SHRI DIPEN GUNVANTRAY PATEL,,BHAVNAGAR vs. THE ACIT, CENTRAL CIRCLE-1(1),, AHMEDABAD

आदेश / O R D E R

PER MAHAVIR PRASAD, JUDICIAL MEMBER :

This is an appeal by the assessee against the order of the Commissioner of Income Tax(Appeals)-I, Ahmedabad, dated 06.08.2013 for the Assessment Year (AY) 2011-12, on the following Grounds: 1. On the facts and in the circumstances of the case of the appellant, the ld.CIT(A) has grossly erred in ignoring and not deciding specific ground No.1, challenging the legality and validity of the impugned order passed by the A.O. when the ld.CIT(A) ought to have

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 2 - adjudicated the relevant ground and quashed the impugned order so passed by the A.O. 2. Without prejudice to the above, on the facts as well as in the circumstances of the appellant's case, the ld.CIT(A) has grossly erred in dismissing the ground No.2&3, raised by the appellant, in a quite casual manner simply holding that taking action u/s.153A of the Act doesn't follow from the orders of the A.O., which is contrary to the facts on record of the case, interalia:- (a) That the very ground raised (and also having regard to the submission) has been very pertinent and relevant issue, which goes to the root of the assessment. (b) that while taking action u/s.153A of the Act the ld.A.O. categorically mentions, in para.3.4 of the order stating that :-

"regarding contention of the appellant that assessment should be based upon actual data and documents not estimation, it is stated that this contention is not at all correct as the assessment is being validly made since search u/s.132 of the Act has been carried out in the case of the appellant and therefore the provisions of section.153A of the Act clearly apply in the case of the appellant...” (c) that as stated in the second line of para.3.4 of the assessment order, the A.O. has noted :-

"further with respect to objection of the appellant, speaking order is already passed by the A.O. in which it is mentioned by the A.O. that in the very own case of the appellant itself, the Hon'ble Gujarat High Court has already decided the SLP filed by the appellant...” (d) that as appearing in para.6 of the assessment order, the A.O. has duly sought for prior approval of the Range Add.CIT as statutorily required U/S.153D of the Act, which approval only

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 3 - comes in, when assessment is being made U/S.153A/153C of the Act.

Thus, Ld.CIT(A) has grossly erred in dismissing the grounds, when on peculiar facts of the case, he ought to have virtually quashed the impugned order of the A.O. being illegal.

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 4 - drawn by the DGCEL, prior to the entry of ADIT, but the A.O. simply refuses to take cognizance of it, without conducting examination (cross-examination). (d) That vide para.4.4, the A.O. has considered cash to the extent of commission income as part of seized cash. (e) that apart, the ld.CIT(A), vide para.9.1 has noted that "as far as seized cash of Rs.24,50,000/- is concerned, it is seen that the appellant has claimed that only Rs.18,50,00/- belonged to him and the rest i.e. Rs.6,00,000/- belonged to M/s Marwadi shares & Fin.ltd.". Interestingly, the ld.CIT(A) vide para.9.2 of the appellate order, has analyzed the claim of the appellant with regard to cash of Rs.6 lakhs and held that it is not supported by evidence. However, with regard to the balance of cash (i.e. Rs. 18,50,000/-), he has simply concurred with the views of the A.O. without giving his independent findings and also without appreciating the facts of the case of the appellant in proper perspective.

When the departmental authorities have not brought any material on record to establish the cash as above was totally unaccounted, the appellant prays that the Hon'ble tribunal may be pleased to order deletion of addition of Rs.24,50,000/- sustained by the ld.CIT(A), being unjustified/unwarranted.

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 5 - appellant to be visited with levy of interest under the aforesaid provisions. 6. On the facts and in the circumstances of the case the appellant, the Ld. CIT(A) has grossly erred in ignoring ground No.7,8,9 of the appellant's appeal challenging (a) rejection of appellant's plea for telescoped set off of cash found against appellant's income, (b) not accepting plea of the appellant as to invoking action u/s.132 instead of requisition u/s.132A of the Act and (c) refusal to consider bank interest as part of appellant's business simply stating that (they are) not requiring any separate orders from him. He ought to have appreciated and decided these grounds in all fairness and in the interest of justice. 2. The relevant facts as culled out from the materials on record are as under:- In this case, the appellant is engaged in the business as a sole proprietor of M/s. Deepak Enterprise, a shroff-cum-commission agent i.e. carrying on business of issuance of cheques/demand drafts against cash received from customers and discounting cheques by issuing cash against such cheques and charging commission from the customers. On 12/08/2010, business premises of the appellant was subjected to search by the Central Excise Department, following by a search u/s.132 of the Act by the I.T. Department.

2.2 During the course of search, cash of Rs. 24.50 lacs was found and seized, "The assessee was asked to explain the source of the aforesaid cash with supporting documents/evidence and its treatment in the regular books of account and show caused why it should not be treated as unexplained?

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 6 - 2.3 In this regard assessee vide its reply dated 18/12/2012 has submitted as under: “During the course of the search, as the luck would have been, entire cash found from my office was seized ignoring the fact that cash was duly represented by the cash book written till date of search and cash vouchers found from my premises and is part of Annexure-1 of seized materials. The cash belongings to other was also seized. Cash of Rs. 24.50 lac (Rs.Twenty Four Lacs Fifty Thousand only) was seized of which 18.50 lacs belongs to me and rest Rs.6.00 lacs belongs to other person,( As has been duly mentioned in DGCEI Panchnama who has handed over cash to IT Authority and who were the persons who informed the IT Department) who entered into my office premises during the course of Central Excise Search for obtaining cheque against cash but unfortunately detained by DGCEI, cash of Rs.6.00 lacs was kept by DGCEI with them and his cash of Rs.6.00 lacs was later on handed over to Income Tax Authority alongwith my cash of 18.50 lacs. This make total of Rs.24.50 lakhs of cash. Actually cash of Rs.18.50 lakhs only belongs to me. Rest Rs. 6.00 lakhs belongs to Mr. Ishwarbhai Shamjibhai Bharodia stated to be from M/s.Marwadi Share and Finance Limited.

Sir, in following paragraph the appellant wish to explain the nature and sources of cash seized to convince your goodself that the cash is fully explained and entire cash seized should be released. a) It is undisputed and admitted facts that the search action has been initiated by the Income Tax Department at the instance of mis information from the Central Excise Department during the course of its cross verification search action. b) It is also admitted facts that the Central Excise Department official (DGCEI) has commenced their action early in the morning and cash of Rs.18.50 lacs (Rs. Eighteen Lacs Fifty Thousand ) was reported by the excise department to have been found in office at the commencement of their action as belongs to me. Copy of panchnama is enclosed for your ready reference. c) It is also undisputed and admitted facts that MY CASH BOOK WAS WRITTEN TILL 11/08/2010 i.e. upto the date immediately prior to the search action and cash on hand as per cash book written till date

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 7 - was Rs.13,72,982/- (Rs. Thirteen Lacs Seventy Two Thousand Nine Hundred Eight Two). We are enclosing herewith print out of cash book from 01/04/2010 to 12/08/2010 for your ready reference. Your honour from the perusal of cash book lying with you will appreciate that cash on hand as at the end of 11/08/2010 was Rs.13,72,982/-, Thus there is no dispute that Rs, 13,72,982/- is duly explained. d) It is well settled law that cash as shown in cash book maintained in the regular course of business is explained cash and cannot be treated as cash which has not been or would not be disclosed for the purpose of the Income Tax Act. Particularly when the same cash book written till 09/07/2010 was produced in response to summons by same ADIT and have been submitted to hon. ADIT, Bhavnagar Range vide ack. No.94 dated 13/07/2010, No one can say that the cash represented by same cash book has been or would not have been disclosed for income Tax. Copy of letter addressed to ADIT a submitting the cash book etc. duly acknowledged by the office of ADIT is enclosed. e) The reliance is placed upon the decision of honorable Supreme Court in the case of M/s. Vindhya Metal Corp 224 IT 614 SC and also in the case of Rajendran Chingaravelu vs. R.K. Mishra, Addl. CIT & Ors. — 2009 227 CTR SC 520 . f) Explanation for rest of cash balance of Rs.4,77,018/- Voucher remains to be entered.

It is admitted facts that apart from cash balance of Rs.13,72,982/- as appearing in Cash Book, cash of Rs.4,77,018/- was found separately alongwith voucher of Rs.5,00,000/-. The said voucher is seized vide seized material no.46. The appellant is engaged in the business of issuing cheque/pay order/ D.D. against cash/cheque. This amount represent the cash received during the normal course of business from Shri Darshan Sanghvi thru Rameshbhai (his messenger) to obtain cheque against cash to be issued in favour of LIC.

The appellant has issued cheque of Rs.5,00,000/- vide cheque no.623902 drawn on Ing yasya Bank on 10/8/2010 in favour of Life Insurance Corporation of India . The cheque is cleared in bank on 12/8/2010 . Copy of Bank Statement is enclosed.

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 8 - The said cheque was issued for Darshan Vijaykumar Sanghvi residing at "Tara Niwas", Sareijini naydu Road, Vile Parle (W), Mumbai. Thus the entry is duly reflected in accounts. Copy of bank statement is enclosed herewith for your ready reference. We are enclosing herewith copy of voucher of Rs. 5,00,000/- seized at no. 46, in which the number of cheque issued in favour of LIC is clearly mentioned, for your ready reference. This could have been verified with counterfoil of cheque even during the search operation which could have avoided harsh action of undue seizure of explained cash. Exhibit – E

These facts that cash was received from Sanghvi and cheque was issued to LIC who in turn issue policy in favour of Mr. Sanghvi can be easily verified from Mr. Sanghvi and LIC . We are enclosing herewith copy of LIC Policy issued for Rs.5,00,000/- by LIC for Darshan Sanghvi alongwith the copy of IT Acknowledgment of Darshan Sanghvi for your ready reference. This will clarify the matter. Thus the cash found is explained cash represented by vouchers and other external evidences also.

As cash tendered by Shri Sanghvi was found short of Rs. 5,00,000/-, the same was kept separate along with voucher and the party was requested to verify the matter to settle the issue. Pending this, naturally no entry was passed in books of accounts. This however cannot be treated that the same was not intended to disclose in books of account as the cheque was issued to LIC from the regular bank account, cheque no. is duly recorded on voucher and cheque is cleared on 12/08/2010, Itself i.e. prior to ADI commence action u/s.132 in the afternoon. The same remains to be entered in cash book for the reason mentioned hereinabove. As the entry remains to be passed in the books of accounts, the cash on hand shows excess over the cash balance represented by cash book. Honorable Gujarat High Court in the case of PIPUSH KUMAR 0. DESAI v. COMMISSIONER OF INCOME TAX. 2001-(247)-ITR -0568 -GUJ has held that when the assessee had furnished sufficient details with regard to sources from which cash was available and shown availability of sufficient cash at the relevant time the same should be treated as explained cash.

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 9 - Thus the sources of the said cash are duly explained and should naturally be treated as part of cash shown by regular cash book. Once this is done there is no excess cash than shown by the cash book. We therefore request you to treat entire cash of Rs.18,50,000/- belonging to me as explained as it is just and fair to do so being represented by cash book, cash voucher and Bank statement."

4.2.1 The submission offered by the assessee has been considered. In the first instance, the assessee has tried to explain the source of cash of Rs.18.50 lacs which was seized during the course of search. It is the contented by the assessee that his cash book was written till 11.08.2010 and all the entries were updated till the date of search. Hence there was no discrepancy. However, this contention of the assessee was not acceptable at all as during the course of search, when the cash book of the assessee for the period of 1.04.2010 to 11.08.2010 was perused then it was noticed that there are some entries which reflecting frequently. Further, on the basis of random selected page (copy of the same supplied to the assessee), it was observed that some of the entries like Arvindbhai, Manishbhai, N.R.S. Exports etc. were reflecting frequently. Just because these entries were reflecting frequently and transactions amount is substantial therefore anybody can raise doubt about the genuineness of the transactions. Therefore, in order to cross verify the genuineness of the transactions the assessee was asked to produce the details of these transactions along with ledger and complete address of these suspicious parties. And show cause to the assessee vide order sheet entry dated 07.01.2013 why the alleged cash books should not be rejected.

4.2.2 In response to the same the assessee vide his letter dated 09.01.2013 has submitted that "Your goodself has asked us to explain the nature of entries in case of NRS Exports, Arvindbhai, Janishbhai etc. appearing in the cash book for the period from 01/04/2010 to 11/08/2010. Sir, I would like to inform your goodself that all the entries are of business transactions entered into in normal course of business. The entries are for my regular business of issuing cheques against cash received, Issuing cheque against cheque received, issuing D.D. against the cash/cheque received and issuing cash against the cheque discounting.

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 10 -

The nature of transactions with NRS Exports, Arvindbhai, Manishbhai, the namey mentioned by your goodself are for Cheque discounting transactions. These are the name of person/firm with whom the business transactions were carried out. Sir Cheque discounting are alike cash memo transactions. On amount being credited in our bank account, the cheque is discounted and proceeds is given to the party. Hence no ledger accounts are reared to maintain. All the transactions are also duly reflected in my bank accounts as and when the transactions are made. Sir, I would like to reiterate that the genuine transactions and have been entered into in the normal course of business and are duly recorded in the books of account which were maintained regularly. Sir, your honour have observed that these names are appearing frequently hence it seems that the entries are made on "As and When" Basis, The facts that the books of accounts were written till 11/08/2010 i.e. till immediately preceding date of search on 12/08/2010, itself prove that the transactions are genuine business transactions entered into in the cash book in the normal course of business regularly on daily basis. All the transactions are also reflected in my bank accounts.

Sir, your honour will appreciate that the transactions are regular business transactions, duly recorded in regular cash book, which was also submitted before ADI, Bhavnagar on 10/07/2010. The transactions are entered in to cash book on regular basis and the same are also reflected in Bank book- Bank statement. We, therefore most humbly request your goodself not to reject the cash book as the same do reflect genuine business transactions"

4.2.3. After going through the submission of the assessee it is found that in support of his claim the assessee has not submitted any supporting evidences. In this show cause letter the assessee was asked to produce the copies of ledger accounts of these parties along with complete address but he did not submit any details. In this regard the assessee has simply stated that he had normal business transactions with these parties. On the other hand, it is not possible for the assessing officer to cross verify the contention of the assessee. Hence, it shows that this cash book was written " as and when" basis to support the bank entries. Further in absence of the address and ledger accounts it is not possible

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 11 - for the assessing officer to ascertain the real nature of the transactions, over and above, again it is not possible to cross check the exact amount of commission income. Therefore, looking to the facts and circumstances this cash book is hereby rejected.” 2.4 During the course of search at the business premises of the assessee, cash of Rs.6 lacs was also found and seized as there was no convincing explanation of the cash. The explanation was offered by one Shri Ishwarbhai that the same belonged to her mother, who had given to him to hand over to Marwari Shares and Finance. On verification of pass book produced by him, it is noticed that the balance is less than Rs.4 lacs, it was two months back. Also there was no explanation for balance Rs.2 lacs. Hence no reliance was placed on this person and the cash was accordingly seized treating the same to be belonging to the assessee.

2.5 In this regard, the assessee vide his reply has submitted as under: "It is accepted facts that the cash on hand lying with the appellant on 12/08/2010 at the time of commencement of search by Central Excise was Rs.18,50,000/-. It is also accepted fact that during the course of action of central excise, one person Mr. Ishwarbhai Shamjibhai Bharodia stated to be from M/s. Marwadi Share and Finance Limited came alongwith cash of Rs.6,00,000/- to obtain cheque against cash. This fact is duly recorded in the panchnama prepared by the Central Excise Official at the time of handing over of this cash of Rs.6.00 Lacs to Income Tax authority. As mentioned in the Panchnama, Someone Mr. Ishwarbhai Shamjibhai Bharodia stated to be from M/s. Marwadi Share and Finance Limited has brought this cash to my office premises. As mentioned in Panchnama itself, Mr. Ishwarbhai was detained with cash till the income tax authority arrive.

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 12 - It is very shocking that in spite of being appraise by the Central Excise officers of the fact regarding the cash of Rs.6.00 lacs being brought in their presence and the person himself was present and has accepted this fact, the IT Authority seize this cash and surprisingly consider this as belongs to me when the fact was very much clear that I have nothing to do with this cash.

As the cash was brought in my premises by third party Mr. Ishwarbhai during the course of search of Excise Department and the person was detained till the arrival of IT Authority and these facts of Rs. 6.00 being brought in by Ishwarbhai have been duly recorded in Panchnama prepared by the Excise department while handing over entire cash including this Rs. 6.00 lacs to IT Authority, the cash of Rs. 6.00 lacs found from Mr Ishwarbhai in no way can be treated as cash belongs to me. The same need to be separated from my seized amount as I have nothing to do with this cash. Affidavit of Ishwarhai is enclosed herewith for your ready reference.

During the course of search the statement of appellant was recorded and in this statement the explanations for all these three were duly given. Thus the matter was clarified at the relevant time also and yet the cash was seized which is clearly against the judicial intention. Copy of statement recorded u/s 132 is enclosed.

From above. Your honour will appreciate that entire cash found at the time of search is duly explained cash, is duly reflected in cash book and is represented by cash vouchers. The cash of Rs. 6.00 lacs belongs to other has been wrongly treated as cash belonging to me and deserve to be treated as belonging to other as has been the facts and is also duly noted in the punchnama of DGCEI Excise department, in my statement and also of the statement of the person to whom cash actually belongs,"

4.3.3 On perusal of the above submission it is noted that the assessee states that the cash which was found from his premises does not belong to him and is not the owner of the said cash as the same has been brought by some third party. The above submission of the assessee only shows that he is not in a position to offer any satisfactory reply except that the said cash belongs to third party. However, this explanation of the assessee does not clear him from the ambit of seizure as the third

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 13 - party was also not in a position to explain the source of cash. From what the third party has explained cannot lead to conclusion that that the cash belong to his mother. Thus, it was proved beyond doubt that the third party was not a genuine claimant. Also interestingly, some other person named Shri Praduman S. Gohil filed an application claiming that the said cash belong to him as he being an agriculturist, the said cash was from his past savings. This claim also makes it very interesting as to who is the actual claimant of this cash as the real owner of the cash was not solved between these two third parties. This leads to definite conclusion that the said cash belong to the assessee only, who neither during the course of search nor post search proceedings failed to offer any satisfactory reply to disown the said cash. No evidence has been placed on record to show that the said cash belongs to third party. Even in his above submission also what he tried to explain that the said cash belong to some other person. Further, the affidavit of Ishwarbhai does not help the assessee at all as this has been filed to suit his convenience and no cognizance can be taken at all. Thus, the submission of the assessee on this account fails. 4.4 When assessee has failed to prove his contention in that scenario he requested for telescopic set off against the seized cash for all the seven years. In this regard, the assessee has placed his reliance upon some case laws. But this request of the assessee cannot be acceded for all the seven years because the seized cash belongs to only A.Y. 2011-12, further it is not possible for anybody to carry forward the alleged cash from A.Y. 2005-06 onwards. Again, it can be seen from preceding paras that the assessee had deposited huge cash in his bank accounts and issuing the cheques for the equal amounts, in that case, assessee can easily converted this cash into accounted income, it belongs to A.Y.2005-06 to A.Y.2010-11. It is already established that the assessee is manipulating his cash books by entering the fictitious names as per requirements. So, it can be concluded that this cash is belongs to the assessment year 2011-12 only. Looking to these facts and circumstances of the case at maximum the assessee can be given set off for current year only. Thereby no separate addition with regard to commission income has been made and this treated as a part of seized cash.” 2.6 But assessee could not satisfy the ld. AO hence he made an addition of Rs.24,50,000/-.

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 14 -

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 15 - this regard assessee has issued cheque of Rs.5,00,000/- vide cheque no.623902 drawn on Ing Vyasya Bank on 10/08/2010 in favour of Life Insurance Corporation of India. The cheque is cleared in bank on 12/08/2010. Assessee has also filed bank statement before the lower authorities. This fact can be also substantiated from the counter file of the cheque even during the search operation. As Hon’ble Gujarat High court in the case of Piyush Kumar O. Desai vs. Commissioner of Income Tax 2001-(247) ITR – 0568 - Guj has held that when the assessee had furnished sufficient details with regard to sources from which cash was available and shown availability of sufficient cash at the relevant time the same should be treated as explained cash.

ITA No.2472/Ahd/2013 Prop. M/s. Deepak Enterprise vs. ACIT Asst.Year –2011-12 - 16 -

Sd/- Sd/- vejthr flag vejthr flag vejthr flag महावीर �साद vejthr flag (लेखा सद�य) (�या�यक सद�य) ( MAHAVIR PRASAD ) ( AMARJIT SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 29/11/2017

Priti Yadav, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-I, Ahmedabad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, True Copy उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 22/11/2017 (dictation-pad 4 pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member 29/11/2017 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………