DIPESH G MAMANIA,MUMBAI vs. ITO 23(1)(2), MUMBAI

Ground no.1, relates to addition made under section 68 of the Income Tax Act, 1961 (for short "the Act") for an amount of ` 1,50,000.

On examining the evidences submitted by the assessee to prove the genuineness of loan transaction, the Assessing Officer observed that on verification of the passbook, it was found that immediately before issuing the cheque of ` 50,000, each of these persons had 3 Dipesh G. Mamania made cash deposit to the bank account of almost similar amount. He, therefore, concluded that the assessee has routed back his own money through the aforesaid lenders. Accordingly, he treated the amount of ` 1,50,000 as unaccounted cash credit under section 68 of the Act and added back to the income of the assessee.

Being aggrieved of such addition, though, the assessee preferred an appeal before the learned Commissioner (Appeals), however, learned Commissioner (Appeals) also confirmed the addition observing that the lenders have no PAN nor they are assessed to tax and assessee has failed to discharge the onus of proving the creditworthiness of the creditors and genuineness of the transaction.

The learned Authorised Representative submitted before us, the finding of the learned Commissioner (Appeals) is factually incorrect as in the confirmations of the lenders submitted before the Assessing Officer in the course of assessment proceedings PAN is mentioned. He submitted, in fact, one of the lenders Shri Mehul Savala, has filed his return of income for the impugned assessment year a photocopy of which was sought to be produced by the learned Authorised Representative as additional evidence. He submitted, even bank account copies of the lenders were also submitted before the Assessing Officer and the bank account copies would reveal that the lenders have made cash deposits to the bank account on other

Learned Departmental Representative on the other hand, relied upon the decision of the learned Commissioner (Appeals).

We have considered the submissions of the parties and perused the material available on record. As could be seen, the Assessing Officer disbelieved the loan transaction noted above primarily for two reasons. Firstly, because, before issuance of cheque to the assessee there was cash deposit in the bank accounts of the lender and secondly; the income tax return copies were not filed. The learned Commissioner (Appeals), while sustaining the addition, has further observed that the lenders have no PAN. However, on a perusal of the confirmation letters of the creditors as submitted in the paper book, we have noted that all the three lenders have mentioned their PAN in the confirmation letters. Therefore, the allegation of the learned Commissioner (Appeals) is factually correct. In fact, as brought to our notice one of the creditors has filed his return of income for the impugned assessment year, though of–course, return of income copy was submitted for the first time before us by way of additional evidence. Further, on examination of bank account copies of the lenders, we have noticed that despite of cash just prior to issuance of cheque to the assessee is not the only instance of cash deposit, but, the lender had on earlier occasions also, deposited cash in the bank account. Moreover, as noted by the Assessing Officer himself, the assessee had raised loans from various persons for making the payment to the builder, out of which he only doubted the loan amount

In ground no.2, the assessee has challenged the addition of ` 59,360 as undisclosed investment.

Brief facts are, the Assessing Officer while examining the bank account of the assessee in Kotak Mahindra Bank found that in the relevant previous year, assessee had deposited cash at regular interval which aggregated to ` 1,84,360. When the Assessing Officer called upon the assessee to explain the source of cash deposit, it was submitted by the assessee that the account held in the bank account is a joint account of the assessee and his wife and some of the cash deposits were made by his wife from her independent source of income. He also submitted that some deposits were made out of 7 Dipesh G. Mamania earlier cash withdrawal. The Assessing Officer, however, was not convinced with the explanation of the assessee. He observed that the deposits and withdrawals do not match. He also observed that the assessee’s claim that the account is jointly held with his wife is also not correct. Accordingly, he added back the amount of ` 1,84,360 to the income of the assessee by treating it as unexplained cash credit under section 68. Assessee challenged the addition before the learned Commissioner (Appeals).

The learned Commissioner (Appeals) after considering the submissions of the assessee agreed that the account held in the bank is a joint account of the assessee and his wife. He also found that his wife is an income tax assessee and during the relevant assessment year has disclosed income of ` 1,25,000. He, therefore, held that out of the total cash deposits made in the bank account, a part of it was contributed by his wife. Accordingly, he granted relief to the extent of ` 1,25,000 thereby sustaining the addition of ` 59,360.

Learned Authorised Representative submitted, while deciding the issue the first appellate authority has completely ignored the contention of the assessee that sufficient cash balance was available with the assessee from withdrawal made from other bank accounts such as Axis bank and Kotak Bank. He submitted, availability of opening cash balance with assessee was also not taken note of. He,

The learned Departmental Representative relied upon the order of the learned Commissioner (Appeals).

We have considered the submissions of the parties and perused the material available on record. We have noted that before the first appellate authority, the assessee had contended that surplus cash was available with him by way of withdrawal made from Axis Bank amounting to ` 1,35,478 and Kotak Bank amounting to ` 37,900, which if taken into consideration would leave excess cash balance. We have noted, the aforesaid contention of the assessee has not at all been considered by the learned Commissioner (Appeals). From the cash flow statement of the assessee it is observed that there is sufficient cash balance available with the assessee to explain the deposits made in the bank account. Therefore, in our view, the addition of ` 59,360, is not called for. Accordingly, we delete the same. Ground no.2 is allowed.

In ground no,3, assessee has challenged the addition of ` 5 lakh under the head “Income From Other Sources” on account of insufficient withdrawal.

Brief facts are, during the assessment proceedings, the Assessing Officer called upon the assessee to submit the details of domestic expenditure incurred by him with supporting evidence. In response, it was submitted by the assessee that his family consist of his mother, father, wife and a daughter and son. The Assessing Officer found that the withdrawals made by the parent during the relevant previous year was ` 72,000, whereas, the withdrawal made by the assessee for domestic expenditure is ` 84,000 and that of his wife is ` 15,500. The Assessing Officer observing that the assessee being a Vice President of a reputed company, the domestic expenditure claimed to have been incurred does not fit into the standard of living the assessee is expected to lead. He observed, withdrawal made by the assessee may not even be sufficient for the schooling expenses of his children. He was of the view that 50% of his salary can be considered to be the real expenditure incurred by him for his domestic expenditure. He, therefore, added back an amount of ` 5 lakh on estimate on account of insufficient withdrawal for domestic expenditure. Being aggrieved of addition so made, the assessee challenged it before the learned Commissioner (Appeals).

Before the learned Commissioner (Appeals), it was submitted by the assessee that considering the fact that assessee and his wife are contributing ` 1,24,000 and his parents ` 72,000 the aggregate

The learned Authorised Representative submitted, the assessee stays in a backward suburb area in Bhandup consisting of chawls with a very low living standard. He submitted, assessee also belongs to Jain community which is very conservative in their lifestyle. He submitted, during the relevant previous year, the assessee had only one child as the son was born on 29th April 2010. As far as the allegation of the learned Commissioner (Appeals) that the assessee has not disclosed the School expenditure of his daughter, the learned Authorised Representative submitted, since the school expenses were incurred in cheque they will have no effect on the withdrawal of the assessee. He submitted, there is no provision under the Act or there is any other regulation that assessee should make personal expenses of at least

Learned Departmental Representative on the other hand, relied upon the decision of the learned Commissioner (Appeals).

We have considered the submissions of the parties and perused the material available on record. It is evident, the Assessing Officer has added back the amount of ` 5 lakh for the reason that the withdrawals shown by the assessee for personal expenditure is insufficient. However, we have noted, before the Assessing Officer itself, the assessee while explaining the source of domestic expenditure has stated that an amount of ` 72,000 was contributed by his parents. Before us also, learned Authorised Representative referred to the confirmation letters of father and mother of the assessee which indicates that they have contributed an amount of ` 72,000 towards domestic expenditure. These facts have not been properly examined or 12 Dipesh G. Mamania appreciated by the Departmental Authorities. Of–course, the confirmation letters of parent have been submitted for the first time before this forum. However, if such amount is considered to be available with the assessee, then the aggregate amount available with the assessee for domestic expenditure as claimed would be about ` 2,00,000 which, in our view, is sufficient for maintenance of a family considering the fact the assessee at the relevant time had only one small kid which does not require much expenditure on education. Further, the fact that the assessee is staying in a suburban area also does not require incurring of the amount of expenditure which could be expected to be incurred in an area within the city. Moreover, only because the assessee is a Vice President of a company will not lead to the conclusion that he would be leading an extravagant life style. When the Assessing Officer disbelieves the claim of the assessee on domestic expenditure and makes an ad–hoc addition he must also establish the basis for such addition. Merely presuming that the assessee is expected to expend 50% or 1/3rd of the salary, the Assessing Officer cannot make addition on account of low withdrawal. On what basis, the Department has come to conclude that 1/3rd or 50% of salary is expended for domestic expenses and by applying which yardstick or parameter such conclusion was arrived at has not been elaborated in the orders of the Departmental Authorities. Therefore, ad–hoc additions made purely on the basis of conjecture

In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 19.08.2016