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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-Central-II, Kolkata dated 28.01.2014. Assessment was framed by DCIT, Central Circle-XXVII, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 28.08.2013 for assessment year 2011-12. Shri S.L.Kochar and Shri Anil Kochar, Ld. Advocates appeared on behalf of assessee and Shri Rajat Kumar Kureel, Ld. Senior DR, represented on behalf of Revenue.
Amit Agarwal vs. DCIT, CC-XXVII, Kol. Page 2 2. Sole issue raised by assessee in his appeal is that Ld. CIT(A) erred in confirming the action of Assessing Officer by sustaining the addition of Rs.1,09,50,000/- on account of unexplained cash credit.
Facts in brief as have been brought on record, assessee, an individual engaged in the business of iron and steel products. For the year under consideration, assessee filed its return of income declaring total income of Rs. 2,51,820/-on 28.09.2011. Thereafter the case was selected for scrutiny and accordingly, notice u/s. 143(2) of the Act was issued upon the assessee. During the course of assessment proceedings, the AO observed that Savings Bank a/c No. 00320100008466 with Bank of Baroda, M.G. Road Kolkata was not disclosed in the IT return. On scrutiny of the bank statement it was noted that for the year under consideration a sum of ₹1,09,50,000/- was deposited by way of cash in the said SB a/c on different dates as detailed below:- Deposit (₹) Transaction date 07.03.2011 5,00,000/- 08.03.2011 9,00,000/- 10.03.2011 5,00,000/- 11.03.2011 9,00,000/- 12.03.2011 9,00,000/- 15.03.2011 9,00,000/- 16.03.2011 9,00,000/- 18.03.2011 7,00,000/- 21.03.2011 5,50,000/- 22.03.2011 9,00,000/- 23.03.2011 8,50,000/- 26.03.2011 9,00,000/- 29.03.2011 4,00,000/- 30.03.2011 9,50,000 Total 1,09,50,000/- Assessee was called by issuing summons u/s. 131 of the Act and accordingly statement u/s. 131 of the Act was recorded on oath wherein assessee accepted that he Amit Agarwal vs. DCIT, CC-XXVII, Kol. Page 3 was engaged in providing accommodation entries in lieu of cash. However, he was not aware about the name of the beneficiaries as the assessee failed to provide the identity of the persons from whom the cash was accepted and cheques were issued to them. It was held that cash deposited in his bank a/c belonged to assessee and this is his unexplained income. Accordingly, AO treated the entire amount of cash deposited in his bank a/c as undisclosed income and added to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that he has issued cheques to third parties in lieu of cash so cash deposited with his bank account does not belong to him. Therefore no addition can be made. Before Ld. CIT(A) assessee also consented without prejudice to above that entire cash deposit cannot be treated as income of assessee. Before Ld. CIT(A) assessee submitted that AO should have applied the peak credit theory to arrive at the undisclosed income as there were deposit and withdrawals in the bank a/c of assessee. It is well settled that undisclosed income of assessee should be determined on the basis of peak credit method. The assessee, accordingly, offered an amount of ₹9.20 lakh being peak credit balance as on 15.03.2011 for taxes. However, ld. CIT(A) disregarded the plea of assessee by observing as under:- “5. I have considered the submission of the appellant and perused the assessment order. I have also gone through the bank statement of the savings bank account no. 00320100008466 with Bank of Baroda, M.G. Road, Kolkata. I have also considered the decisions of the jurisdictional ITAT relied upon by the appellant. On careful consideration of the facts, I am of the opinion that there is no dispute on the fact that the appellant’s bank account under reference with Bank of Baroda was an undisclosed bank account. On perusal of the bank stat and nature of entries of debits and credits, it is observed that the cash was deposited by the appellant on various dates and immediately thereafter cheques were issued and the amount of cash deposited was withdrawn. It is observed that in the course of assessment proceedings the AO allowed several opportunities to the appellant to explain the source of cash deposit in the undisclosed bank account. However, no compliance was made before him. The appellant had only stated before the AO that the cash was received by him from the parties but he neither disclosed the names and addresses of such parties nor explained the source of cash deposit. Thus, the appellant has failed to discharge the onus cash on him. The cash was found credited in the undisclosed bank account of the appellant and therefore the onus was on him to explain the source cash and if the same was received from the parties, even then the onus was him to disclose the identity of such parties and their creditworthiness. However, the appellant kept his silence and did not Amit Agarwal vs. DCIT, CC-XXVII, Kol. Page 4 disclose and explain anything. Under the circumstances, I am of the opinion that the AO was justified in making addition u/s. 68 of the Act on account of unexplained cash credit. I am of the opinion that even the alternative claim of the appellant that the entire cash deposited in the undisclosed bank cannot be his income and that the AO ought to have applied peak credit theory in respect of the cash deposits; is not acceptable because in the said bank account there are deposits of cash on various dates and thereafter the withdrawal was made by cheques. Therefore was no cash withdrawal at all from the said bank account. The peak credit theory is applicable in such cases where there is cash deposit and cash withdrawal and in such a situation the presumption is that the cash withdrawn was available for re-deposit in the bank account, if there is no evidence that the cash withdrawn was expended or invested. However, in the case of appellant there is no cash withdrawal at all from the undisclosed bank account and the entire money was gone away by withdrawing through cheques. There is no evidence that the money withdrawn was available for rotation and re-deposit in the bank account. Thus, thin the case of appellant there cannot be presumption that the money withdrawn was available with the appellant for re-deposit and hence in his case peak credit theory is not applicable. In the course of appellate proceedings the appellant has relied on certain decisions of the ITAT, Kolkata wherein peak credit theory was applied and upheld by the Tribunal. However, all these decisions are distinguishable on facts because in those cases there were both cash and cheques deposited and withdrawals. However, in the case of appellant, as mentioned above, there was no cash withdrawal at all from the bank account. There was 100% deposited of cash and 100% withdrawal through cheques of equal amount. Thus, no withdrawn amount was available with the appellant to re-deposit the same in the undisclosed bank account. The ape has also not claimed that he was engaged in the business of providing accommodation entries. It means, he himself had deposited his unaccounted cash in the undisclosed bank account and issue cheques to parties, may be for purchase of iron and steel products in which he deals or to make some other investments. But, the fact remains that neither in the course of assessment proceedings nor in the course of appellate proceedings, the appellant disclosed the name and addresses of the parties from whom cash was claimed to have been received nor he explained the source of cash deposits. By keeping silence and not disclosing the correct facts, the appellant cannot avail the benefit of the peak credit theory by saying that the entire cash deposit cannot be his income. In view of above, it is held that the AO was justified in making addition of Rs.1,09,50,000/- u/s. 68 of the Act on account of unexplained cash credits in the undisclosed bank account and that, the peak credit theory is not applicable in the case of appellant. The addition made by the AO is confirmed. Te ground no. 1 and 2 are dismissed.”
Being aggrieved, by this order of Ld. CIT(A) assessee came in second appeal before us.
Amit Agarwal vs. DCIT, CC-XXVII, Kol. Page 5 5. Before us Ld. AR submitted that the peak credit theory should be applied in the instant case, as assessee was engaged in providing the accommodation entries to various parties and cash deposited in the bank account of assessee do not belong to him. He again stated that assessee was acting just as a conduit in converting the unaccounted money into accounting form through various parties and income of assessee out of the transaction was in the form of commission which is of negligible value. On the other hand, Ld. DR submitted that assessee engaged in the trading business of iron and steel products and in the instant case cash was deposited and withdrawn by issuing cheques to various parties so the peak credit theory cannot be applied. Had there been cash deposit and cash withdrawal then only peak credit theory should be applied. Since the money has been withdrawn from the bank in the form of cheque then assessee must be aware of those parties to whom cheques had been issued. In the absence of any information about the parties the entire amount of cash deposited should be treated as undisclosed income in the hands of assessee. Ld. DR relied on the order of Authorities Below and prayed before the Bench to confirm the same.
We have heard the rival contentions and perused the materials available on record. From the foregoing discussion, we find that Authorities Below have treated the entire cash deposits with the bank account of assessee as undisclosed income on the premise that assessee failed to produce the parties to whom the cheques were issued. Authorities Below has also denied the arguments made by assessee that he was engaged in the business of accommodating entries provided to various parties. Now the question before us arise so as to whether the cash deposit in the bank account of assessee amounts to undisclosed income. In the aforesaid facts and circumstances, we find that various courts have held to apply the peak credit theory and in this regard, we rely in the order of Hon’ble Kolkata Tribunal in the case of Binod Kumar Jha Vs. ITO ward 25(2) in ITA 577/kol/2013 date of order 20.11.2015. The relevant extract of the order is reproduced below. “5. We have heard rival submissions and gone through facts and circumstances of the case. We find from the facts of the case that the assessee has deposited cash amounting to Rs.83,48,16,130/- in six undisclosed bank account maintained with Axis Bank Ltd. The assessee before AO filed working of peak credit in relation to Amit Agarwal vs. DCIT, CC-XXVII, Kol. Page 6 cash deposits made in these six bank accounts and requested the AO to assess the peak credit amounting to Rs.1,01,40,000/-. The assessee claimed to have computed the peak credit of these six bank accounts taking all the deposits and withdrawals. The AO while framing assessment treated the unexplained cash credit/unexplained investment in bank i.e. cash deposits made in these six bank accounts and added to the returned income of the assessee in total. The assessee now before us claimed that he is engaged in the business of providing accommodation entries and for this he placed reliance on the statement recorded by the AO u/s. 131 of the Act on 13.12.2011 wherein he explained the modus operandi of his business. The relevant statement reads as under: Binod Kumar Jha, AY 2009-10 Binod Kumar Jha, AY 2009-10 Binod Kumar Jha, AY 2009-10 Binod Kumar Jha, AY 2009-10 In view of the above statement the assessee claimed that he is engaged in the business of providing accommodation entries to various parties on commission basis and this commission has all along been disclosed by him as business income in the returns of income particularly for AYs 2008-09, 2009-10 and 2010-11. Now before us assessee's counsel argued that even peak credit cannot be added in the hands of the assessee only finance commission earned by him @ 0.25% to 0.50% at the best can be assessed. Ld.
Counsel for the assessee drew our attention to paper book filed by assessee and particularly pages 1 to 41, wherein extract from bank statement of six undisclosed bank accounts of Axis Bank and calculation showing peak credit after consolidation is enclosed. There is no dispute about the cash deposited in these six bank accounts maintained with Axis Bank Ltd. We find from the above statement recorded by the AO of the assessee particularly Question nos. 14 and 15 that assessee is only a conduit in a big syndicate of accommodation entry providers and he has earned only commission income for providing accommodation entry. The assessee used to receive cash and deposit the same in one of these six bank accounts and issued cheque of the same amount as can be seen from the extracts of bank statements of these six bank accounts filed by assessee in its paper book. On the very date of cash deposit, cheque is issued of the similar amount. This clearly reveals that the assessee is being used for providing accommodation entry only. All the deposits made in these six bank accounts have been transferred to Maple Advisory Services Pvt. Ltd. and in turn Maple Advisory Services Pvt. Ltd. has further transferred this amount to six Private Limited Companies namely, Gokul Distributors, Indigo Commotrade, Jupiter Tradelink, New Era Commotrade, Swift Distributors and Zenith Management and all these private limited companies are having their bank Binod Kumar Jha, AY 2009-10 accounts in the same bank branch. This modus operandi clearly reveals that the assessee is merely an accommodation entry provider and nothing else.
6. In view of the above facts and circumstances, the Ld. Counsel for the assessee relied on the decision of Coordinate bench in the case of ITO vs. Shri Piyush Poddar in for AY 2006-07 dated 07.09.2015, wherein exactly on similar circumstances, the Tribunal has directed the AO to assess the peak credit and by observing held as under:
"10. We have heard the rival submissions and perused the materials available on record. It is seen that the assessee apart from his regular income had a bank account with Central Bank of India which was used by him only for the limited Amit Agarwal vs. DCIT, CC-XXVII, Kol. Page 7 purpose of providing accommodation entries to various parties. Initially the assessee took a stand that he was deriving finance commission @.25% of all the transactions in the accommodation entry business and offered the same to tax., However, he shifted his stand by accepting the peak credit theory before the ld. CIT(A). This is evident from the fact that he had not preferred further appeal before the Tribunal against the ld. CIT(A)'s order. In accordance with the directions of the Hon'ble Calcutta High Court, we had examined the veracity of the claim of peak credit theory made by the assessee in respect of all the transactions in Central Bank of India. It is observed that the assessee had rotated his own funds in Central Bank of India for providing accommodation entries to various parties. It is not disputed that the genuineness of the transaction could not be proved by the assessee by mentioning the names, addresses, PAN, confirmation of the parties to whom the payments were made and from payments were received by the assessee. Hence it is proved that transactions contained in the bank account are not genuine. Once the transactions in the bank account are proved ingenuine then it is an accepted practice of adopting the peak credit theory for the purpose of determination of undisclosed income of the assessee. Hence, reliance placed by the ld. DR in the decision of the Hon'ble Allahabad High Court reported in 276 ITR 38 which rejected the concept of peak credit theory is not applicable to the facts of the instant case. In the case before the Hon'ble Allahabad High Court, the assessee claimed that the credits in the bank account represented genuine loans borrowed and the character of the loan transactions were not disputed and hence their lordships of Allahabad High Court held that the peak credit theory would not be applicable in that case. But in the facts of the instant case, the assessee had clearly owned up the transactions and that he is engaging himself in accommodation entry business with his own funds as well as funds received from parties to whom the accommodation entries are provided by the assessee and the names and addresses of such parties could not be provided by him for want of maintenance of books and details. This goes to prove that the genuineness of the transactions contained in the accommodation entry business as reflected in the said bank account could not be proved by the assessee. This is a distinct and crucial factor which distinguishes the decision rendered by the Hon'ble Allahabad High Court in 276 ITR 38 which was heavily relied upon by the Revenue.
On perusal of the bank account with Central Bank of India, we are satisfied that the deposits and withdrawals are closely linked with and related to each other on day-to- day basis. It is also observed that the ld. AO had not brought any material or evidence on record to prove that the withdrawals made by the assessee from the said bank account having utilized for making any other investments outside the books or meant for any other purpose other than for accommodation entry business. It is pertinent to look into the decision rendered by the Kolkata Tribunal in the case of Mahesh Kumar Gupta in IT(SS)A. No.11/Kol/2014 dated 0.2.2005 wherein ITAT observed that the claim of the assessee was that the cheque withdrawals were for giving loan for the short period. Held as follows :- Binod Kumar Jha, AY 2009-10 "The AO cannot refuse to grant set off for the withdrawal made by cheque without bringing on record any materials so that the amount withdrawn by cheque cannot have been received back by the assessee and utilized by him in making subsequent deposits by cheque. Taking all this into consideration, we are of the considered opinion that AO should adopt peak credit method to arrive at the undisclosed income of the assessee in the undisclosed bank account No.SB 6664 with the Syndicate bank." Reference may also be drawn to the decision of the Hon'ble Apex Court in the case ofCIT vs Smt. P.K.Noorjehan reported in 237 ITR 570(SC) wherein their lordships have held that mere unsatisfactoriness of the explanation offered by the assessee, does not, and need not, automatically result in deeming the value of investment to be the income of the assessee. That is still a matter within the discretion of the officer Amit Agarwal vs. DCIT, CC-XXVII, Kol. Page 8 and, therefore, of the Tribunal. In other words, the discretion has been conferred on the Income tax Officer u/s 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. The Income Tax Officer is not obliged to treat the value of investment as income in every case where the explanation offered by the assessee is found to be unsatisfactory.
Hence it would be unreasonable to tax all the deposits in the bank account of the assessee. To this extent, we do not appreciate the action of the ld. AO in taxing the entire credits of Rs.6,30,89,413/- as undisclosed income of the assessee for A.Y.2006-07. To put this ongoing dispute to rest, in the interest of justice and fair play, we direct the ld. AO to assess the peak credit in this case in respect of both cash as well as cheque transaction contained in the said bank account by verifying the veracity of the figures worked out by the assesse and bring to tax the same. We draw support from the decision rendered by 'C' Bench of Kolkata ITAT in for A.Y.2007-08 dated 23.03.2012 in the case of ITO vs Shri Ganga Prasad Vyas wherein it was held that "We find that the assessee has filed statement of peak credit i.e. deposit and withdrawals from the bank account of SBBJ wherein the peak credit as on 24.01.2007 was at Rs.1,80,247/-. We further find that the money deposited in the bank account was withdrawn either on the same day or on subsequent dates. It is seen that the total addition of the aggregate deposits in the bank account after giving benefit of withdrawals is the peak amount and in that case peak amount is to be added. We find that the assessee has maintained a bank account which is admittedly not disclosed to the revenue and there is no doubt that the deposits in this bank account represents undisclosed income of the assessee to be assessed as undisclosed income but qua only the peak amount. The assessee has filed complete statement of peak deposit and withdrawals which is at Rs.1,87,247/- and before CIT(A). We are of the view that the CIT(A) has rightly directed the AO to restrict the addition to the extent of peak amount and we confirm the same. This issue of revenue's appeal is dismissed."
However, we would like to make it clear that this direction to the ld. AO to assess the peak credit in this case should not be construed as a conclusive proof in the hands of the beneficiary in the said bank account for explaining their amounts. Accordingly, this issue is set aside to the file of the ld. AO to complete the assessment in accordance with the directions mentioned hereinabove."
7. In view of the above facts and circumstances, we direct the AO to assess the peak credit being a sum of Rs.1,01,40,000/- as computed by assessee on the basis of deposits made in these six bank accounts with Axis Bank Ltd. in lieu of cash deposits added by the AO at Rs.83,48,16,130/-. Accordingly, the AO will verify the peak and will make Binod Kumar Jha, AY 2009-10 addition of the peak amount only. Accordingly, this issue of assessee's appeal is partly allowed for statistical purposes.”
From the above, we conclude that assessee has furnished his statement on oath stating that he is engaged in providing accommodating entries to various parties and for this act earned nominal amount of commission income. From the perusal of bank statement, we find that cash was deposited and immediately it was transferred to the account of the party leaving negligent amount of balance in the bank account of assessee. In our considered view, we conclude that assessee is engaged in providing Amit Agarwal vs. DCIT, CC-XXVII, Kol. Page 9 accommodated entries to the parties. Had there been the business of the iron and steel of the assessee then the lower authorities should have brought on record the evidence of the business but the ld. DR failed to bring the same. We also find that the cash was immediately withdrawn after the deposit of the cash. This transaction shows that the money does not belong to the assessee. In the absence of any information about the iron & steel business of the assessee, we are accordingly inclined to apply the peak credit theory to tax the undisclosed income of assessee. We reverse the order of Authorities Below. AO is directed accordingly. This ground of assessee is allowed in terms of above.
In the result, assessee’s appeal stands allowed. Order pronounced in open court on 09 /09/2016 Sd/- Sd/- (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member *Dkp �दनांकः- 09 /09/2016 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-Amit Agarwal, Shree Krishna Trade Link, 40/5, Strand Road, (6th Floor), Room No38, Kolkata700 001 2. ��यथ�/Respondent-DCIT, Central Circle-XXVII, Kolkata 3. संबं"धत आयकर आयु%त / Concerned CIT 4. आयकर आयु%त- अपील / CIT (A) 5. &वभागीय �)त)न"ध, आयकर अपील�य अ"धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड+ फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ"धकरण, कोलकाता