit in AY 2008-09 at Rs.34,64,870/- was illegal and the Ld. CIT(A) confirming the same was also not
6 IT(SS)A No. 08-09/Kol/2013 & CO No.41-42/K/2013 & ITA No.832/Kol/2013 M/s. Bhagdev Roy., AYs 2009-10 & 2010-11 correct in the eyes of law and thereafter he pointed out that the only solace assessee got from Ld. CIT(A) was that he allowed the said amount confirmed to be set off in next two AYs against which revenue is before us.
We note that during the search on 16.02.2010 at the Fortune Ispat Group of Companies, the search team happened to seize a pocket diary from an employee of the assessee from which the AO came to know that the assessee is operating a number of bank accounts in the name of different proprietorship concerns, firms, companies etc. where cash were regularly deposited and cheques were issued. The AO noted that in the statement recorded u/s. 132(4) of the Act on 30.03.2010 the assessee stated that he has been providing accommodation entry through the firms and companies managed by him. Thereafter, we note that on 12.04.2010 and 13.04.2010 search and seizure operation took place in the various bank accounts of the concerns which were controlled by the assessee and the AO has given the details of the same in the form of a chart from page nos. 3 and 4 in the assessment order and thereafter noted that affidavits have been filed by the proprietors and directors of various companies (38 entities) confirming that these firms actually belonged to the assessee and the proprietors/directors are merely name lenders and their common plea was that all the income arising from all companies (38 entities) as income of the assessee alone. The AO noted that pursuant to the notice u/s. 153C of the Act, the assessee had filed return for AY 2008-09 on 21.09.2011 showing total income of Rs.3,50,320/- , for AY 2009- 10 returned income of Rs.2,38,820/- and for AY 2010-11 the returned income of Rs.3,28,430/-. However, the AO noted in para VI that the Ld. AR of the assessee during the assessment proceedings submitted a revised computation (NOT REVISED RETURN) on 13.12.2011 showing undisclosed income based on the peak credit balance in 38 bank accounts controlled by the assessee and has given in chart from which has been reproduced above, working out a total peak deposit to come to Rs.4,22,85,130/-. When the Bench asked the Ld. AR to explain the observation of the AO, the Ld. AR submitted that during the assessment proceedings the AO asked the assessee to work out the peak credit deposited in the 38 bank accounts. According to the Ld. AR, when the AO insisted, the assessee had no other option but to compute the
7 IT(SS)A No. 08-09/Kol/2013 & CO No.41-42/K/2013 & ITA No.832/Kol/2013 M/s. Bhagdev Roy., AYs 2009-10 & 2010-11 peak credit deposited in the bank accounts and placed before him the peak credit deposit in the 38 bank accounts. According to Ld. AR, the working of peak credit placed before the AO which is the peak credit deposited in the bank accounts cannot be termed as undisclosed income of the assessee unless there is a finding of fact that the money deposited in the accounts belong to assessee and not of other beneficiaries. We note that the assessee has floated 6 proprietorship concerns under one Shri Goutam Sarkar, 10 concerns under the proprietorship of one Shri Nirmal Sharma, 4 concerns under the proprietorship of one Shri Bipul Kr. Pandey and 13 companies/firms and total 38 bank accounts were controlled by the assessee. Affidavits have been filed by Shri Goutam Sarkar, Shri Nirmal Sharma and Shri Bipul Kr. Pandey wherein they confirmed that the concerns were actually belonging to the assessee and they were only name lenders. We note that during the statement record u/s. 132(4) of the Act on 30.03.2010 the assessee stated that he has been providing accommodation entry through the firms and companies. The AO after appreciating the fact that the assessee is only a name lender and is in the business of accommodation entries has made an addition of commission income @ 0.25% out of the total cash deposits by holding as under:
“VII. The assessee was asked to give details of the rate of commission earned by him. Accordingly, in his letter dated 13.12.2011 he offered commission income at the rate of 0.175%. It is seen that in his earlier statement before the DDIT, (Investigation) dated 25.02.2010 assessee had shown commission at the rate of 15 paise for Rs.100/-, again in his statement dated 30.03.2010 before the Investigation he stated that he earned commission of Rs.15 paisa to 25 paisa per Rs.100/-. In the course of assessment proceedings, the assessee in his submission dated 13.12.2011 again stated that he earned commission at the rate of 0.10% to 0.25%. Hence, he estimated commission income averaging @ 0.175% but he failed to produce any basis for the same. Based on the above facts, I hereby take his commission income @0.25% being the higher side of the income as stated by the assessee in his earlier statements as discussed above. The same comes to Rs.19,036/- i.e. 0.25% out of the total cash deposit of Rs.7,614,500/- during the AY 2008-09.” Likewise for AY 2009-10 an addition of Rs.9,56,825/- was made as commission income and for AY 2010-11 an addition of Rs.28,84,292/- was commission income for providing accommodation entry was made by the AO. The plea of the assessee is that the AO’s action of making addition on the basis of commission obtained by him during his business activity of name lending (accommodation entry) is correct. However,
8 IT(SS)A No. 08-09/Kol/2013 & CO No.41-42/K/2013 & ITA No.832/Kol/2013 M/s. Bhagdev Roy., AYs 2009-10 & 2010-11 during the assessment proceedings the AO insisted the Ld. AR of the assessee to work out the peak credit deposited in various bank accounts, so he worked out the same and produced it before the AO, which have been added as his income is patently wrong because the money deposited in the bank account belongs to third parties and not his.
The principle of peak credit theory stems on the fundamental premise that the money deposited and/or withdrawn from the assessee’s bank account belongs to the appellant/assessee or in respect of which ownership vest in the appellant/assessee. So, in other words, ownership of the funds is the sine qua non for invoking the principle of peak credit and this particular principle of peak credit theory has been reiterated by the Hon’ble Allahabad High Court in the case of Bhaiyalal Shyam Behari Vs. CIT (2005) 276 ITR 38 (All) wherein it was reiterated that for adjudicating upon the peak credit the factual foundation has to be led that the assessee has to own all cash credit entries in the books of account and only thereafter the question of peak credit can be raised. We take note that there is no factual finding of the AO that the assessee is the owner of the entire deposit made in the bank account or even the amount considered as peak credit amount, rather we note that the AO himself acknowledges the fact in page 2 of the assessment order that the assessee is engaged in the business of giving accommodation entries, so question of money belonging to the assessee does not arise and, therefore, applying peak credit fails. However, the Ld. CIT(A) has confirmed the addition only on the basis that the assessee did not provide the details of the third parties from whom monies were supposed to have been received and paid. We do not agree to the said reason of the Ld. CIT(A) for confirming the addition on the basis of peak credit. It is an admitted fact that the search happened on 16.02.2010 and the documents and books of the assessee has been seized by the revenue authorities and they were all in their custody. All the details were with the department. Thereafter, neither the AO nor the Ld. CIT(A) made any attempt to find out the veracity of the statement given by the assessee that he was only a name lender doing accommodation entry for the beneficiaries. It was the bounden duty casted upon the AO/CIT(A) in case they do not believe the statement to have made enquiry and found out as to whether the modus operandi as suggested by the assessee is false or incorrect. If the
9 IT(SS)A No. 08-09/Kol/2013 & CO No.41-42/K/2013 & ITA No.832/Kol/2013 M/s. Bhagdev Roy., AYs 2009-10 & 2010-11 claim of assessee is correct it was the duty of the AO to bring out the truth and find out the beneficiary and bring to tax the real income undisclosed in the hands of the beneficiary. We note that in a recent case of similar nature wherein the AO did not make such enquiry as suggested by us, supra the CIT in exercise of his power u/s. 263 of the Act held that AO by not pursuing the enquiries to their logical ends has made the order erroneous and prejudicial to the interest of revenue. The CIT set aside the order of the AO and the AO was directed to carry out thorough and detailed enquiries about the various layers through which the share capital has been rotated. In that case the CIT even ordered the AO to summon the present and past directors of the assessee company and the subscriber company and examine them. We note that the said order of CIT was challenged by the assessee unsuccessfully before the Tribunal and later on before the Hon’ble High Court of Calcutta. The Hon’ble High court upheld the aforesaid order of the CIT in GA No. 998 of 2016 and connected matters i.e. M/s. Pragati Financial Management Pvt. Ltd. Vs. CIT-II dated 07.03.2017. From the aforesaid order of Hon’ble Calcutta High Court it transpires that the AO was duty bound to find out the real beneficiaries who were rotating money through the assessee’s beneficiaries concerns rather doing that AO has simply made additions based on peak credit and commission earned for providing accommodation entry. We take note that assessee’s return in pursuance of the notice under section 153C of the Act was to the tune of Rs.3,50,320/- for AY 2008-09 and Rs.2,38,820/- for AY 2009-10 and Rs.3,28,430/- for Ay 2010-11. However, during the assessment proceeding the AO has directed the assessee’s AR to prepare the peak credit of the amounts deposited in all the bank accounts and then made addition which is per se unsustainable in law in the facts and circumstances of the case because there is no iota of evidence to suggest that the amounts of money deposited in all the bank accounts owned/belonged to the assessee, without which the theory of peak credit addition cannot be sustained. In the facts and circumstances of the case, we take note that the assessee is an accommodation entry provider, as acknowledged by the AO at page 2 of his order, therefore, the commission added by the AO is correct and, therefore, sustained. The impugned order of Ld. CIT(A) deleting the commission income is reversed and the AO’s order in respect to
10 IT(SS)A No. 08-09/Kol/2013 & CO No.41-42/K/2013 & ITA No.832/Kol/2013 M/s. Bhagdev Roy., AYs 2009-10 & 2010-11 commission income is upheld. The order of the AO adopting the peak credit of 2008- 09, 2009-10 and 2010-11 is unsustainable in law and the confirmation given by the Ld. CIT(A) for AY 2008-09 and partial confirmation for AY 2009-10 and 2010-11 is erroneous. Therefore, the CIT(A)’s order giving partial relief to the assessee and confirming the partial peak credit is directed to be deleted. The revenue’s appeal against partial relief given by the Ld. CIT(A) also stands dismissed. The assessee’s ground of appeal against the peak addition made on the basis of peak credit is allowed for all the assessment years.
In the result, appeals of revenue are partly allowed for AYs 2009-10 and 2010- 11 and that of the assessee for AY 2008-09 is allowed and the Cross Objections of assessee for AYs 2009-10 and 2010-11 are partly allowed.
Order is pronounced in the open court on 31.03.2017. Sd/- Sd/- (Waseem Ahmed) (Aby. T. Varkey) Accountant Member Judicial Member
Dated : 31st March, 2017 Jd.(Sr.P.S.) Copy of the order forwarded to:
Appellant – Shri Bhagdev Roy, C/o D. J. Shah & Co., Kalyan Bhavan, 2, Elgin Road, Kol-20. Respondent – ACIT/DCIT, CC-XIII, Kolkata 2 3. The CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,
Asstt. Registrar.