RAJRANI KISHANLAL PAHWA,SURAT vs. ITO, WARD 1(2)(1), SURAT

On appeal, the Ld. CIT(A) restricted the addition relating to FDRs and interest to Rs.42,00,000/-, while confirming the addition of Rs.4,59,682/- on account of unexplained bank deposits. to 996/SRT/2025 Rajrani Kishanlal Pahwa Vs. ITO Asst. Year : 2009-10 , 2011-12, 2013-14 - 3– 6. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.

With regard to undisclosed FDRs amounting to Rs.42,00,000/-, the Ld. AR submitted that the assessee is an elderly lady and the funds invested in FDRs did not belong to her but to her son, Shri Rajesh Kumar K. Pahwa. It was contended that the investments were made in the name of the assessee in order to avail a higher rate of interest offered to senior citizens. It was further submitted that Shri Rajesh Pahwa had disclosed an amount of Rs.98,50,506/- under the Income Declaration Scheme (IDS), 2016, and the amounts advanced to the assessee were out of such disclosed income. Therefore, once the income has already been subjected to tax in the hands of the son, no further addition can be made in the hands of the assessee.

The Ld. DR, on the other hand, relied upon the orders of the authorities below and submitted that no evidence was furnished during assessment proceedings to establish the nexus between the IDS declaration and the investments made in the assessee’s name.

We have carefully considered the rival submissions and perused the material available on record. The issue before us relates to the addition of Rs.42,00,000/-, being the amount sustained by the Ld. CIT(A) on account of undisclosed FDRs and interest. The assessee has consistently contended that the source of investment in the said FDRs was loans received from her son, Shri Rajesh Kumar K. Pahwa. It is an undisputed fact that Shri Rajesh Kumar K. Pahwa has disclosed an amount of Rs.98,50,506/- under the Income Declaration Scheme, 2016 and the said income has been duly subjected to tax under the Scheme. The explanation of the assessee that the funds so disclosed were advanced to her as loans and were utilised for making the impugned FDRs has not been controverted by the Revenue with any cogent material. The identity of the lender and the source of funds having been established, the initial onus cast upon the assessee stands to 996/SRT/2025 Rajrani Kishanlal Pahwa Vs. ITO Asst. Year : 2009-10 , 2011-12, 2013-14 - 4– duly discharged. Once the source of investment is established as income already offered to tax in the hands of the son under a statutory disclosure scheme, the same amount cannot be brought to tax again in the hands of the assessee. In view of the above facts and circumstances, we hold that the addition of Rs.42,00,000/- on account of FDRs and interest thereon is not sustainable in law. Accordingly, the said addition is directed to be deleted and the ground raised by the assessee in this regard is allowed. We clarify that no addition is required to be made on account of FDRs stand in the name of the assessee as the son of the assessee Shri Rajesh Kumar K. Pahwa has already declared the said amounts in IDS. For the sake of ready reference, the declaration made by her son is reproduced below:- to 996/SRT/2025 Rajrani Kishanlal Pahwa Vs. ITO Asst. Year : 2009-10 , 2011-12, 2013-14 - 5–

With regard to the addition of Rs.4,59,682/- on account of unexplained bank deposits, it is the submission of the assessee that she is engaged in the business of trading in textiles and the deposits in the bank account represent business receipts. It was contended that the cheques received, which were not deposited in the regular bank account, were deposited in the said account and there was no source of deposits other than trading activity. Reliance was placed on the decision of the Hon’ble Gujarat High Court in CIT v. Babulal K. Daga, 358 ITR 177 (Guj.), wherein it has been held that where the assessee has no other source of income and the deposits represent business turnover, only the embedded profit can be brought to tax. to 996/SRT/2025 Rajrani Kishanlal Pahwa Vs. ITO Asst. Year : 2009-10 , 2011-12, 2013-14 - 6–

In the present case, the assessee, in response to notice under section 148, filed a return declaring income of Rs.38,929/- on a turnover of Rs.4,56,319/-, resulting in a profit rate of 8.53%. The turnover declared corresponds to the amount deposited in the bank account. As per the regular books of account, the assessee had disclosed a net profit rate of 1.65%.

Considering the totality of the facts and circumstances, we are of the view that only the embedded profit in the bank deposits can be brought to tax and not the entire amount of deposits. Accordingly, the Assessing Officer is directed to restrict the addition by applying the same net profit rate as disclosed by the assessee in her regular books of account. This ground of appeal is, therefore, partly allowed.

The facts and issues involved in these appeals are identical to those in AY 2009-10. Accordingly, the decision rendered hereinabove shall apply mutatis mutandis to AY 2011-12.

However, with regard to AY 2013–14, it was submitted that the investments in FDRs represented reinvestment of FDRs made in earlier assessment years. Since this factual aspect has not been verified by the lower authorities, we deem it appropriate to restore this issue to the file of the Assessing Officer for limited verification. The Assessing Officer shall verify whether the FDRs were made out of amounts already disclosed and taxed in earlier years and to 996/SRT/2025 Rajrani Kishanlal Pahwa Vs. ITO Asst. Year : 2009-10 , 2011-12, 2013-14 - 7– thereafter allow appropriate relief in accordance with law, after affording due opportunity of being heard to the assessee.

In the combined result, the appeals of the assessee for AYs 2009-10 and 2011-12 are partly allowed, while the appeal for AY 2013-14 is partly allowed for statistical purposes.