ARJUNSINH HARISINH THAKOR,SURAT vs. INCOME TAX OFFICER, BARDOLI

Facts in brief are that the assessee filed his return of income for A.Y. 2017-18 on 15/11/2017 declaring income of Rs. 8,48,840/-. The case was selected for limited scrutiny for cash deposit during demonetization period and transaction in property. During the assessment year, the Assessing Officer noted that as per information available with his office, during demonetization period, the assessee made cash deposit in Bank of Baroda of Rs. 14.03 lacs and Surat District Cooperative Bank Ltd. of Rs. 17.39 lacs thereby aggregating of Rs. 31.42 lacs. The assessee was asked to furnish the source of such cash deposit. The assessee explained that the cash deposit was on account of cash withdrawal from banks for medical purpose. On perusal of pattern of cash book from Finance year 2011-12 to 2016-17, the Assessing Officer noted that there was repeated withdrawal from the bank though sufficient cash balance were available with the assessee. Income tax returns shows that the assessee has not carried out any business activities. The Assessing officer in para 6.4 further recorded that pattern of cash deposit itself indicates that the same was not out of accumulated cash on hand from last few years as has been claimed by assessee. Thus, the explanation of assessee that he was having cash withdrawal is nothing but an afterthought story. The Arjunsinh Harisinh Thakor Vs ITO Assessing Officer thereby made addition of Rs. 31,42,500/- under Section 68 in the assessment order dated 18/12/2019.

Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed written submissions. The submission of assessee are recorded in para 4 of order of ld. CIT(A). The assessee in his submission submitted that the assessee was having sufficient cash in hand at the time of deposit. The assessee deposited Rs. 31,42,500/- in his bank and the assessee was having opening cash balance in hand of Rs. 29,59,546/- which was increased to Rs. 36,39,139/- as on 08/11/2016 when demonetization scheme was declared. The assessee filed complete explanation during the assessment. Besides that the assessee also filed online response on 11/02/2017 with regard to Bank of Baroda and Surat District Cooperative Bank Ltd. during demonetization period and submitted that cash deposit was out of cash in hand as on 01/04/2016. After submission of assessee, no further enquiry was raised by Income Tax Department. The Assessing Officer in the assessment order observed that there is no scarcity in withdrawing cash from bank from time to time for any specific purpose and holding the same as cash in have without utilizing the same. Further the Assessing Officer noted that repeated cash withdrawal have been made from bank even though more than sufficient cash balance was available with the assessee. No specific business Arjunsinh Harisinh Thakor Vs ITO activities was carried out by the assessee, therefore, huge cash balance as on 01/04/2016 is not justified. The ld. AR of the assessee submits that the Assessing Officer did not find any defect in the books of account and the details provided by assessee during the course of assessment proceedings. The Assessing Officer has not indicated the utilization of cash by assessee for the purpose of making investment or expenditure. The Assessing Officer has not proved that the cash reflecting in the accounts were utilized for the purpose of making of other investment or expenditure. The Assessing Officer in his without prejudice submission submitted that he has not deposited cash in one book but in parts. The assessee explained that he deposited all the cash in hand before 15/11/2016, although fifty days’ window was available for cash deposit. The assessee deposited cash in parts to avoid the risk of carrying the cash as the certain part of cash was placed at the custodian. The assessee also relied on various case laws on the ratio of decisions of deposit of high value of denomination notes in possession of assessee must prima facie be presumed to form part of cash balance and the burden is on the department to prove that it constitutes assessee’s undisclosed income.

On the applicability of Section 115BBE of the Act, the assessee submitted that he was wrongly taxed under Section 115BBE of the Act, such provisions in the statute took came only after announcement of demonetization on 08/11/2016. Before that rate of taxation under Section Arjunsinh Harisinh Thakor Vs ITO 115BBE was 35.54% including surcharge and cess. By way of amendment, the rate of tax was increased to 77.25% retrospectively from A.Y. 2017-18. Such rate of taxation was increased fantastically. The step of legislation is in contradiction with the policy of taxation. The increase in rate cannot be imposed by way of retrospective amendment. To support such submission, the assessee relied on the decision of Hon'ble Supreme Court in Karimtharuvi Tea Estate Ltd. Vs State of Kerala (1966) 60 ITR 262 (SC), Hon'ble Kerala High Court decision in CIT Vs S.A. Wahab (1990) 48 Taxman 362 (Kerala), Gujarat High Court decision in Avani Exports Vs CIT (2012) 823 taxmann.com 62 (Guj) and the Rajasthan High Court in PCIT vs. Aacharan Enterprises (P) Ltd. (2020) 117 taxmann.com 745 (Raj).

The ld. CIT(A) after considering the submission of assessee noted that the Assessing Officer made addition of Rs. 31,42,340/- on account of unexplained cash credit. The assessee has used creative and imaginative accounting to justify the cash in the books of account on various points of time. The justification of cash during the period of demonetization is the motivating factor for creating entries in the books of account. The huge cash transaction makes the whole transaction as suspicious in nature. The assessee has not proved with sufficient evidence with justification before the Assessing Officer as well as before him. The entries in the books of account are to be substantiated by relevant Arjunsinh Harisinh Thakor Vs ITO confirmation and evidences alongwith cash flow, the books of account entries will remain merely an entry on a piece of paper. The assessee despite giving opportunity failed to discharge the onus of providing justifications in the books of account. The assessee is not doing any business activity. The assessee is a senior citizen and it is hard to believe the need of such cash. The assessee failed to justify the movements of cash in the books of account and the Assessing Officer rightly added the same and he has no option but to confirm the addition made by the Assessing Officer.

On the other contention of taxing the addition under the amended provisions of Section 115BBE of the Act, the ld. CIT(A) held that the amendment is made to tax the income at higher rate in all cases where the income is assessable under Sections 68, 69, 69A, 69B, 69C or 69D whether the income is offered by the assessee in the return of income or assessment is made by Assessing Officer under these Sections. The amendment was brought to plug the loophole of taxing the unexplained cash in demonetized currency. The argument of assessee that the amendment brought by legislation is in contradiction with law and policy of taxation for which the assessee cannot be imposed with the charge of increase rate by retrospective amendment, the ld. CIT(A) held that when amendment gets assent by the Hon'ble President of India, it becomes Act and is applicable to all persons. Furthermore, the amendment was Arjunsinh Harisinh Thakor Vs ITO brought to effective control of black money and to penalize the defaulters for evasion of tax and to burden them with higher tax implications. The retrospective amendment always been an integral part of taxation laws in India and several other countries. Thus, the grounds taken by assessee is not tenable and dismissed. Further aggrieved, the assessee has filed present appeal before the Tribunal.

I have heard the submissions of learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue and have perused the orders of lower authorities carefully. The ld. AR of the assessee submits that the assessee explained that the cash deposit in Bank of Baroda as well as Surat District Cooperative Bank was out of bank withdrawal from time to me in earlier years and to justify the opening cash balance in hand, the assessee furnished cash book from A.Y. 2011-12 to 2017-18. The also filed details of capital gain earned on sale of property. The assessee has not made any investment in the property during the year under consideration, thus the assessee was having sufficient cash balance available with assessee. The Assessing Officer has not pointed out any defect in the books of assessee. For A.Y. 2017-18, the assessee has declared income of more than Rs. 10.00 lacs and after claiming deduction, the assessee has offered net income of Rs. 8,48,840/-. Besides that the assessee was having agriculture income of Rs. 1,94,370/- and other exempt income of Rs. Arjunsinh Harisinh Thakor Vs ITO 30,000/-. The ld. AR of the assessee further submits that he has filed cash flow statement from 01/04/2016 to 08/11/2016. The assessee was having opening cash balance of Rs. 29,59,546/- on 01.04.2016. The cash balance available as on 08/11/2016 was Rs. 36,34,139/-. The assessee made deposits of Rs. 31,42,500/- on various dates between 10/11/2016 to 03/12/2016. The ld AR for the assessee filed cash flow statement. The ld. AR further submits that the assessee is consistently showing good return of income and furnished following bifurcation of return of income for various years: Income as per Return filed A.Y. Net Income 2010-11 511277 2011-12 427388 2012-13 634220 2013-14 673340 2014-15 622070 2015-16 600560 2016-17 667210 8. The addition with regard to unexplained cash credit, the ld. AR of the assessee has relied upon the following case laws: (1) Narendra G Goradia Vs CIT (1998) 234 ITR 571 (Bom) (2) Lakshmi Rice Mills Vs CIT (1974) 97 ITR 258 (Pat) (3) Gur Prasad Hari Das Vs CIT (1963) 47 ITR 634 (All) (4) Kanpur Steel Co. Ltd. Vs CIT (1957) 32 ITR 56 (All) (5) Sri Sri Nilkantha Narayan Singh Vs CIT (1951) 20 ITR 8 (Pat) (6) CIT Vs Kulvant Rai 291 ITR 36 (Del) (7) S.R. Venkata Ratnam Vs CIT (1980) 48 CCH 0619 (Kar) (8) Vinatha Madhusudan Reddy Vs ACIT (2018) 54 CCH 0151 (Mum Trib) (9) R.S. Diamonds India (P) Ltd. Vs ACIT (2022) 145 taxmann.com 545 (Mum-Trib)

On the other hand, the ld. Sr. DR for the supported the orders of lower authorities. The ld. Sr.DR for the revenue submits that the assesse is an old person of 71 years. His total income for A.Y. 2010-11 till 2017-18 is only of Rs. 39.00 lacs approximately. The assessee has made deposit of more than Rs. 31.00 lacs during demonetization period which is beyond the human probability as to why such huge cash was available with a person of 71 years old. On the entries in cash book, the ld. Sr. DR for revenue submits that the entries in the cash book is a self-serving document which is not supported by any independent or corroborative evidence. The ld. CIT(A) while confirming the addition and taxing the addition under Section 115BBE of the Act has given detailed findings.

I have considered the submissions of both the parties and perused the orders of the lower authorities carefully. I find that the Assessing Officer Arjunsinh Harisinh Thakor Vs ITO made addition of 31,42,500/- on account of cash deposits during the demonetization period. The plea of assessee about availability of cash in hand was rejected by assessing officer by taking a view that the assessee has shown repeated cash withdrawal even though more than sufficient cash balance was allegedly available with the assessee. The assessee was not carrying out any business activities, thus availability of huge cash balance as on 01/04/2016 is not justifiable. The assessee has deposited Rs. 7.00 lacs on 12/11/2016, Rs. 8.00 las on 13/11/2016, Rs. 2.39 lacs on 13/11/2016 and Rs. 3.00 lacs in Bank of Baroda on 14/11/2016 and Rs. 3.00 lacs again in Bank of Baroda on 15/11/2016. Such pattern of cash deposit itself indicates that the same was not out of accumulated cash in hand from past few years as claimed by assessee. The plea of assessee that cash on account of withdrawal was rejected by Assessing Officer by holding that there is no justification in withdrawing cash from time to time for any specific purpose and holding the same as cash in hand without utilizing the same. Despite the fact that the assessee was having sufficient cash balance allegedly available with the assessee. The ld. CIT(A) also confirmed the action of Assessing Officer by holding that the huge cash transaction makes the whole transaction suspicious in nature. The assessee has not provided any sufficient evidence for justification either before the Assessing officer or before the ld. CIT(A) or keeping such huge cash balance. The books of account are not Arjunsinh Harisinh Thakor Vs ITO substantiated with cash flow statement which are merely a paper entry. The assessee is a senior citizen and it is unbelievable that such person would keep such huge cash in hand.

On the taxability of additions under amended provisions of Section 115BBE of the Act, the ld. CIT(A) held that the amendment was brought to plug the loopholes for taxing the unexplained cash in the demonetization period. The amendment brought in Income Tax Act passed by Lok Sabha on 29/11/2016 as the same was granted assent by the Hon'ble President of India on 15/12/2016 with retrospective effect being an integral part of taxation law in India.

Before me, the ld. AR of the assessee has vehemently submitted that the cash was available from the cash withdrawal in earlier years. No corroborative or independent evidence to prove such huge cash available as on 01/04/2016 was provided except showing the cash flow statement in the books of account. I find that for A.Y. 2016-17, the assessee has offered taxable income of Rs. 6,67,210/- and cash in hand as on 01/04/2016 as of Rs. 26,59,546/- which is about five times of the returned income and does not inspire confidence. The assessee has filed bank statement of Bank of Baroda from 01/04/2016 to 31/03/2017. On 901/04/2017, the balance in the account of Rs. 21,401/-. The assessee received Rs. 2000/- by way of any F.D. on 02/04/2016 from Axis bank and interest on TDS of Rs. 1.00 lac on 18/04/2016 which was repaid on Arjunsinh Harisinh Thakor Vs ITO 18/04/2016 itself and on remaining entries in this account are about Rs.2,000/- only except one deposit of Rs. 15,000/- on 29/10/2016 and thereafter cash deposit of Rs. 3.00 lacs on three occasions on 10/11/2016, 14/11/2016 and 15/11/2016 and Rs. 5.00 lacs on 11/11/2016 and again Rs. 3.50 lacs was withdrawn in cash on 19/12/2016 and Rs. 1.00 lacs was paid to KHARAC, Bharuch. Besides that there are self-withdrawals of Rs. 24,000/-, Rs. 10,000/- and Rs. 14,000/- on 13/12/2016, 21/12/2016 and 22/12/2016 and ultimately on 31/03/2017 a very meagre amount was left. Similarly in Surat District Cooperative bank, there was an opening credit entry of Rs. 13,532/- and there were certain withdrawals of Rs. 10,000/- to Rs. 12,000/- on different dates. However, there was balance available in the account of Rs. 14,75,785/-. Thus, the pattern in bank account about the debit and credit also does not matches with the huge cash available with the assessee as on 01/04/2016. Thus, I do not find any justifiable reason to interfere with the additions made by Assessing Officer and confirmed by ld. CIT(A). However, I find that the Central Board of Direct Taxes (CBDT) vide its Circular No. 3 of 2017 dated 21.02.2017 have clarified that a relaxation of Rs. 2.50 lacs in a case of an ordinary deposit and Rs. 5.00 lacs in case of Senior Citizen. It was further clarified that the sources of such amount may be either of household savings or past income or the amount may have been received from any of the source mentioned in para 2 to 6 of Arjunsinh Harisinh Thakor Vs ITO that Circular. Thus, the assessee is given benefit of Rs. 5.00 lacs in terms of Circular of CBDT, thereby remaining amount of Rs. 31,42,500 – 5,00,000 = 26,42,500/- is upheld. In the result, ground No. 1 of the appeal is partly allowed.

So far as taxability of addition under amended provisions of Section 115BBE of the Act at the higher rate is concerned, I find that the Division Bench of Jabalpur Tribunal in ACIT Vs Sandesh Kumar Jain (supra) held that the amended provisions to take effect from 15/12/2016 itself so impliedly effective from 01/04/2017 i.e. for A.Y. 2018-19. For completeness of this order, the relevant part of the decision is extracted below: “4. We have heard the parties, and perused the material on record. 4.1 We find little substance in the assessee’s case qua the head of income. The argument is, to begin with, self-contradictory. If it is a business profit, the same cannot be determined on 29/11/2016 (or 30/11/2016, the date of surrender) on which it admittedly was, even paying tax thereon, but only after the conclusion of the year/accounting period for which the profits are under law to be determined. As explained in CIT vs Ashokbhai Chimanbhai [1965] 56 ITR 42 (SC), profits do not accrue from day to day or even from month to month, and have to be ascertained by a comparison of assets at two stated points. Unless the right to profit comes into existence, there is no accrual of profit, and the destination of profit must be determined by the title thereto on the day on which they arise. The concept of accrual of the profits of a business involves their determination by the method of accounting at the end of the accounting year or any shorter period determined by law. Two, once it is admitted that the income attributable to the excess stock-in-trade of the assessee’s business is not referable to the Arjunsinh Harisinh Thakor Vs ITO regular accounts of the said business, representing a source of income, the same is necessarily to be regarded as income from an undisclosed source. It would not partake the character of profit earned from business during the relevant year merely because its value stands credited to the profit and loss account for the year. Why, but for s. 69B, deeming it as the income for the relevant year, it could not be said to be income for the relevant year. It was open for the assessee to contend, and which may well be the case, that the difference in stock is a carry-over from the past; that no discrepancy in his accounts for the current year had been found/ detected. Why, it could equally be contended of arising on account of an undisclosed infusion of capital, either in the past or in the current year, and, being not attributable to the business, for which the books are maintained, remained to be entered therein. True, the asset found is in the form of a trading asset of the business. The same, however, by itself represents neither accrual nor receipt of income, the two incidents that attract charge of tax under the Act, and which it must to be attributable to a defined source of income, but is only an application of that income, which though is deemed as income and, further, for the year in which it is so found. That is, but for ss. 68, 69 thro‟ 69D, the amount under reference may not stand to be assessed as income and, in any case, as the income of the relevant year. The non-detection of any income; rather, source of income, in the documents found and impounded during survey, on which much store was placed by Shri Bardia during hearing, rather, favours the Revenue’s case. Even as observed by the Bench thereat, there is nothing in the material found during survey which suggests either suppression of sales or inflation of expenses by the assessee, by which two modes income of a disclosed business is generally kept out of it’s accounts. Though the impugned order records a finding as to under- invoicing of sales, it was an admitted position before us that no such materials were found during survey. The impugned order seems to be, perhaps in view of similarity of facts, a cut paste, or, more charitably, a mixing of facts of two cases. In fact, generally speaking, even detection of unaccounted sales, where so, would not by itself lead to the inference of Arjunsinh Harisinh Thakor Vs ITO understatement of income to that extent. This is as unaccounted sale during the relevant year only evidences the profit embedded in that sale, and does not in any manner clarify the source of the cost incurred, which may be a carryover from the past or introduced in a business either during the current or an earlier year. Why, in many a case the Tribunal, as indeed the Hon'ble High Courts, have held that only the profit on sale, i.e., in line with the net profit rate disclosed per the assessee’s accounts, be adopted as the income suppressed on unaccounted sale. Reference in this context be made to the decision in CIT v. President Industries [2002] 258 TR 654 (Guj), followed by several High Courts, including the Hon'ble jurisdictional High Court. The argument of „no other source of income having been found by the Revenue‟ is thus neither here nor there. It amounts to putting an impossible burden on the Revenue, impermissible in law. It in fact has no basis in law inasmuch as the Revenue is not obliged to locate the source of an unexplained credit in the assessee’s accounts or an unexplained asset found with it, for which reference is made to CIT vs. Ganapathi Mudaliar (M.) [1964] 53 ITR 623 (SC), cited during hearing itself. Reference may also be made to Seth Kale Khan Mohamed Hanif v. CIT [1963] 50 ITR 1 (SC) and CIT v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC). In the facts of both these cases, the assessee’s business income was estimated consequent to rejection of it’s books of account as unreliable. The Revenue also bringing to tax unexplained credit/s therein, challenged by the assessee on that basis, the Apex Court explained that there is nothing in law that prevents the assessing authority to tax both, the cash credit, the source of which is not satisfactorily explained, and the business income estimated by rejecting the accounts as unreliable. It clarified that it was for the assessee to prove that the cash credit represents income from a source that has already been taxed, and that no further burden lies on the Revenue, upon deeming a cash credit as the assesee’s income, to show that it is from a particular source. In the facts of the instant case even the books of account have not been rejected. Coming to the decisions by the Tribunal, claimed to be covering the matter, none were referred to during hearing, even as Sh. Bardia Arjunsinh Harisinh Thakor Vs ITO contended of the same being based on credence being allowed to circumstantial evidence/s. The question in these cases thus admittedly turned on the facts of the case. Questions of, and decisions based on findings of, fact, do not yield any statement of law, which alone is binding or has precedential value (The Mavilayi Service Cooperative Bank Ltd. vs. CIT [1961] 431 ITR 01 (SC)). Our decision, on the contrary, is based on first legal principles, clarified, explained and settled by the Hon'ble Apex Court. Why, all we have stated is that the burden of proof in the matter lies on the assessee, and cannot be a matter of presumption, so that there no difference in principle, but only as to whether the assessee’s claim/s stands proved by it. The Apex Court in Anantharm Veerasinghaiah v. CIT [1980] 123 457 (SC) explained that on a claim in its respect being made, the Tribunal is to consider from an overall consideration of all the relevant facts and circumstances, as to whether the unexplained cash deposits (assets) and cash credits could be reasonably attributed to the pre-existing fund of concealed income or they were reasonably explained by reference to the concealed income earned in the relevant year. In Coimbatore Spg & Wvg Co. Ltd. v. CIT [1974] 95 ITR 375 (Mad), the Hon'ble Court held that once the Tribunal finds „excess‟ stock after rejecting the explanation furnished by the assessee, the inescapable conclusion is that the same would have come from undisclosed sources. No material/evidence of the same as representing suppressed profit, in whole or in part, has been, as aforenoted, led by the assessee in the instant case. 4.2 As regards the assessee’s second, without prejudice, argument, i.e., qua nonretrospectivity, we find considerable force therein. Section 1(2) of the Amending Act provides that save as otherwise provided therein, it shall come into force „at once‟. The same only conveys the intent for, except where a later date is specified, the legislation to take immediate effect, i.e., as soon the assent of the Hon'ble President of India is received, by signing the same. The words „at once‟ convey an urgency, so that the same represents the earliest point of time at which the same is to take effect, i.e., 15/12/2016 itself, and which also explains the same being enacted during Arjunsinh Harisinh Thakor Vs ITO the course of the fiscal year, tax rates for which stand already clarified at the beginning of the year per the relevant Finance Act (FA, 2016). The said words „at once‟ would loose significance if the provisions of the Act are to, as stated by the ld. CIT(A), be read as effective 01/04/2017, implying AY 2018-19. The same, for substantive amendments, as in the instant case, represents the first day of the assessment year, i.e., AY 2017-18, which explains the assessee’s grievance of it being thus effective for fy 2016-17 or, w.e.f. 01/4/2016. Enacting it mid-year and, further, making it applicable „at once‟, becomes meaningless if the same is to take effect retrospectively, or is made effective from a later date (01/4/2017), which could in that case be by Finance Act, 2017. True, the amendment, where so read, does gives rise to a peculiar situation inasmuch as two tax rates would obtain for the current year, i.e., one from 01/04/2016 to 14/12/2016, and another from 15/12/2016 to 31/03/2017, but, then, that is no reason to read retrospectivity where the applicable date is clear and, further, there is nothing to suggest retrospectivity. Further, extraordinary and supervening circumstance of the Demonetization Scheme, 2016, brought out by the Government of India in November, 2016, explains the urgency in bringing an amendment mid-year. Further, the tax rate being in respect of incomes which are imputed with reference to a transaction/s, it is possible to administer the same, another aspect of the matter that stands considered by us. That is, a tax rate for transactions made up to 14/12/2016, and another for those thereafter. Subsequent mention of the applicability of the amended provisions of ss. 271AAB and 271AAC with reference to the date on which the Presidential assent to the Act is received, further corroborates this view, which is based on the clear language of the Amending Act, as well as the principle that a substantive amendment is to be generally prospective. We draw support from the decision in Vatika Township Pvt. Ltd. (supra), reiterating the settled law of the rule against retrospectivity. The tax rate applicable to the impugned income would, therefore, be at 30%, i.e., the rate specified in sec. 115BBE as on 30/11/2016, the date of the surrender of income per statement u/s133A (PB-1, pgs.35-44). This, it Arjunsinh Harisinh Thakor Vs ITO may be noted, is also consistent with our view that the income is liable to be assessed u/s. 69B (see para 4.1).”

Thus, considering the aforesaid decision of Division Bench of Jabalpur Bench, I direct the Assessing Officer to tax the additions at the old rate of tax prescribed under Section 115BBE of the Act i.e. prior to amendment applicable w.e.f. 15/12/2016. In the result, grounds No. 2 and 3 of the appeal are allowed.

In the result, this appeal of assessee is partly allowed. Order announced in open court on 15th June, 2023.