ITO, WARD-3(2)(10), SURAT vs. SARVAGANA JITENDRABHAI JARIWALA, SURAT

Thereafter a show cause notice u/s 142(1) of the Act was issued to assessee on 05.12.2017, which was duly served upon the assessee on 06.12.2017. In show cause notice some vital details / explanation / information pertaining to assessment of the assessee were called for. The relevant part of the show-cause notices are reproduced as under:

In response to above show cause notice dated 05.12.2017, the assessee submitted her reply before the Assessing Officer on 11.12.2017, which is reproduced below:

During the year under consideration, following bank accounts were solely maintained and operated by me: Sr.No. Name of the Bank Account No. 1 State Bank of India 000020057759304 2 Axis Bank 914010009555876 3 Bank of India 270010110007563 4 Central Bank of 000003156584054 India A copy of bank statements of above referred bank accounts were submitted before your goodself vide my letter dated 03.03.2017 vide point no. 04 and letter dated 14.08.2017 vide point no.02.

The actual position of total credit summation of my bank accounts for A.Y. 2015-16 is as under: Sr.No. Name of Bank Account No Total credit Total credits as summation as per show cause per my books of notice (Rs) account (Rs) 1 State Bank of India 000020057759304 22,03,542;/- 13,51,900/- 2 Axis Bank 914010009555876 22,94,500/- 23,15,519/- 3 Bank of India 270010110007563 32,59,800/- 36,32,800/- 4 Central Bank of 000003156584054 70,29,850/- 74,18,006/- India 5 Central Bank of 000003157153854 0 58,00,478/- India Total 1,47,87,692/- 2,05,18,703/- a. From the above table, it may kindly be noted that total credit summation of my saving bank account maintained with State Bank of India vide account no. 000020057759304 was Rs.22,03,542/- and not Rs.13,51,900/- as stated by your gooself in your above referred show cause notice vide point no 04. Further, it is wrongly alleged by your goodself in your above referred show cause notice that no explanation was offered with regards to source of cash deposition. It may kindly be noted that I had duly explained the source of my cash deposited into my savings bank account maintained with the above referred account vide my letter dated 03.03.2017 vide point no. 5. b. Further, it may be noted that total credit summation of my saving bank account maintained with Axis bank vide account no. 914010009555876 was Rs.22,94,500/- and not Rs.23,15,519/- as mentioned by you in your show cause notice vide point no. 04. c. Further, it may also be total credit summation of my saving bank account maintained with Bank of India vide account no. 270010110007563 was Rs.32,59,800/- and not Rs.36,32,800/- as stated by your goodself in your above referred show cause notice vide point no 04. d. Further, it may kindly be noted that total credit summation of my saving bank account maintained with Central bank of India vide account no. 000003156584054 was Rs.70,29,850/- and not Rs.74,18,006/- as stated by your goodself in your above referred show cause notice vide point no 04. -205 & 182/SRT/2020 A.Ys.15-16 & A.Y. 16-17 Sarvangana J Jariwala e. I had already submitted a copy of all my bank statements along with a copy of statements showing month wise total credit summation into each bank accounts vide my letter dated 14.08.2017 vide point no. 03 for your ready reference.

It may kindly be noted that while filing my return of income for A.Y 2015-16 my saving bank account maintained with State Bank of India vide account No.000020057759304 was duly considered by me. However, due to oversight, following bank accounts were overlooked which were duly disclosed before your goodself during the course of my assessment proceedings: Sr.No. Name of bank Account No. Total credit as per my books of account (Rs) 1 Axis Bank 914010009555876 22,94,500/- 2 Bank of India 270010110007563 32,59,800/- 3 Central Bank of 000003156584054 70,29,850/- India Total 1,25,84,150/- 5. Further, it may kindly be noted that my total turnover from my undisclosed bank accounts is Rs.1,29,78,500/- as evident from my books of account submitted before your goodself. Bifurcation of my above mentioned total turnover is as below: Sr.No. Name of bank account Amount credited (Rs) 1 Axis Bank 22,94,500/- 2 Bank of India 32,59,800/- 3 Central Bank of India 70,29,850/- 4 Cash turnover 3,94,350/- Total turnover 1,29,78,500/- 6. It may kindly be noted that your goodself has wrongly added credit summation to the tune of Rs.58,00,478/- of Central Bank of India, Lal Darwaja Branch, Surat vide account No.3157153854 in your show cause notice vide point no.

Further, your goodself has only considered the summation of all credits into my bank accounts including cash depositions. You have failed to consider the corresponding cash withdrawals made from the said bank accounts. It is evident from the bank statements submitted before your goodself that I had received payment from sundry debtors and had also made corresponding payments to sundry creditors during normal course of my business activities. I had made cash deposition into all my bank accounts in accordance -205 & 182/SRT/2020 A.Ys.15-16 & A.Y. 16-17 Sarvangana J Jariwala with my convenience and the source of my cash depositions was from my business activities and cash withdrawals made by me during the year under consideration.

Further to substantiate my claims, I am submitting a copy of my complete books of account a copy of bank book, a copy of cash book a copy of all ledgers and a copy of quantitative details of stock as maintained by me for A.Y 2015-16 for your kind perusal. As I had made genuine business transactions through my9 above referred bank accounts your goodself is requested to add only my net profit as evident from the books of account submitted before your goodself and not to add the entire credit summation of Rs.2,05,18,703/- of the bank accounts as my income as proposed in your show cause notice. The addition cannot be made capriciously with utter disregard to the relevant material on record.

Further I would like to bring to the kind notice of your goodself that I had duly taken into consideration my bank accounts maintained with State Bank of India vide account no. 20057759304 along with Sutex Co-op Bank Ltd. vide account no. 0002480032009138 while filing my original return of income. As a matter of fact, the said savings bank account maintained with Sutex Co-op. Bank Ltd. vide account no. 002480032009138 was opened by me on 01.02.2016. Hence, the said savings bank account no.0002480032009138 maintained with Sutex Co.-op. Bank Ltd. has no bearing with financial year 2014-15 and hence should not be considered for the ongoing assessment proceedings. I have enclosed a copy of the said bank statement for your kind perusal and ready reference. In light of the above discussion, I request your goodself to make an addition of only net profit earned by me during the financial year 2014-15 in my undisclosed accounts and not to add the entire credit summation of Rs.2,05,18,703/- as suggested in your show cause notice pertaining to my disclosed as well as undisclosed accounts. I also pray that you verify and consider the books of account and also the supporting evidences enclosed for your perusal that are drawn after lots of pain and efforts.”

However, the Assessing Officer rejected the contention of assessee and held that the assessee was operating four bank accounts (A/c No.3156584054 with Central Bank of India, A/c 9140100095555876 with SBI) and these accounts were not disclosed in her books for A.Y 2015-16 excluding the account No.20057759304 maintained with SBI. Therefore, the AO had made two types of additions, one is total credits of Rs.1,33,66,325/- with undisclosed bank accounts and other is only cash deposits of Rs.13,51,900/- with disclosed bank account with SBI totaling to Rs.1,47,18,225/- ( Rs.1,33,66,325 + Rs.13,51,900) on the basis of failure on the part of the assessee by not furnishing source of income.

Aggrieved by the order of Ld. CIT(A) the Revenue as well as assessee are in appeals before this Tribunal. 12. Shri Rasesh Shah, Learned Counsel for the assessee, argued that during the assessment proceedings, the Assessing Officer issued notice to assessee and in response thereto assessee submitted her reply. The Ld. counsel submitted that although assessee has received cash from customers while doing the business but the entire payment was made through cheque / ATM withdrawal from the banks. The assessee is doing her small business since long. Therefore, the assessee used to savings banks account and deposited the amount on account of business transactions. The Ld. Counsel stated that assessee submitted first set books of -205 & 182/SRT/2020 A.Ys.15-16 & A.Y. 16-17 Sarvangana J Jariwala accounts and submitted second set of books of account and assessee also submitted undisclosed bank account and bank statements, invoices, purchase bills, profit and loss account and balance-sheet, before the Assessing Officer. The Ld. Counsel submitted that Assessing Officer made addition @ 100%, however, on appeal the Ld. CIT(A) has restricted the addition @ 25% by following the decision of Hon'ble Apex Court in the case of Vijay Protein vs. CIT ITD ref. No.139 of 1996 with Tax Appeal No. 243 of 2002 dated 09.12.2014, 2018 Taxpub 7917 (Guj-HC). 13. The Ld. Counsel argued that in textile business, 25% disallowance restricted by the Ld. CIT(A) is not tenable in the eyes of law. The average net profit in the textile industry is around 5 to 8%. Therefore, ld Counsel contended that addition should be sustained at the rate of net profit of the assessee or alternatively peak amount of the undisclosed bank account may be added. Therefore, Ld. Counsel prayed before the Bench that either the net profit as per books of account of the assessee may be added to the total income of assessee or peak credit of the bank account may alternative be added to the total income of assessee. 14. On the other hand, Shri Vinod Kumar, Ld. Sr-DR for the Revenue submitted that assessee has not disclosed her four bank accounts in her return of income, however, when the Assessing Officer issued notice to the assessee after that the assessee came forward and disclosed her bank accounts to Assessing Officer. Therefore, Ld. Sr-DR for the Revenue contended that assessee is having a guilty mind, as she has not disclosed her bank accounts in her return of income but when the Assessing Officer informed the assessee about undisclosed bank accounts then after the assessee has take a stand and argued that peak credit or net profit may be added in the hands of the assessee. The Ld. Sr-DR thus submitted that such type of guilty person should not be given relief. Therefore, Ld. Sr-DR submitted that the addition made by the Assessing Officer should be confirmed.

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. In our Page | 11 -205 & 182/SRT/2020 A.Ys.15-16 & A.Y. 16-17 Sarvangana J Jariwala considered view, it was wholly erroneous on the part of the ld CIT(A) to estimate the income at the rate of 25% in respect of undisclosed transactions in bank accounts. The assessee has admitted that these bank accounts were used by her for her business purposes and also proved that payments were made to creditors from these undisclosed bank accounts. No doubt estimate of the profit can be resorted to in these types of cases but the estimate and that too at a particular percentage or fraction of percentage which ld CIT(A) has adopted has to be based on sound reasoning in comparison with the past results as well as comparable cases. Without this the estimation so made cannot be said to be valid estimation. We note that in the assessee`s case under consideration, the ld CIT(A) has not demonstrated comparable cases except to make a general statement and ld CIT(A) has also failed to take into account the average past profits/results of the assessee for the purpose of making profit estimation. It is well settled that in a best judgment assessment there is always a certain degree of guesswork. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily. Department must act judiciously, while estimating net profit and must be guided by judicial consideration and by rule of justice, equity and good conscience. And also that there must be honest and fair estimate of the proper figure of assessment, for which consideration of local knowledge and repute, besides the previous returns an assessment of the assessee concerned, and all other matters must be taken into account for fair and proper estimate which of course, would fall in the category of guesswork, but a honest guesswork. We note that average net profit in the textile industry is around 5 to 8%. In our opinion, the ends of justice would be met, if a net profit rate of 10% is adopted since the same would take care of the other inconsistencies in the books of accounts of the assessee.

In the result, appeal filed by the assessee in and 205/SRT/2020 are partly allowed, whereas ground nos. 2 to 4 of Revenue`s appeal in , are dismissed. -205 & 182/SRT/2020 A.Ys.15-16 & A.Y. 16-17 Sarvangana J Jariwala 17. Now, we shall take ground No.1 raised by the Revenue in A.Y. 2016-17, which reads as follows: “1.Whether on facts and circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs.60,48,165/- made by the AO on account of cash deposits in the bank account of Central Bank of India, by holding that assessee had derived total net profit of Rs.7,89,694/- which was more than 8% of turnover as required to be reported under section 44AD and the same was duly consider by the assessee while filing his return of income, without appreciating the fact that the assessee has failed to furnish the required details to establish the sources of such cash deposits in her bank account with evidences during the assessment as well as appellate proceedings? 18. This ground is against the addition on account of unexplained cash deposits of Rs.60,48,165/- in central Bank of India. The brief facts qua the issue are that during the scrutiny proceedings, the assessing officer had noticed that the assessee had made credits entries in cash of Rs.60,48,165/- and in cheque of Rs.61,86,834/- totaling to Rs.1,22,34,999/- in CBI Bank account and as the assessee had totally failed to establish source of fund of cash deposits of Rs.60,48,165/-, hence the AO had made the addition of cash deposit. On appeal by assessee, ld CIT(A) has confirmed the action of the assessing officer.

The Ld Counsel argued before us that assessee had duly discharged her onus of proving to the Assessing Officer that out of all the 5 saving bank accounts and one current bank account which were owned and operated by her during the year under consideration, as mentioned by the Assessing Officer in his assessment order, and 2 bank accounts viz Central Bank of India vide account no.3452008800 and Surtex Co-operative Bank vide account no.2480032009138 were duly disclosed by her while filing her original return of income for A.Y 2016-17. The assessee had also submitted two complete set of books of accounts during the course of assessment proceedings. One set of books of accounts contained below mentioned bank accounts and all its business related transactions. The below mentioned accounts were duly disclosed while filing his original return of income for A.Y 2016-17.

On the other hand, the Ld. Sr-DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

We have heard both the parties. During the appellate proceedings, the ld CIT(A) noticed that the first set of books of accounts which were submitted by assessee before the Assessing Officer, which consisted of total turnover of Rs.97,99,865/- which included business transactions undertaken by the assessee through Central Bank of India vide account no.3452008800 and Sutex Co- operative Bank vide account no.2480032009138. Further, ld CIT(A) also noted from the submission of the assessee that assessee had derived total net profit of Rs.7,89,694/- which was more than 8% of turnover as required to be reported under section 44AD of the Income Tax Act, 1961, and the same was duly considered by her while filing his return of income for A.Y. 2016-17. Based on the said facts and findings, the ld CIT(A) was of the opinion that the assessee had duly discharged her onus of proving to the assessing officer, that the above mentioned savings bank accounts were duly disclosed by her while filing her return of income for A.Y. 2016-17. Further, when the assessee had duly disclosed all her income from the said bank accounts, taxing the said income again is not justifiable and would lead to double taxation. In the light of the said facts, cash deposition made into Central Bank of India vide account no.3452008800 amounting to Rs.60,48,165/- was deleted by ld CIT(A). We have gone through the above findings of ld CIT(A) and observed that there is no infirmity in the findings of ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. This ground No.1 raised by the Revenue in A.Y. 2016-17 is dismissed.