PARV BANSAL L/H OF LATE SH. ANIL KUMAR BANSAL,NEW DELHI vs. DCIT CENTRAL CIRCLE 31, NEW DELHI

Aggrieved by the order of AO, assessee filed appeal before the Ld. CIT(A) who vide impugned order dated 17.03.2023, partly allowed the appeal of the assessee.

Aggrieved by order of the Ld. CIT(A), both the assessee and revenue filed appeal before Tribunal. The assessee has taken following grounds of appeal in his appeal:-

The Revenue has raised following grounds of appeal:-

The grounds of appeal

Since all the grounds taken by the assessee and the revenue are interlinked and inter-connected, thus all the grounds of appeals in both the appeals are taken together for consideration and both the appeals are decided by a common order.

It was the claim since beginning that the assessee was a practicing Chartered Accountant and was mediating to provide the funds to various persons who approached him where the assessee arranged cheques as well as cash to the needy persons by arranging the funds from the persons who are having funds after charging commission for the services rendered. For his own memoranda purposes, he jotted down these transactions in the diaries where transactions in cheque as well as cash received from the parties and paid subsequently were noted under coded form. Likewise where only cash transactions were done, they were also noted in coded form.

Ld. AR argued that where both the cash and cheques were recorded, Revenue has allowed deduction on account of cheque transactions however, treated the cash transactions under the same code as undisclosed income of the assessee by ignoring the fact that the code used against both of the transactions i.e. in cheque and cash both was the same and all the particulars of such persons were available with the Revenue and necessary action could be taken against those persons for such cash payments. The assessee claimed that it had received commission only on this category of cash transaction.

As per Annexure-1 filed by ld. AR, which contained the entries of cash transactions of same codes for which transactions were also carried through cheques and for which the AO himself has allowed deduction by holding the same as not relatable to assessee. As per the said working, the cash of INR 5,34,60,686/- was received and 2,58,81,550/- were paid by the assessee. Annexure-1 alongwith date-wise summary of these transactions is available at page 350 & 351 of the Paper Book. It is the claim of the assessee that when the deduction towards the transactions in cheques carried out under the same code is allowed, corresponding deduction of the cash transactions on the same code needs to be further allowed and accordingly total addition made for cash transactions of INR 10,08,34,389/- should be reduced by the amount of total inflow fund of INR 5,34,60,686/- being made under the same code. He further submits that with respect to this amount of INR 5,34,60,686/- transacted through assessee in cash, only commission could be added in the hands of the assessee.

With regard to the remaining amount, Ld.AR submits that in terms of the directions given by the Co-ordinate Bench, only peak balance is to be considered for the addition. For this, he prepared a peak working of the transactions related to cash only and filed before us in paper book pages 352 and also filed a copy of the same alongwith the written submission made before us. According to the said working, as per assessee, the positive peak amount was of INR 97,42,100/- and negative peak balance was of INR 32,84,900/- and therefore, he requested for the confirmation of total addition of INR 1,30,27,000/- being the sum of positive and negative peak amounts.

On the other hand, ld. CIT DR vehemently supported the orders of the lower authorities and submits that Ld. CIT(A) has discussed this issue in detail in its order where Ld. CIT(A) has clearly observed that the Hon’ble Tribunal in its order has directed to take one side of the fund flow statement i.e. the inflow of funds which has been done by the AO and thus, there is no error in the order of Ld. CIT(A) to this extent. Regarding the claim of the assessee for deduction of cash transactions under the same code, he submits that these were made by the assessee himself out of his undisclosed income and therefore, no deduction is to be allowed on this score.

With respect to the Revenue’s appeal, Ld.CIT DR submits that Ld. CIT(A) has reduced the additions on account of errors and duplicate entries without considering the true nature of transaction and therefore, he submits that the same deserves to be restored.

Heard the contentions of both the parties and perused the material available on record. With respect to the claim of the assessee for deduction of INR 5,34,60,686/- towards cash transactions with the parties having common code, we find that these transactions were carried out with the same entry code as was appearing against the corresponding entries of transactions through cheques. Both the entries of cheques and cash with common code were found noted in the same diary. Once the Revenue has accepted the contention that the code appearing against the cheque transaction is related to the persons who had issued the cheque, same analogy should be adopted for cash transactions found noted under same code and it must be presumed that the cash appearing against the same code be also related to such person. It is settled law that paper has to be read as a whole and parties are not allowed to consider that part of the paper which suits them. The details of such transactions as tabulated by the assessee in Annexure A-1 at page 350 and 351 of the paper book is reproduced as under:-

In the instant case, admittedly the common code is appearing against both the cheque as well as cash transactions. Once the Revenue has accepted cheque entries, the corresponding entries in cash under same code should also be considered as pertaining to such party. Further, AO had the information about the person who had issued the cheques, therefore, adverse inference in respect of the cash entries, could be taken against those persons to examine the source of such cash. As against this, AO proceeded to treat the said cash as belonged to the assessee which is not permitted under the circumstances of the case. Accordingly, we direct the AO to reduce the amount of INR 5,34,60,686/- related to common code entries found noted for cheques and cash.

With respect to the remaining entries, as per the directions of the Co-ordinate Bench of the Tribunal, we find that AO has taken one side of the fund flow statement as unexplained income of the assessee. Once fund flow statement is prepared where inflow fund is taken as source and outflow fund is taken as the application only the peak balance available could be treated as undisclosed income of the assessee by treating the amount received subsequently as source. However, this theory could be applied where the name/ particulars of persons from whom receipts and payments were claimed as source and application in fund flow statements are not known. In the instant case, from the perusal of the fund flow statement we find that inflow and outflow of funds are from different persons i.e. the code are different. This fact is further established from the peak working filed by the assessee where on 05.04.2011, INR 36 Lakhs were taken as out flow under the name of “MKS” and on 07.04.2011, a sum of INR 15 Lakhs and INR 20 Lakhs were taken as inflow of funds i.e. “MKS” thus these can be treated as from the same party and necessary deduction could be allowed.

It is further seen from the peak working filed by the assessee that the amounts appearing as inflow of funds being the source are from under different code whereas the outflow of funds are under different code. This, it cannot be accepted that the funds given to one party appearing under different code is received back from the same party as the same were found noted under different code. Therefore, the claim of the assessee of taking peak balance of the transactions cannot be accepted in whole which is applicable where the recipient and Pyer are the same or unknown.

As observed above in the instant case, from the perusal of working of peak credit filed by the assessee, it is clear that the recipients of outflow of funds as well as the person who gave the funds are not the same person as they are having different code, except with regard to the inflow and outflow of funds under the code “MKS” where entries are appearing both for inflow and outflow of funds. Therefore, in our considered opinion, only the inflow of funds is to be taken the undisclosed income of the assessee.

As per the peak working filed by the assessee in Annexure A-2 before us, total inflow was of INR 2,57,67,300/- which can be at most could be held as unexplained income of the assessee however, it includes INR 35.00 Lakhs on 07.04.2011 under the code “MKS” to whom funds of more than INR 1 crore were given prior to such date. Therefore, credit to this extent should be given and accordingly, out of total inflow of funds of INR 2,57,67,300/- , credit of INR 35 Lakhs is to be given and balance amount of INR 2,22,67,300/- is held as unexplained income of the assessee.

In view of the above discussion as against total addition of INR 10,08,34,389/- we uphold the addition of INR 2,22,67,300/-.

Regarding the deletion of addition by ld.CIT(A) by allowing deduction for duplicate entries, we find no error in the observations of Ld. CIT(A) who after making necessary verification of the seized documents allowed deduction for those duplicate entries. Before us, revenue has failed to controvert the finding given by the ld. CIT(A) which are as under :

As the aforesaid findings of ld. CIT(A) were given after due consideration of the facts and verification form the seized material thus we find no infirmity in the order of ld. CIT(A) which is hereby upheld on this issue.

In the result, Ground of appeal Nos. 1 to 4 of the assessee are partly allowed and Ground of appeal Nos. 1 to 5 raised by the Revenue are dismissed.

Now coming to Ground of appeal No.6 raised by the assessee wherein the assessee has challenged the application of estimation of commission income @ 3 %.

Before us, Ld.AR submits that commission rate of 3% is exorbitant high and AO has not brought on record any comparable case for applying such high rate of commission on the money lending services provided by the assessee. He, therefore, requested to reduce the same at a reasonable rate.

On the other hand, Ld. CIT DR supported the rate applied by AO and submits that the rate is quite reasonable and therefore, the same deserves to be upheld.

Heard the contentions of both the parties and perused the material available on record. The assessee was admittedly providing entries to various persons of mediating in arranging the finance and charged commission for such services. Since beginning of the proceedings, it was claim of the assessee that only commission would be added on such transactions. The Revenue also accepted the contentions of the assessee and hold that the transactions found noted in cheques in seized material were actually pertained to the other persons who had issued cheques and assessee had received only commission. While deciding other grounds of appeal of the assessee, we hold that in addition to the cheque entries, cash entries of INR 5,34,60,686/- under the same code were also provided by assessee in the capacity of inter-mediatory for which the assessee had earned income in the shape of commission only.

Therefore, as against the gross value of INR 4,72,20,275/- on which commission is applied by the AO, same should be increased by the figure of INR 5,34,60,686/- being the amount of cash transaction and thus total amount of INR 10,06,80,961/- would be considered as the funds provided by the assessee on which it had earned the commission income only. Now coming to the question of reasonable rate of commission, in our considered opinion in these type of transactions, One [01] % commission would be fair and reasonable to meet the end of justice. Accordingly, we direct the AO to apply One [01] % commission on such transaction of INR 10,06,80,961/-. Accordingly, Ground of appeal No.6 raised by the assessee is partly allowed.