SH. PRITAM KUMAR SHARMA,NEW DELHI vs. ITO, NEW DELHI

Assessee has filed the Appeal against the Order dated 29.8.2014 passed by the Ld. Commissioner of Income Tax (Appeals)—XXVIII, New Delhi pertaining to assessment year 2009-10.

2. The grounds raised by the assessee read as under:-

3. On the facts and circumstances of the case, the reassessment proceedings initiated by the AO are bad in the eye of law as the reasons recorded for the issue of notice under section 148 are bad in the eye of law and on facts. 4(i) On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in confirming the addition of Rs. 9,50,000/- made by AO on account of cash deposit in bank. (ii) That the addition has been confirmed by arbitrarily rejecting the explanation and evidences brought on record by the assessee.

5. The appellant craves leave to add, amend or alter any of the grounds of appeal.

S.No. Name of the party Amount as Amount as Fresh loan on on advanced 31.3.2009 31.3.2008 during the year 1 Neha Wudlam Rs. 3,00,000 --- Rs. 3,00,000 Private Limited 2 Satya Dev Sharma Rs. 2,50,000 ---- Rs. 2,50,000 3 Shree Ram Rs. 4,00,000 ---- Rs. 4,00,000 Trading Co. 4 City Realcome Ltd. Rs. 1,29,010 Rs. 1,29,010 ---- 3.1 The assessee was asked to justify the advancing the loan, when the assessee was having meager income, which the assessee could not justify. AO further noted that in all these cases before advancing loan to these parties, there was cash deposit of different amount. Assessee was asked to explain the source of these cash deposit, which he could not explain satisfactorily. As per assessee, he used to purchase the raw wood from agriculturist or farmers, where the sale are either on cash or credit both. Whole of the business is conducted on cash basis.

As per assessee, purchases are from farmers and al the sales are made to M/s Neha Wudlam Private Limited. The assessee has not furnished the complete details of parties from where the purchase were made by way of providing complete address of these parties.

During the year under consideration, assessee has advanced loan amount to Rs. 9,50,000/- to M/s Neha Wudlam Private Limited, Satya Derve Sharma and Shree Ram Trading Co. Since the assessee has not furnished the source of cash deposit for advancing the loan satisfactorily, the same is treated as assessee’s income from undisclosed sources and the same is added to the declared income of the assessee and assessment was completed u/s. 143(3) of the I.T.

Act, 1961 vide his order dated 20.3.2013.

Therefore, the assessee was dealing in its whole business on cash basis. The assessee has filed profit and loss account and balance sheet of the business which has been accepted by the AO as is evident from the assessment order. The assessee does not maintain any current account and deposits all the receipts in the saving bank account. He further stated that the assessee has advanced fresh loan of Rs. 9,50,000 to three parties and stated that assessee’s source of deposit is mainly the withdrawals of Rs. 1,66,500/- and collection from Debtors of Rs. 10,87,362/- from his business, as is evident from the fact that opening debtors is of Rs. 2,79,166/- and total sales made during the year is Rs. 9,46,850/-. Out of this during the year assessee received amount of Rs. 10,87,362/- in cash and Rs. 1,33,221/- vide cheques. He further stated that the cash received and withdrawals after making payment for expenses and creditors deposited in to the bank account and the same was used to advance the loan to the said parties. Hence, he stated that in view of it is crystal clear that the payments are totally out of his business and the results have been accepted by the AO, as the business income has been assessed at Rs. 1,51,580/-, hence, the source of deposit has been explained by the Assessee to the AO. In view of above, Ld. Counsel of the assessee stated that AO has not considered the aforesaid source of deposits, hence, the addition made on this account may be deleted. In order to support his contention he relied upon the following case laws:- 5

- ITAT, Delhi Bench decision in the case of Bir Bahadur Singh Sijwali vs. ITO (2015) 68 SOT 197 (Delhi – Trib.) - ITAT, Agra Bench in the case of SarafGramodyogSansthan vs. ITO (2007) 108 ITD 115 (Agra) - High Court of Delhi in the case of Indo Arab Air Services (2016) 283 CTR 92 (Delhi).

I find that the assessee is in the business of raw woods. The woods were purchased which manufacture ply, block boards, flux doors etc.

As general practice, the payment of the transaction was made in cash.

Therefore, the assessee was dealing in its whole business on cash basis. The assessee has filed profit and loss account and balance 6 sheet of the business which has been accepted by the AO as is evident from the assessment order. The assessee does not maintain any current account and deposits all the receipts in the saving bank account. In this case the assessee has advanced fresh loan of Rs. 9,50,000 to three parties and assessee’s source of deposit is mainly the withdrawals of Rs. 1,66,500/- and collection from Debtors of Rs. 10,87,362/- from his business, as is evident from the fact that opening debtors is of Rs. 2,79,166/- and total sales made during the year is Rs. 9,46,850/-. Out of this during the year assessee received amount of Rs. 10,87,362/- in cash and Rs. 1,33,221/- vide cheques. I find considerable cogency in the ld. Counsel of the assessee’s contention that the cash received and withdrawals after making payment for expenses and creditors deposited in to the bank account and the same was used to advance the loan to the said parties. Hence, it is crystal clear that the payments are totally out of assessee’s business and the results have been accepted by the AO, as the business income has been assessed at Rs. 1,51,580/-, hence, the source of deposit has been explained by the Assessee to the AO and addition made on this account is not sustainable in the eyes of law, hence, the same needs to be deleted. My aforesaid view is fully supported by the following decisions :- 7

“ITAT Delhi in the case of Bir Bahadur Singh Sijwali vs. ITA [2015] 68 SOT 197 (Delhi - Trib.)

All that the reasons recorded for reopening indicate is that cash deposits aggregating to Rs.

10,24,100 have been made in the bank account of the assessee, but the mere fact that these deposits have been made in a bank account does not indicate that these deposits constitute an income which has escaped assessment. The reasons recorded for reopening the assessment do not make out a case that the assessee was engaged in some business and the income from such a business has not been returned by the assessee.

It is not open to deal with the question as to whether the assessee could be said to be engaged in any business; all that is to be examined is whether the fact of the deposits, per se, in the bank account of the assessee could be basis for holding the view that the income has escaped assessment. The answer is in negative. The Assessing Officer has opined. that an income of Rs.10,24,100 has escaped assessment of income because the assessee has Rs.10,24,100 in his bank account but then such an opinion proceeds on the fallacious assumption that the bank deposits constitute undisclosed income, and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. Of course, it may be desirable, from the point of view of revenue authorities, to examine the matter in detail, but then reassessment proceedings cannot be restored to only to examine the facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that an income has escaped assessment. {Para 8}

In view of the reasons set out above, as also bearing in mind entirety of the case, the reasons recorded by the Assessing Officer, as set out earlier, were not sufficient reasons for reopening the assessment proceedings. Therefore, the reassessment proceedings is quash. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous. {Para 10}

ITAT Agra Bench in the case of SarafGramodyogSansthan v. ITA [2007] 108 ITD 115 (Agra)

The crucial expression for assumption of jurisdiction under section 147 is 'any income chargeable to tax has escaped assessment for any assessment year'.

Thus, the Assessing Officer has to record in the reasons that a particular item which was chargeable to tax, has escaped assessment. In the instant case, the Assessing Officer had written that a sum of Rs.1,02,047 deposited in the bank account had escaped assessment. That belief he had arrived on the basis of the fact that return of income had not been filed, but where the income was not above the minimum amount assessable, i.e., where income was below exemption limit, the return was not required to be filed and, therefore, any deposit in a bank account would not automatically lead to the inference that it was chargeable to tax. The Assessing Officer ought to have verified from the books of account whether that deposit was recorded in regular books or not. If it was recorded in the regular books, then it could not be said that the deposit was automatically liable to be taxed. Deposit in the bank account can be covered by various receipts recorded in the cash-book. Without verifying the deposits in the bank statement with the regular books maintained by the assessee,. one could not come to the inference that such bank deposits were chargeable to tax. No doubt, the deposits in the bank account are investments covered by section 69 and where they are not explained, they are liable to be added as deemed income of an assessee. But mere deposit of an amount alone in the bank account could not lead to an inference that this is liable to be taxed as income and the assessee has not disclosed the same and, therefore, it has escaped assessment. No question had been asked from the assessee before reopening the assessment as to the source of the deposit in the bank account. [Para 17J 11 8.1. In the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, I delete the addition in dispute and accordingly decide the issue in dispute in favour of the assessee and against the Revenue.

Order pronounced in the Open Court on 02/02/2017.