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Income Tax Appellate Tribunal, KOLKATA ‘D’ BENCH,
Before: Shri M.Balaganesh & Shri S.S. Viswanethra Ravi
Shri S.S.Viswanethra Ravi, JM: This appeal by the Assessee is against the orders dt: 29-07-2016 passed by the Commissioner of Income Tax-(Appeals), 18, Kolkata for the assessment year 2010-11.
ITA No. 1689/Kol/2016 Amitava Dhar 1
In this appeal the assessee has raised grounds of appeal as below:
For that the Ld.CIT-(A) ought to have held that reassessment order dated 28-03- 2014 framed u/s 147/14393) is void and nullity in the eye of law.
For that the Ld.CIT-(A) ought to have held that the recorded reasons are invalid and improper and as such, the reassessment framed vide order dated 28-03-2014 is bad in the eye of law and liable to be quashed.
For that on the facts and in the circumstances of the case, the ld. CIT(A) was not justified in confirming the addition of Rs.10,40,000/- made by the AO on account of alleged income from unexplained sources. 4. For that on the facts and in the circumstances of the case, the ld. CIT(A) erred in confirming the action of the AO in adding a sum of Rs.50,916/- being interest on Fixed Deposits. 5. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal.
The assessee is individual and is an art painter, especially in the nature of historical and mythological paintings and he derives his income from such profession. According to AO, the assessee did not file his return of income for the AY 2009-10 i.e year under consideration. It was noticed by the AO from the system that the assessee invested Rs.1,19,076/- in shares and deposited cash to the tune of Rs.10,40,000/- in ICICI Bank, Lenin Sarani Branch A/c. By recording reasons the AO issued notice u/s. 148 of the Act on 07-06-2012. In response to such notice the assessee filed return on 07-08-2012 declaring his total income of Rs.1,57,000/-. Under scrutiny, notices u/s. 143(2) and 142(1) of the Act were issued. In response to which, the ld.A/R of assessee appeared time to time and produced papers and documents. On verification of said return the AO found that the assessee has shown gross receipts of Rs.12,45,000/-, gross profit of Rs.1,97,305 and claimed expenditure of Rs.58,462/-.
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The ld.AR of the assessee read together ground no’s 1,2&3 and advanced arguments collectively and grounds raised thereon challenging proceedings U/Sec 147 of the Act and an addition to an extent of Rs.10,40,000/- made on account of income from unexplained sources.
During the proceedings under scrutiny, in explanation to cash deposits as found by the AO in respect of ICICI Bank, Lenin Sarani Branch account the assessee offered his reply vide a letter dated 10-12-2013 stating that he received Rs.12,45,000/- on sale of his paintings and declared profit of Rs.1,38,843/- after deduction of expenses. The AO asked the assessee to produce the i) details of paintings sold and ii) names, addresses, phone numbers of the purchases and amount involved therein. To which, the assessee submitted his reply by a letter dated 19-02-2014 by stating that sale of such paintings was caused from his residence and as such no record of purchasers and details of paintings thereof were available. The AO, however, did not accept such submissions of the assessee and he observed as under in respect of deposits of Rs.10,40,000/- :-
Date Cash/cheque Amount (Rs.) 23.04.2009 Cash 20,000/- 23.06.2009 Cash 49,000/- 25.06.2009 Cash 4,51,000/- 27.06.2009 Cash 5,00,000/- 29.08.2009 Cash 20,000/- Total 10,40,000/-
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Again the AO show caused the assessee as to why the cash deposits as above to an extent of Rs.10,40,000/- should not be treated as income from undisclosed sources. Against which, the assessee vide letter dated 21-03-2014 submitted as under:-
In reply to query No.1 in respect of deposit of cash to tune of Rs. 10,40,000/-. I hereby submit that I have already explain the cash deposit in to ICICI Bank vide letter dated 10.12.2013 and letter dated 06.02.2014. However I am reproducing the facts as below:- a) I have filed my Return of income U/S 44AD of the I. T. Act. In the return of income my gross receipts Rs.12,45,000/- which is as below:- Cash deposit in to ICICI Bank Rs. 10,40,000/- Cheque deposit in to ICICI Bank Rs. 55,000/- Cheque deposit in SBI on 21/05/2009 Rs. 50,000/- 05/02/2010 Rs. 1,00,000/- Rs. 1,50,000/- Rs. 12,45,000/- b) I sale painting in nature of historical, mythology based etc. and also my own painted. I am a small trader and do not have any details of painting sold during the F/Y 2009-10. I have already explained that I sale the painting from my residence to prosperous persons mostly in cash and as such do not have record of the buyers. As I was not in position to furnish the details of customers, I have offered the above receipt of Rs. 12,45,000/- which includes cash deposit of Rs. 10,40,000/- and cheque deposit Rs. 1,00,000/- u/s. 44AD of IT Act, 1961 and after deducting expenditure shown profit of Rs. 1,38,843/- which is 11.15%. Since the cash deposit of Rs. 10,40,000/- as well as cheque deposit of Rs. 2,05,000/- are considered in the return of Income the amount are fully explained.”
The AO, not satisfied with the above explanation as offered by the assessee vide his said replies, he added the amount of Rs.10,40,000/- to the total income of the assessee as income from unexplained sources.
As aggrieved by such order of the AO the assessee filed an appeal before the CIT-A contending that the amount covering the impugned addition was from his past accumulation in cash as well as sale proceeds of paintings. Further, the assessee also submitted that he offered Rs.10,00,000/- to Alps Tourist Services Pvt. Ltd for allotment of shares and further paid Rs.1,00,000/- to M/s. Nirmal Bang Securities Pvt. Ltd for doing the business of derivatives on
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behalf of assessee and earned short term capital gain of Rs.5230/- and loss of Rs.99,748/- and filed the copy of ledger.
The CIT-A observed that the assessee could not clarify the nature of his business i.e the conducting of business, address of business premise and details of persons, who purchased the paintings. Accordingly, for non submission of evidence, he confirmed the impugned addition by observing as under:-
4.2 Grounds of Appeal No.s 3 to 6 -As the assessee could not furnish any satisfactory explanation regarding cash deposit in the bank account, addition of Rs.10,40,000/- has been made. Assessee has submitted that he is Painter by profession and during the assessment year 2010-11 he had received Rs.12,45,000/ - from sale of paintings and after deducting various expenses, a profit of Rs. 1,38,843/- was made. It is further submitted that this profit is 11.15% of the total receipts and hence he was not maintaining any books of accounts as per the provision for section 44AD. Cash has been deposited on various dates into their saving account which is out of the sale of paintings. Appellant has heavily relied on the provision of section 44AD in support of his action regarding non maintenance of books of accounts and non filling of return of income. I have carefully considered the facts of the case and the submission of the assessee. Assessee has not clarified how he was conducting his business. There are no business premises from where he could have conducted his business. Assessee has also not furnished any details of the persons whom paintings were sold. In this line of business Art galleries play a major role of getting the prospective customer for an emerging Artist. Assessee has not furnished any such details with whose assistance paintings were sold. No other evidence has either being brought on record to corroborate the contentions of the assessee. Assessee is just creating an alibi to explain the undisclosed income. Under the circumstances cash deposit of Rs.10,40,000/- in the bank account of the assessee remain unexplained and addition made by the A.O. is confirmed.
Before us the ld.AR submits that mere finding cash deposits in the said bank cannot be taken as income of assessee. Likewise, the assessee made investments in shares and entire investment made therein cannot be termed as income and there was some loss. He further argued that the assessee suffered from losses in such derivatives business and referred to para 8 of the order dated 20-01-2015 of the Co-ordinate Bench of ITAT Delhi in the case of Bir Bahadur Singh Sijwali in ITA No.3814/Del/2011. He also argued that mere having deposits in bank accounts do not constitute undisclosed income and opinion that it escaped assessment of income is fallacious assumption. He also submits that the assessee passed teachership examination in first category ITA No. 1689/Kol/2016
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from the Govt. College of Art & Craft, Calcutta and referred to page 10 & 10A of the paper book and argued that the assessee is a renowned painter having good name as an art painter. The ld.AR further submits that all the transactions were caused effect through M/s. Alps Tourist Services Pvt. Ltd and referred to pages 6 to 9 of the assessee’s paper book. In support of his contentions the ld.AR referred to order dated 22-01-2016 of the Co-ordinate Bench of ITAT Delhi in the case of Praveen Kumar Jain Vs. ITO in ITA No. 1331/Del/2015 and argued that the AO cannot mechanically conclude that the cash deposits and bank deposits constitute income and referred to para 12 of the said order. Further, in support of the contentions referred to the para no- 20 of decision of the Hon’ble High Court of Delhi in the case Indo Arab Services reported in (2015) 64 Taxmann. Com 257 (Del).
Ld.DR submits that the AO has sufficient reasons to issue notice U/Section 148 of the Act and argued that admittedly the Assessee has given an impression that he is trader in paintings. The Ld.DR argued that art of painting is an inherent quality of a person and the expenditure shown for such activity is negligible and relied on the order of CIT-A and AO. The Ld.DR also argued that admittedly cash deposits in the sum of Rs.10,40,000/- is above the maximum amount not chargeable to tax, hence, the reopening done by the AO in the absence of any return of income in these facts and circumstances can not be held to be invalid.
Heard rival submissions and perused the material available on record. We find that the assessee has filed his return on receiving notice issued u/s. 148 of the Act. During the course of assessment proceedings the assessee could not produce any details with regard to such cash deposits except saying that he is a painter and does his business by selling such paintings and ITA No. 1689/Kol/2016 Amitava Dhar 6
deposits as found are part of sale proceeds of such paintings. We find that before the CIT-A assessee submitted that he offered Rs. 10 lakhs to M/s. Alps Tourist Services Pvt. Ltd for allotment of shares and in support, the ld.AR referred to bank statements placed on record at page no’s 6 & 7 of the paper book. It does not show anything that the assessee paid such amounts to said M/s. Alps Tourist Services Pvt. Ltd. In fact, it shows that the moneys came to assessee from said M/s. Alps Tourist Services Pvt. Ltd. Before the CIT-A assessee submitted that such deposits involve his past accumulation and part of sale proceeds of his paintings. We find that neither before the AO nor before the CIT-A the assessee submitted any kind of evidence whatsoever to substantiate his claim.
With regard to the decision of the Co-ordinate bench, ITAT, Delhi in the case of Bir Bahadur Singh Sijwali supra the fact therein was that the AO reopened the assessment and specific legal challenge was that the recorded his reasons to reopen the assessment after issuance of notice U/Section 148 of the Act, whereas in the present case the assessee did not file his return initially, but, filed subsequent upon receipt of notice issued u/s. 148 of the Act. It could be seen from para no-10 of the said order that the reasons recorded by the AO therein were not sufficient to reopen the assessment. Therefore, in our opinion the said decision in the case of supra is not applicable to the present facts of the case.
Further, in support of his contentions the ld.AR referred to order dated 22-01-2016 of the Co-ordinate Bench of ITAT Delhi in the case of Praveen Kumar Jain Vs. ITO in ITA No. 1331/Del/2015 and argued that the AO cannot mechanically conclude that the cash deposits and bank deposits constitute income and referred to para no-12 of the said order, which reads as under:- ITA No. 1689/Kol/2016 Amitava Dhar 7
“12. Thus it is clear that the basic requirement for reopening of assessment that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment was found to be missing when the AO proceed to reopen the assessment which is in nature of a post mortem exercise after the event of reopening of the assessment. Therefore the reopening of the assessment was found to be invalid as it does not satisfy the requirement of law that prior to the reopening of the assessment the AO has to apply his mind to the material and conclude that he has reason to believe that income of the assessee has escaped assessment. Applying the above proposition of law it leaves no doubt in the mind that in the case on hand the AO has reopened the assessment mechanically without application of mind to conclude that the said amount of Rs.6 lac deposit in the bank account of the assessee constitutes the income of the assessee and the same has escaped assessment The decision relied upon by the ld DR is not applicable in the facts of the present case because in the said case not only the accommodation entry were found by the investigation wing but the modus operandi was also detected and therefore it was found that the AO was having the sufficient material and information to form the believe that the income assessable to tax has escaped assessment. In view of the facts and circumstances as well as the decisions relied upon by the AR, the reopening is in the case of assessee is not valid and the same is quashed. Since the reopening of the assessment held to be invalid therefore other ground of the appeal become infractuous. “
In the above case, the assessment was reopened and said reassessment was held to be invalid for not having sufficient reasons to believe that such income has escaped assessment. In our view that in the present case the assessee did not file his return of income prior to receipt of said notice issued u/s. 148 of the Act. Therefore, the case laws as relied on by the ld.AR of the assessee in the case of supra is not applicable to the present facts of the case.
Further, referred to the decision of the Hon’ble High Court of Delhi in the case Indo Arab Services reported in (2015) 64 Taxmann. Com 257 (Del) and referred to para no-20, which reads as under:-
“20. Keeping the above legal position in view when the cases on hand are examined, it is seen that as far as Indo Arab is concerned while the AO set out the information received from the ED, he failed to examine if that information provided the vital link to form the 'reason to believe' that income of the Assessee had escaped assessment for the AY in question. While the AO has referred to the fact that the ED gave information regarding cash deposits being found in the books of the Assessee, the AO did not state that he examined the returns filed by the Assessee for the said AY and detected that the said cash deposits were not reflected in the returns. In fact, the AO contradicted himself in the reasons recorded by him by noticing the information of the ED to the above effect and then stating that on perusal of the records for the AY in question it was noticed that the Assessee "had not disclosed these transactions in its books of account." Further the AO refers to the ED's information that Mr. Chetan Gupta, partner of the Assessee, failed to explain the sources of the cash deposits as shown in the books of account. However, that by itself could not have led the AO to even prima facie conclude that income of the Assessee had escaped assessment. The explanation or the lack of it of the entries in the books of account may have certain relevance as far as ED is concerned but that by itself does not provide the vital link for concluding that for the purposes of the Act any part of cash deposits constituted income that had escaped assessment. There is a long distance to travel between a suspicion that income had escaped assessment and forming reasons to believe that income had escaped assessment. While ITA No. 1689/Kol/2016
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the law does not require the AO to form a definite opinion by conducting any detailed investigation regarding the escapement of income from assessment, it certainly does require him to form a prima facie opinion based on tangible material which provides the nexus or the link to having reason to believe that income has escaped assessment.”
In the case of supra wherein it has been held that the re-assessment is bad in law being inconsistent with settled legal proposition i.e for not having a prima facie opinion regarding tangible material providing nexus or link that having income has escaped assessment. In our considered view that in the above case the assessment was processed u/s. 143(1) and thereafter on receiving information from Enforcement Directorate the AO reopened such assessment. It is needless to say that in the present case there was no return/assessment at all prior to issuance of notice u/s. 148 of the Act. Therefore, the case laws as relied on by the ld.AR of the assessee in the case of supra is not applicable to the present facts of the case. Hence, the arguments by the Ld.AR on reopening of assessment are dismissed. Accordingly, the ground no’s 1,2 and 3 raised in this regard are dismissed
Ground no. 2 relates to an addition a sum of Rs.50,916/- being interest @ 9% accrued on fixed deposits.
The assessee disclosed only interest to the extent of Rs.18,157/- in return of income and the AO found from the statement as obtained u/s. 133(6) of the Act from the bank account found Rs.50,916/- as interest accrued on fixed deposits. In explanation, the assessee submitted that interest would be offered for tax on the date of maturity on such fixed deposit. The AO was of the view that the assessee maintained a mercantile system of accounting and the assessee has to offer such interest on accrual basis for taxation. Accordingly, he added the sum of Rs.50,916/- to the total income of the assessee.
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Before the CIT-A the assessee contended that such fixed deposit was matured only on 01-09-2010 and such interest would be offered for taxation in the subsequent A.Y 2011-12. But, however, not accepting the same, the CIT-A confirmed the same by stating as under:-
4.3 Grounds of Appeal No. 7 - This relates to addition of interest of Rs.50,916/- which was accrued on the Fixed Deposits. In the assessment order A.O. has made addition of Rs.69,073/- on account of interest income. Rs. 18,157/- was the bank interest which assessee had already received and another addition of Rs. 50,916/- has been made on accrual basis on the Fixed Deposits In appeal proceedings assessee has submitted that the Fixed Deposits matured on 01.09.2010 and hence the interest on Fixed Deposits is taxable in assessment order 2011-12. I have carefully considered the facts of the case and the submission of the assessee. It is seen that assessee was not filing any return. Assessee had invested in Fixed Deposit and interest was accruing on that. However, assessee had not shown this income even while filing return in response to notice u/s 148. In the subsequent year also assessee has not filed any return. As the interest had accrued on addition is confirmed.
The ld.AR reiterated the same submission as made before the CIT-A. On the contrary the ld.DR relied on the order of the AO.
Heard rival submissions and perused the material available on record. It is observed that the AO and CIT-A found the submissions of the Assessee not acceptable that interest accrued thereon fixed deposit can be offered on maturity of the fixed deposits. We find that the Assessee filed his return on 07- 08-2012 in response to the notice dt:07-06-2012 issued U/Section 148 of the Act and the impugned amount is the interest accrued on fixed deposit stated to be matured on 01-09-2010 and it clearly establishes as on the date of filing return for A.Y 2010-11 i.e year under consideration the said fixed deposit not been matured and we find force in the submissions of the Ld.AR the said interest as accrued on maturity will be disclosed in subsequent year and we are conscious of the fact in respect of observation of the CIT-A confirmed the impugned addition only on the ground that the assessee did not file return of income for subsequent year i.e 2011-12, but however, we are not concerned whether the Assessee is liable to file return in pursuance of the conditions as ITA No. 1689/Kol/2016
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provided in clause (b) of subsection 1 of Section 139 of the Act. We also find that the other income considered by the AO is also brought to tax only on cash basis. Hence the stand taken by the Assessee that he is following cash system of accounting cannot be disputed. Be that as it may, the Assessee filed his return on 07-08-2012 consequent upon issuance of notice u/s. 148 of the Act and the impugned addition said to have been accrued on maturity of fixed deposit on 01-09-2010, in such circumstances the addition of Rs.50,916/- being the interest on fixed deposit is not maintainable in the eye of law and it is deleted, accordingly, ground no-4 of assessee is allowed.
In the result, the appeal of the Assessee is partly allowed
Order pronounced in the open Court on 31-01-2017.
Sd/- Sd/- M.Balaganesh S.S. Viswanethra Ravi Accountant Member Judicial Member
Dated 31-01-2017 Copies to : **PP/SPS (1) Appellant/Assessee: Shri Amitava Dhar 25B Tanupukur Road, Kolkata-700031. (2) Department/Respondent: The Income Tax Officer, W 22(1), Kolkata Bamboo Villa, 169 A J C Bose Road, Kolkata-700 014. (3)Commissioner of Income-tax (Appeals) (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal Kolkata
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