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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SANJAY ARORA, AM & SHRI RAM LAL NEGI, JM
O R D E R Per Sanjay Arora, A. M.: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-33, Mumbai (‘CIT(A)’ for short) dated 28.2.2013, dismissing the Assessee’s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (A.Y.) 2009- 10 vide order dated 16.12.2011.
The brief facts of the case are that on the basis of the information available with the Revenue, the assessee had made cash deposits during the relevant year in his bank accounts with Cosmos Co-operative Bank (at Rs.22.20 lacs) and Axis Bank Ltd (at (A.Y. 2009-10) Kartik Bharat Doshi vs. ITO Rs.19.15 lacs), both of which (bank accounts) were not disclosed (by the assessee) to the Revenue. In explanation in the assessment proceedings, it was submitted that both the bank accounts were joint accounts, with the assessee being a joint holder in both. However, only the transactions reflected in the Axis Bank account, where he is the first holder, pertain to him, while that in Cosmos Co-operative Bank account were, similarly, of his father, Shri Bharat A. Doshi, the first holder for that account, and proceedings against whom were simultaneously taken up by the Revenue. Further, of the total cash deposits of Rs.19.15 lacs with Axis Bank, since owned by the assessee, the Assessing Officer (AO) found the assessee’s explanation as reasonable towards deposits for Rs.2.46 lacs, adding the balance of Rs.16.69 lacs as unexplained income, deemed as so u/s.
For the balance deposit of Rs.20,26,447/- in the said account, credited on 07.11.2008, he considered the assessee’s explanation, i.e., of the same, being from a share broker, M/s. Prabhudas Lilladhar Pvt. Ltd. (PLPL), belonging to his father, who also had transactions with the said company, inadvertently deposited in the Axis Bank a/c, and honored by the bank in-as-much as Sh. Bharat Doshi was also a (joint) account holder, as merely an after-thought. The same, from the said share broker, i.e., PLPL, appeared to be the closure proceeds of another account of the assessee with the said company, and were utilized for transfer of funds to PLPL as well as making fixed deposits (with Axis Bank). The same was, accordingly, brought to tax u/s. 69A on account of being not explained satisfactorily as to its nature and source of acquisition. With regard to the transactions with Cosmos Co-operative Bank, the AO considered the assessee’s explanation of the same as belonging to his father, the first account holder of that account, as reasonable; the transactions being owned by his father. The additions made being confirmed by the ld. CIT(A) on the same basis, the assessee is in second appeal. In addition, the assessee also claims set off of share trading loss of Rs.6,32,213/- vide his fourth ground, with Gd. 1 being general in nature.
(A.Y. 2009-10) Kartik Bharat Doshi vs. ITO 3. We have heard the parties, and perused the material on record. 3.1 We shall discuss both the additions in seriatim. As regards the deposits in Axis Bank, owned by the assessee, the assessee’s explanation for the source of the impugned deposit (of Rs.16.69 lacs) is as under: a) Rs.13,25,250/- by way of brokerage income; b) Rs.3.78 lacs received back from three different persons to whom advances (for different amounts) were given. As regards the first sum, the explanation is neither here nor there. This is as the brokerage income is admittedly undisclosed (to the Revenue). As such, it matters little whether the deposits have been financed by the undisclosed brokerage income, or from any other source. The latter sum (Rs. 3.78 lacs) was also admitted before us by the ld. Authorized Representative (AR), the assessee’s counsel, as conceded in-as- much as the assessee has not been able to substantiate his claims in its respect at any stage. We find no reason not to and, accordingly, hold the addition for Rs.16.69 lacs, toward the deposits in the assessee’s Axis Bank account, as liable to be assessed as unexplained income, deemed so u/s. 69 of the Act. When we state so, we do so on the merits of the case, i.e., of the assessee’s explanation, and not on the basis of a concession – the matter being purely factual.
3.2 We may next discuss the credit in the Axis Bank account for Rs.20,26,447/-, explained by the assessee as having been received from PLPL, with which he had a regular account, per cheque in the name of his father, Shri Bharat A. Doshi, who also had account therewith, though inadvertently deposited by him (assessee) in his account with Axis Bank. The same stood honoured on presentation as Shri Bharat A. Doshi was also one of the account holders of the Axis Bank account. This explanation has been considered by the Revenue as an after-thought; the assessee having deposed per an affidavit (furnished during assessment proceedings), averring that all the transactions with Axis Bank pertained to him alone. The ld. CIT(A) also declined to (A.Y. 2009-10) Kartik Bharat Doshi vs. ITO admit the additional evidence sought to be filed by the assessee to substantiate his claims as no application under Rule 46A (of the Income Tax Rules, 1962 – ‘the Rules’ hereinafter) had been made. In our view, the Revenue has rejected the assessee’s explanation without subjecting it to verification, much less proper verification. As it appears, the bank account with Axis Bank is being used by the assessee, while the bank account with Cosmos Co-operative Bank by his father, for routing transactions and channeling funds of their share trading/brokerage activity, as well as, transfer funds of these activities to each other and, perhaps, even to other family members. The assessee has, at the threshold, compiled his accounts relating to the undisclosed transactions, furnishing them in the form of profit and loss account; capital account; and balance- sheet (as on 31.3.2009), furnished before both the AO and the ld. CIT(A) (PB page 5), reproduced as under: KARTIK BHARAT DOSHI Trading, Profit & Loss Account for the year ended March 31, 2009 Particulars Particulars Amount Share Trading Loss 632,213.53 Business Income Gross Receipts 1,325,250.00 632,213.53 Net Profit 693,036.47 Total 1,325,250.00 Total 1,325,250.00 Personal Capital Account Particulars Particulars Amount Drawings 91,086.86 Opening Balance b/f 643,212.41 Income From Business Net Profit 693,036.47 Income From Other Sources Interest-Fixed Deposit 35,551.00 Exempt Income Dividend 46,338.75 91,086.86 Closing Balance c/f 1,327,051.77 Total 1,418,138.63 Total 1,418,138.63 (A.Y. 2009-10) Kartik Bharat Doshi vs. ITO Personal Balance Sheet As On March 31, 2009 Liabilities Amount Assets Amount Capital Account 1,327,051.77 Investments Kartik B Doshi Inv-Fixed Deposit Axis Bank 755,000.00 Unsecured Loan 505,215.06 Current Assets, Loans & Advances Bharat Doshi Shares 319,259.00 Prabhudas Liladher Pvt. Ltd. 349,811.60 Prabhudas Liladher P L-Margin 88,306.44 Neela Doshi 83,179.00 Cash & Bank Balance Cash In Hand 64,609.00 Axis Bank Ltd. 172,101.79 Total 1,832,266.83 Total 1,832,266.83 All the transactions with PLPL, since confirmed by the said broker, both with the assessee and his father, were also submitted before the ld. CIT(A) (PB pgs. 9-18). The impugned credit (of Rs.20.26 lacs) does not appear in the ledger account of the assessee in the books of PLPL, submitted in the course of assessment proceedings (refer para 4.1 of the assessment order). The further documents furnished in the appellate proceedings were only in substantiation of his claims and, rather, being corroborative, ought to have been admitted by the ld. CIT(A) (refer: Smt. Prabhavati S. Shah vs. CIT [1998] 231 ITR 1 (Bom)). Once the transactions with PLPL are admittedly undisclosed, any credit (transfer of funds) from it, whether on account of income or on capital account, is liable to be deemed as income u/s.69. The only caution that needs to be exercised is that there is no duplication or excess addition in- as-much as the same funds may be rotated/circulated. The assessment of the assessee’s father has been, as given to understand, framed on the basis that the impugned credit belongs to him, and for which credit, accordingly, stands allowed to him, both by the broker (PLPL), i.e., in its accounts, as well as by the assessee in his (A.Y. 2009-10) Kartik Bharat Doshi vs. ITO accounts in-as-much as the amount stands deposited in the assessee’s bank account (with Axis Bank). How can, we wonder, the credit be considered as belonging to both - the assessee and his father, at the same time? How can the veracity of the assessee’s explanation be considered de hors the accounts of the three parties, i.e., the assessee, his father and PLPL, which are stated to be, and appear to be, in agreement. This may include verification of the underlying transactions/vouchers, i.e., with reference to (which) the payment is made. The assessee having drawn the accounts of his undisclosed transactions, the same (accounts) constitute the assessee’s explanation - in fact, the substratum of his case, explain as they do, at the same time, the source and application of funds with him. The Revenue has in our view failed to appreciate the same. Further, nothing therefore turns on the application on the said sum for the assessee’s own purposes, as for investment in FDRs (with Axis Bank), taken note of adversely by the ld. CIT(A). The amount outstanding in the father’s account as at the year-end (Rs.5.05 lacs), rather only implies payment of the balance Rs.15.21 lacs (Rs.20.26 lacs – Rs.5.05 lacs) to him during the year. We have already noted that the transactions with PLPL being unaccounted, all the payments, either on trading or capital account, would stand to be deemed as income, even as there could be no double addition, and it is toward this that the accounts assume significance and relevance. Why, in the admitted facts of the case, the assessee has deposits with PLPL (at Rs.4,38,118/- in two accounts), besides investment in shares (Rs.3.19 lacs), deposit with/loan to Neela Doshi (Rs.83,179/-) and cash (Rs.64,609/-) as on 31.3.2009 (refer balance-sheet). The same, again, would stand to be separately added, i.e., if the accounts are not regarded, while we observe that the AO has himself, while noticing the same, left out the investment by way of FDR/s at Rs.7.55 lacs (as on 31.03.2009) only on that basis, i.e., that the same represents application of the sum received (Rs.20.26 lacs), brought to tax by him. If the accounts of the three parties, the assessee, his father and PLPL, match, i.e., reconcile, and the transactions proved, it is only the capital as on 31.03.2009, i.e., Rs.13.27 lacs, that ought to be assessed as (A.Y. 2009-10) Kartik Bharat Doshi vs. ITO income, while the Revenue has already brought Rs.16.69 lacs to tax. That is, the same may stand to be restricted to Rs.13.27 lacs, of which, again, Rs.46,339/-, being stated to be by way of dividend, shall, where so, be exempt u/s.
These directions would, of course, as aforesaid, be subject to the assessee proving the same. This is further subject to the caveat that if the peak investment/deposits (net of liabilities) at any time during the year exceeds this sum, the addition could exceed the (net) investment as on 31.3.2009 (Rs.13.27 lacs), which sum may not necessarily represent the peak capital for the year. The accounts furnished being admittedly of undisclosed business/transactions, all the deposits, including the cash deposits for Rs.2.46 lacs accepted by the Assessing Officer, except where found by him as representing a genuine liability of the assessee, would also stand to be taken into account in reckoning the peak capital. The Revenue is at liberty, rather duty-bound, to examine the claims for their correctness, and the assessee correspondingly obliged to substantiate his claims. There is also no question of a set off of the share trading loss (Rs.6.32 lacs). The same, without doubt, forming part of the accounts, would stand to be included in reckoning the capital. However, what is sought to be assessed (as income) is the undisclosed capital, stated as invested in different assets, so that the said loss stands already adjusted in arriving at the net capital, i.e., w.e.f. the date of incurring the liability. We have already clarified that the total addition cannot possibly exceed the peak capital (i.e., assets minus liabilities) at any time during the year. If the peak value, i.e., immediately prior to the incurring the liability on share trading loss and/or the receipt of funds belonging to the father, exceeds the capital (of the undisclosed business as at the year-end – Rs.13.27 lacs), it is this peak, being the unexplained assets with the assessee at any time during the year, that is to be brought to tax u/s.69/69A.
3.3 This leaves us with three deposits of Rs.2.65 lacs, Rs.50,000/- and Rs.63,000/-, i.e., at a total of Rs.3.78 lacs, explained to be cash deposits out of withdrawals made (A.Y. 2009-10) Kartik Bharat Doshi vs. ITO earlier. The same, though included in the impugned sum of Rs.16.69 lacs is, however, conspicuously absent from the assessee’s accounts. Why, and how? As it appears, these accounts form part of the opening capital, for which no exclusion has been either claimed or considered by us in view of the activity and, consequently, the transactions being undisclosed, so that the same were found by the Revenue, i.e., came to surface, only for the current year. The same being unexplained as to their nature and source are to be regarded as, and form part of the (or credited to the) capital (account) on receipt (during the year), which (capital account), may need to be redrawn.
In view of the foregoing, and under the circumstances, we only consider it fit & proper to set aside the impugned order and restore the assessment qua these additions – being in relation to the assessee’s undisclosed assets, back to the file of the AO for proper factual determination, which he shall do by issuing definite findings of fact, keeping in view the observations and findings per this order. We may once again clarify that the burden of proof to establish its claims would be on the assessee. In sum, we have, finding them to be of the same genre, upheld the addition (in principle) for all the credits in the assessee’s bank account, where are on own account, while requiring verification where stated as on account of another (as for Rs.20.26 lacs received from PLPL, ostensibly on behalf of Sh. Bharat A. Doshi), further directing for a cap on the total addition at the peak value of assets, net of accepted liabilities, at any time during the year. A further deduction may ensue to the extent the same is confirmed as comprised of credit on account of dividend (on shares), stated to be received at Rs.46,339/- during the year, in-as-much as the same constitutes tax- exempt income for the current year. Least one considers of us to have travelled outsider our purview, we may advert to the decisions in Kapurchand Shrimal vs. CIT [1981] 131 ITR 0451 (SC); Ahmedabad Electricity Co. Ltd. vs. CIT [1993] 199 ITR 0351 (Bom) (FB). We decide accordingly.