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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
आदेश / ORDER PER DR. A. L. SAINI, AM: By way of this appeal, the assessee has challenged the correctness of the order dated 19.02.2020 passed by the Learned Principal Commissioner of Income-Tax (in short “Ld PCIT”) under section 263 of the Income-Tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 2010-11. Grievances raised by the assessee, which, being interconnected, will be taken up together, are as follows: “1. On the facts and in the circumstances of the case as well as law on the subject, the learned Commissioner of the Income Tax has grievously erred in initiating the proceedings u/s 263 of the Act, 1961. 2. On the facts and in the circumstances of the case as well as law on the subject, the learned Commissioner of the Income Tax has grievously erred in assuming jurisdiction u/s 263 of the Act, 1961. 3. On the facts and in the circumstances of the case as well as law on the subject, that the order of u/s 263 is merely ‘change in opinion’. The action of the Ld. CIT was wholly unreasonable, uncalled for and bad in law.
A.Y.10-11 Sh. Sureshbhai M Patel 4. On the facts and in the circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax has grievously erred in assuming that the Assessing Officer had not verified the bank statements for the FY 2009-10 during the course of assessment proceeding and not made proper inquiry or verification finalized the order of assessment u/s 144 r.ws. 147 of the I.T. Act is contrary to the fact of the case.
5. On the facts and in the circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax has grievously erred in setting aside the assessment order framed u/s 144 r.w.s.147 of the I.T. Act without pointing out as to how the order is erroneous and prejudicial to interest of revenue.
6. It is therefore prayed that the above proposed proceedings may please be revoked as learned members of the Tribunal may deem it proper.
7. Appellant craves liberty to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal”.
The appeal filed by the assessee for Assessment Year 2010-11, is barred by limitation by 404 days. The assessee has moved a petition requesting the Bench to condone the delay. The Ld. Counsel submitted that the entire delay period of 404 days are due to Covid-19 pandemic, which is covered by the suo motu Writ Petition of Hon'ble Supreme Court to condone the delay, vide Writ Petition(s) No.3 of 2020 dated 10.01.2022. Therefore, ld Counsel contended that delay of 404 days may be condoned. 4 Learned CIT-DR for the Revenue did not raise any objection for condonation of delay, as it is covered by suo motu Writ Petition of Hon'ble Supreme Court (supra) and stated that delay in assessee’s appeal may be condoned.
We have heard both the parties on this preliminary issue. We note that delay in filing the appeal is covered by the judgment of Hon'ble Supreme Court in suo motu Writ Petition(C) No. 3 of 2020 wherein it was held that period from 15.03.2020 till 28.02.2022 shall stand excluded for the purpose of limitation as may be prescribed under any general or Special laws in respect of all judicial or quasi-judicial proceedings. Hence,
A.Y.10-11 Sh. Sureshbhai M Patel respectfully following the judgment of Hon'ble Supreme Court (supra) we condone the delay and admit the assessee’s appeal for adjudication on merit.
Brief facts, as discernible from the orders of lower authorities are that assessee has not filed his return of income for the year under consideration. However, as per the information available with the Department, the assessee is having savings bank a/c No.020601500612 with ICICI Bank, wherein assessee had made total cash deposits of Rs.10,59,000/-. Further assessee had receipts of Rs.1,70,180/- from Shree Mahuva Pradesh Sahakari Khand Udyog Mandali Ltd, therefore, after recording the reasons to believe, notice u/s 148 of the Act was issued to the assessee. During the assessment proceedings, the assessee did not submit any detail before the Assessing Officer. Therefore, the Assessing Officer passed assessment order on 28.07.2017 u/s 144 r.w.s. 147 of the Act, wherein the following three additions have been made by the Assessing Officer: 1 Unexplained cash deposit Rs.10,59,000 2 Income from contract receipt Rs. 13,614 3 Income from other sources Rs. 4,016 Assessed total income Rs.10,76,630
Later on, Ld PCIT exercised his jurisdiction u/s 263 of the Act. A perusal of records and deposits in the bank account of the assessee, bearing No.020601500612, with ICICI Bank, revealed that total amount credited in the said account was Rs.36,39,830/- and the balance amount of Rs.23,89,004/- (Rs.36,39,830 - Rs.10,76,630 - Rs.1,70,180 - Rs.4,016) was neither enquired / verified nor added to total income of the assessee, therefore, ld PCIT observed that the assessment order passed by the assessing officer is erroneous in so far as it is prejudicial to the interest of Revenue. Therefore, Ld.PCIT issued a show-cause notice bearing
A.Y.10-11 Sh. Sureshbhai M Patel No.ITBA/COM/F/17/2019-20-/1024451268(1) dated 30.01.2020. The contents of the show cause notice are reproduced below: “On verification of the records of the Income-tax assessment proceedings in your case for the assessment year 2010-11, it is noticed that the assessment made by the Assessing Officer u/s 144 r.w.s.147 of the I.T. Act on 28.07.2017, is erroneous in so far as it is prejudicial to the interest of revenue on the following ground .
2. It is seen from the records and bank statement that your Savings Bank Account No.0206015006612 held with ICICI Bank got credited with an amount of Rs.36,39,830/- which includes cash deposits of Rs.10,59,000/-, interest income of Rs.4,016/- and payments received of Rs.1,70,180/- from Shree Mahuva Pradesh Sahakari Khand Udyog Mandali Ltd. However, addition was made only of Rs.10,59,900/- on account of unexplained income Rs.13,624/- on account of undisclosed contract receipt and Rs.4,016/- on account of income from other sources totaling to Rs.10,76,630/- in the assessment order passed u/s 144 r.w.s. 147 dated 28.07.2017. The balance amount of Rs.23,89,004/- (Rs.36,39,830/-- Rs.10,76,630/- - Rs.1,70,180/- - Rs.4,016/-) was neither verified nor added to your total income, rendering the assessment order passed to be erroneous and prejudicial to the interest of Revenue.
3. The undersigned, therefore propose to pass an order u/s 263 of the Act against the assessment order passed u/s 144 rws 147 dated 28.07.2017 by the Assessing Officer for the A.Y 2010-11, in so far as it is erroneous as well as prejudicial to the interest of revenue.”
In response to the show cause notice, the assessee filed a handwritten letter dated 10.02.2020 in Gujarati language along with certain enclosures, which is placed on record. The free English translation of such submission of the assessee is reproduced herein below: “… … With due respect, I would like to state that we are engaged in agricultural business. We are having crop like paddy, vegetable and sugarcane, etc. Due to limited supply of rout plant in sugarcane, we are supplying sugarcane to the sugar factory, in which we are distributing sugarcane in the name of my wife and my son. Payment received from the organization time to time were deposited in ICICI Bank. Therefore, I have provided all the bills from assessment year 2009-10 and copy of 7/12 and 8A is submitted herewith. I am submitting herewith vouchers of sugarcane in the name of 1. Sureshbhai Manilal Patel, myself, 2 Kanchanben Sureshbhai Patel, my wife, 3 Virakumar Sureshbhai Patel my son. We are having 25 vighas land, therefore, we are earning combined income.”
A.Y.10-11 Sh. Sureshbhai M Patel 9. However, Ld. PCIT has rejected the contention of the assessee and observed that it is not under any dispute that the assessee is having savings Bank account no. 020601500612, with ICICI Bank and total amount of Rs.36,39,830/-, is credited in the said bank account. The Assessing Officer had issued statutory notice u/s 148 of the Act on the basis of information that, the assessee in his savings bank account has made a cash deposit to the tune of Rs.10,59,000/- and had also earned and received contract receipt u/s 194C of Rs.1,70,180/- from Shree Mahuva Pradesh Sahakari Khand Udyog Mandali Ltd. The AO in the absence of any compliance from the assessee, proceeded to complete the assessment u/s 144 r.w.s.147 of the Act, wherein he made additions on account of (i) unexplained cash deposit of Rs.10,59,000/-, (ii) income from contract receipt of Rs.13,614/- (being 8% of Rs.1,70,180/-) and (iii) a sum of Rs.4,016/- towards interest credited as ‘income from other sources’. In the assessment so completed, the Assessing Officer neither has inquired into nor has verified in respect of balance credit of Rs.23,89,004/- (Rs.36,39,830 - Rs.10,76,630 - Rs.1,70,180 -Rs.4,016) in the said savings bank account. The assessee in the hand written submission has only submitted that they owned land of 25 bighas and that they received money on account of sale of sugarcane supplied to the sugar factory. Along with his submission, the assessee furnished a certificate from Shree Mahuva Pradesh Sahakari Khand Udyog Mandli Ltd dated 05.02.2020, wherein it has been certified that total payment for Rs.16,22,525/- has been made to Shri Sureshbhai Manibhai Patel (the assessee). However, such payments are from the period 2005-06 to 2013-14. The year under consideration is assessment year 2010-11 and during the A.Y. 2009-10, the total payment made to the assessee is reflected only at Rs.4,46,094/-. There is an another certificate of Shree Mahuva Pradesh Sahakari Khand Udyog Mandli Ltd dated 05.02.2020, wherein Development Savings, Expansion deposit A.Y.10-11 Sh. Sureshbhai M Patel respectively of Rs.13,025/- and Rs.6,760/- have been certified which, pertains to the period 1995 to 2000. Similar certificate is submitted in the case of Smt. Kanchanben Suresbhai Patel, pertaining to the period 2005-06 to 2013-14 and in the case of Shri Viralkumar Sureshbhai Patel, pertaining to the period 2008-09 to 2013-14. Through such certificate and other documents, the assessee seeks to explain that cash deposits in his savings bank account is from sale of sugarcane in the name of Sureshbhai, his wife and his son. However, neither such details have been tallied with the credits in the bank account of the assessee with the ICICI Bank nor there is any sort of account reconciliation statement. Further thereto, the assessee has not made any submission as to how such amounts received explains the amount credited in his saving bank account totaling to Rs.36,39,830/- or balance unverified amount of Rs.23,98,004/- in the assessee’s bank account during the year under consideration. Therefore, order passed by the Assessing Officer was erroneous and prejudicial to the interest of Revenue. Accordingly, Ld. PCIT directed to Assessing Officer to inquire into and verify the source of deposits of the balance amount totaling to Rs.23,89,004/- in the assessee’s savings bank account no 020601500612 with the ICICI Bank, and after due inquiry and verification, complete the assessment, taking issue in respect of amount of Rs.23,89,004/- credited in the assessee’s said savings bank account with ICICI Bank to its logical end, in accordance with Law.
Aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us.
Shri P.M. Jagasheth, Ld. Counsel for the assessee argued that assessee has deposited cash of Rs.10.59 lakh in his bank account and said bank account was verified and examined by the Assessing Officer in assessment order u/s 144 r.w.s. 147 of the Act, dated 28.07.2017. The A.Y.10-11 Sh. Sureshbhai M Patel assessee is having 25 bighas of agricultural land along with other family members and assessee, along with other family members, doing agricultural activities. The Ld. Counsel submitted that Ld.PCIT has exercised his jurisdictional power u/s 263 of the Act to bring the total credit in the bank account of assessee, as income of assessee. The Ld. Counsel submitted that the entire total credit in the bank account should not be treated as income of assessee and the Assessing Officer has already taken a reasonable view by making disallowance of Rs.10.59 lakh, which is 1/3rd of total credits in the bank account of assessee. Therefore, Ld. Counsel submitted that Assessing Officer has made sufficient addition in the hands of assessee and it is a reasonable addition which the Assessing Officer has made. While making the reasonable addition, the Assessing Officer has applied his mind to tax the 1/3rd credit in the bank account in the hands of assessee, which is sufficient addition in the hands of assessee. The Ld. Counsel contended that if the assessee’s bank account is to be taxed, as if total credits in the bank account, u/s 44AD of the Act, then in that circumstances, the addition can be made @ 8% of the total credit in the bank account of assessee. However, Assessing Officer has already made addition of Rs.10.59 lakh which is more than @ 8% addition under the presumptive scheme, u/s 44AD of the Act. That is, the assessing officer made 33.33% addition of total credits in the bank account, which is sufficient to safeguard the revenue. Therefore, ld Counsel contended that assessing officer has applied his mind to tax 33.33% of total credits in the bank account, therefore order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of revenue.
On the other hand, Ld CIT-DR for the Revenue pleaded that assessee has not filed his return of income and assessee do not submit any documents and details before Assessing Officer, therefore, Assessing
A.Y.10-11 Sh. Sureshbhai M Patel Officer with the help of bank account made the addition of Rs.10.59 lakh which is equivalent to 1/3rd of total credit entries in the bank account of assessee. The Ld. CIT-DR submitted that Assessing Officer ought to have made 100% addition of the credit entry in the bank account of assessee, which he has failed to do so, therefore the order passed by Assessing Officer is erroneous and prejudicial to the interest of Revenue and therefore Ld DR prayed before the Bench to uphold the order of Ld. PCIT.
We have heard both the parties and perused the materials available on record. We note that saving bank account No.020601500612, of assessee with ICICI Bank, had total credit amount to the tune of Rs.36,39,830/-. The said account number of the assessee was examined by the Assessing Officer and after examination, the addition of Rs.10,59,000/- was made by the assessing officer, therefore it cannot be said that Assessing Officer has not applied his mind. The amount of addition of Rs.10,59,000/- comes 30% of the total credit, therefore a reasonable addition was made by the Assessing Officer. Hence, Assessing Officer took a plausible view and tax the total receipts @ 30%. The entire credit in the bank account is not considered as income of the assessee. Hence, in these circumstances, the order passed by the Assessing Officer is not erroneous.
While making the reasonable addition, the Assessing Officer has applied his mind judicially to tax @ 30% of total credit in the bank account, in the hands of assessee, which is sufficient addition in the hands of assessee. We note that if the assessee’s credit in the bank account is to be taxed, as per provisions of section 44AD of the Act, (presumptive scheme) then in that circumstances, it should be taxed @ 8% of the total credit in the bank account, however, we note that the addition Rs.10,59,000/- has already been made by the Assessing Officer which comes to @ 30% of the A.Y.10-11 Sh. Sureshbhai M Patel total credit in bank account, which is sufficient to safeguard the interest of revenue. Hence order passed by the Assessing Officer should not be erroneous.
The Ld. Counsel for the assessee, invited our attention towards judgment of Hon'ble jurisdictional High Court in the case of CIT-VII vs. Pradeep Shantilal Patel [2014] 42 taxmann.com 2 (Guj)/[2014] 221Taxman 436 (Guj)[19-11-2013], wherein the Hon'ble jurisdictional High Court held that where assessee admitted that cash deposits pertained to his retail business but details and nature of business were not forthcoming from record, considering total turnover of assessee, net income had to be determined u/s 44AF of the Act. The relevant findings of Hon'ble Court are reproduced below: “6. Heard Shri Sudhir Mehta, learned counsel appearing for the appellant and perused and considered the impugned judgment and order passed by the learned ITAT as well as learned CIT(A) and we have also gone through the order passed by the learned Assessing Officer making addition of Rs.35,33,414/- in the total income of the assessee as undisclosed income. 7. At the outset, it is required to be noted that in the bank account of the assessee the actual cash deposit was of Rs.35,33,414/-. The learned CIT(A) also confirmed the finding of the Assessing Officer that the bank account in which the aforesaid amount was deposited was not the HUF account but it was the bank account of the assessee himself. However, by observing in paras 4.2 and 4.3, the learned CIT(A) has restricted the addition to the extent of Rs.1.80 lacs by way of business income from retail trade of the assessee. Paras 4.2 and 4.3 reads thus: "4.2. I have gone through the asst. order passed by AO and the written submission filed by the appellant. I have also considered the evidence produced by the appellant in his paper book. I find considerable force in the contentions raised by AO that the transactions recorded in the bank a/c no. 2831 with Amarnath Co-op Bank Ltd. do not pertain to his HUF. The contemporary evidence by way of filing the return of income in the status of HUF after the time allowed u/s 139(4) of the Act and that too after issuance of first show cause notice by AO, making application for PAN on 28.07.2009, neither getting registered under Gujarat VAT Act nor filing any returns under it, failure to furnish name and address of the suppliers in respect of Iron scrap business claimed by the appellant - all these facts clearly establish that claim of the business of HUF was an afterthought and it was rightly rejected by AO.
A.Y.10-11 Sh. Sureshbhai M Patel 4.3. Now, coming to the next contention of the appellant that the transactions in the said bank a/c were related to the Iron Scrap business, it was rejected by AO simply for the reason that sales cannot precede the purchases because sales (credit) comes first before the purchase (debit) in the bank a/c. However, from the perusal of the bank statement as produced in the paper book at page 3-7 that the modus operandi adopted by the appellant seems to be depositing cash either a day before or on the same day and the cheque for the payment getting cleared against such amount. It is also observed that the cash deposits are almost equal to the amounts to be paid/cheques to be cleared and the bank balance is a meager amount not exceeding Rs.1,000/- (except in couple of instances). The manner of carrying out both credit and debit transactions clearly indicate that payments have been made to the different parties out of cash deposited which is claimed by the appellant from the sale proceeds. In this view of the matter, sales (credit) will precede the purchases (debit) in the bank account. The contention of the appellant is that the cash deposits have been made out of sale proceeds of retail trade and purchasers have been paid out of it at a later date. It after all depends upon the terms and conditions of the sale between the two parties. The appellant has rightly contended that the payment for the purchase could be at later date but the goods cannot be delivered or sold without making its purchases unless it is a forward transaction. The payment for the purchases may precede the sale or subsequent to it depending upon the terms and conditions between the concerned parties. Therefore in the present case the contention of the appellant that the transactions in this bank a/c pertain to his business deserves to be accepted but still there would be a question of determining income in respect of these transactions. There is no evidence on record excepts the statement of the appellant with regard to the nature of business carried on by him and the details relating to the computation of income. The appellant has relied return of income on 13.08.2009 declaring income of Rs.1,76,660/- u/s 44AF in respect of the transactions appearing in this bank a/c. In view of such statement made by the appellant in his return of income under due verification and there being no other evidence to disbelieve it, I am inclined to accept as the transaction relating to retail trade. But the documents relating to this business such as sales purchase invoices, books etc. neither maintained nor produced by the appellant, the book result declared by the appellant cannot be accepted even the most of the credits (sales) are matching with the debits (purchases) which shows that the appellant has not deposited entire sale proceeds in this bank a/c. Therefore I have no alternative but to estimate income by estimating the sales. The total turnover of the appellant in this business is estimated at Rs.36 lacs and the net income u/s 44AF would work out to Rs.1.80 lacs. Accordingly, the addition of Rs.35,33,414/- in respect of cash deposited in the bank a/c as undisclosed income is hereby restricted to Rs.1.80 lacs but by way of business income from retail trade of the appellant."
8. The aforesaid finding has been confirmed by the learned ITAT by passing the impugned judgment and order and the order passed by the learned CIT(A) restricting the addition from Rs.35,33,414/- to Rs.1.80 lacs has been confirmed by the learned ITAT.
A.Y.10-11 Sh. Sureshbhai M Patel 9. We are in complete agreement with the view taken by the learned CIT(A) as well as learned ITAT. The learned CIT(A) as well as learned ITAT have rightly held that the entire amount of Rs.35,33,414/- cannot be added in the income of the assessee as undisclosed income.
10. Considering the evidence on record and the total turnover of the assessee which came to be estimated at Rs.36 lacs, the CIT(A) has worked out the net income of the assessee under Section 44AF to Rs.1.80 lacs. We have no reason to interfere with the order passed by the learned CIT(A) as well as judgment and order passed by the learned ITAT. No questions of law much less any substantial questions of law arise in the present appeal. Hence, the present appeal deserves to be dismissed and is accordingly dismissed.”
Therefore, we note that Assessing Officer took a reasonable and plausible view to tax @ 30% of the total credit entries in the bank account of the assessee. Therefore, assessee should not be penalized further and hence we note that Assessing Officer has already taken a reasonable and plausible view by applying his mind, therefore order passed by him is neither erroneous nor prejudicial to the interest of Revenue.
Let us take the guidance of judicial precedents laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of A.Y.10-11 Sh. Sureshbhai M Patel the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law.” Therefore, we are of the considered opinion that AO’s order cannot be termed as erroneous as well as prejudicial to the interest of the revenue and therefore, jurisdictional condition precedent as prescribed by statute for invoking revisional jurisdiction is absent and therefore, we are inclined to quash the impugned order of ld. PCIT, and it is hereby quashed.
In the result, appeal of the assessee is allowed.