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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri N.V.Vasusdevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
These cross-appeals by assessee and Revenue are arising out of order of Commissioner of Income Tax (Appeals)-XXXII, Kolkata dated 17.11.2011. Assessment was framed by ITO Ward-49(1), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2010 for assessment year 2008-09.
ITA No.382 &405/Kol/2012 A.Y. 2008-09 Golam Mostafa v. ITO Wd-49(1) Kol. Page 2 We heard them together and deem it appropriate to dispose of them by way of common order. First we take up assessee’s appeal in ITA No.382/Kol/2012. 2. The first issue raised by the assessee in this appeal is that ld. CIT(A) erred in sustaining the addition of Rs. 27,65,209/- made Assessing Officer on account of peak cash credit. For this, assessee has raised the following effective ground of appeal:- “2. For that, the disallowance on account of Cash Deposits amounting to Rs.27,65,209/- (Rupees twenty seven lac sixty five thousand two hundred nine only) sustained by the Ld. CIT(A) on the basis of separate Pick Cash Credit instead of Composite Pick Credit, was devoid of any logic and it was liable to be deleted in full because it is based on surmises, suspicion and conjectures.”
The facts, in brief are that assessee in the present case is an individual and engaged in the trading business of building materials. The assessee was maintaining several bank accounts where huge cash was deposited during the year. The cash deposited with the banks was not commensurate with the turnover declared by the assessee. The details of the banks and the cash deposited in those banks stand as under:- S.No. Bank A/c Amount (Rs) 1 11000520256, SBI, Basirhat Branch 132,452 2 4891, Allahabad Bank 12,000 3 SB-3871, BOI 3,19,600 4 404820100100689, BOL 45,17,200 5 Axis Bank 18,12,630 6 331-1-051785-9, Standard Ch.Bank 1,55,000 7 Bank of India, CC-118 68,59,500 Total 1,38,08,382/-
The assessee has shown sales to the tune of Rs.22,27,360/- only. Accordingly the AO sought clarification from the assessee by issuing show cause notice on dated 10/12/2010 to justify the sources of cash deposits made in the aforesaid bank accounts in excess of declared turnover. However, assessee failed to provide any explanation of the aforesaid notice. Accordingly the cash
ITA No.382 &405/Kol/2012 A.Y. 2008-09 Golam Mostafa v. ITO Wd-49(1) Kol. Page 3 deposits in excess of turnover of Rs.1,15,81,022/- (Rs.1,38,08,382.00 - 22,27,360.00) was disallowed and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal to Ld.CIT(A) where the assessee submitted that several banks accounts were maintained in different bank for smooth running of his business. The AO made the assessment taking all the deposit in cash in the aforesaid bank accounts to the tune of Rs. 1,38,08,382/- but did not consider withdrawals of Rs.1,31,10,361/- for purchase of goods and other purposes. The assessee made various submissions at the appellate stage and offered the income of Rs.6,10,331/- being the difference of cash deposit and cash withdrawal. However, the ld. CIT(A) disregarded the plea of the assessee and adopted the peak credit theory for taxing the cash deposited in the bank accounts by observing as under:- “I have carefully perused the assessment order, the submissions of the A.R and the remand reports of the AO. The fact is that the assessee has claimed that the cash deposits in his bank accounts were sale proceeds of his business. But he has not been able to adduce any evidence in support of his contention. In the absence of any evidence to support the assessee's claim, the same cannot be accepted to be true. Under the circumstances the cash deposits in the assessee's bank accounts remain unexplained. It is now decided by various judicial authorities that in the case where the deposits in bank account are unexplained and there are payment deposits and withdrawals therein, it is the peak credit balance in the bank account( s) that shall be treated to be income of the assessee. In this regard reliance is placed on the following cases decided by Kolkata ITAT. 1. ACIT v. Loknath Prasad Gupta [IT(SS) A.No.185 & 1901K01l2003] 2. ACIT v. Praveen Kumar Agarwal [IT(SS) A. No.61 & 741K01l2003] 3. ITO v. Uday Shankar Mahawar [LT.A.No.l9031K01/2009] 4. Bijay Kr. Lath v. ITO [LT.A. No. 19751K01l2002] 5. Asit Baran Utthasanee v. ITO [LT.A. No. 13271K01l2008]
From perusal of the copies of the assessee's bank accounts, the position of peak credit balances, during the year under appeal, in those accounts is observed to be as follows:- Name of Bankk & A/c. No. Amt. of peak balance Bank of India 9665 72,587/- -do- 404820100698 11,10,065/-
ITA No.382 &405/Kol/2012 A.Y. 2008-09 Golam Mostafa v. ITO Wd-49(1) Kol. Page 4 Allahabad Bank 4891 21,752/- SBI 01150061073 2,16,869/- Bank of India CC 118 5,88,395 * Axis Bank (UTI:31795) 22686 3,11,241/- Standard Chartered 331-1-05-17859 1,45,954/- Bank o India 20046 274/- Bank of India 3871 2,15,045/- Axis Bank 2974 83,000/- 27,65,209/- *This is a CC Account. The peak credit balance has been worked out by ignoring the opening debit balance. In the light of the above discussion, the total of the peak balance in the bank accounts of the assessee is treated to be his unexplained income. Accordingly, the addition in this account is restricted to Rs.27,65,2091- against the amount of Rs.l,15,81,022/- added by the A.O. This ground is, hence, partly allowed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Before us the Ld. AR has filed a paper book having pages from 1 to 69 and submitted that the Ld. CIT(A) has not considered the withdrawal of the same date of which the peak amount of cash was brought to tax. In the appellant order, Ld. CIT(A) has also worked out the peak credit of each bank account separately and their aggregate amount has been treated as undisclosed income and the same is not a correct approach. The Ld AR requested to allow the withdrawal of the cash of the date used for determining the peak credit balance and also to take the peak balance after combining all the bank accounts so that the assessee could avail the benefit of telescoping peak credit amount. The ld. AR also alternatively submitted that average gross profit for the last three years can also be applied on the undisclosed amount of cash deposited in the bank. On the other hand, Ld DR relied on the orders of Authorities Below.
5.1 We have heard the contentions of the rival parties and perused the materials available on record. From the aforesaid discussion we find that the
ITA No.382 &405/Kol/2012 A.Y. 2008-09 Golam Mostafa v. ITO Wd-49(1) Kol. Page 5 AO has treated the amount of cash deposit in various banks which was over and above the declared turn over in the income tax return as undisclosed income. However the learned CIT(A) applied the peak credit theory and brought the amount of bank balance to income tax which was representing the peak balance along with the deposit of cash on a particular date during the year. The learned AR before us has objected on the working of learned CIT(A) for the peak credit balance as he failed to consider the withdrawals of the same date. The ld. AR also alternatively submitted to work out the income on the undisclosed amount of cash i.e. average GP ratio on the undisclosed cash deposited in the bank. Now the following questions arise before us for the purpose of adjudication. I) Whether the method adopted by the learned CIT(A) for working out the peak credit balance is just and proper. II) Whether in the aforesaid circumstances it is appropriate to apply the average GP ratio on the undisclosed bank deposit as suggested by the ld. AR.
We find that in the aforesaid facts and circumstances many courts have applied the peak credit theory for bringing the undisclosed amount of cash deposit under the net of tax. Therefore, in our considered view, it is appropriate to apply the peak credit theory in this case. So we disregard the alternate option provided by the ld. AR for applying the GP ratio on the undisclosed cash deposit. We further find that the base used by the learned CIT(A) for working out the peak credit balance is not appropriate in the present case in the aforesaid facts and circumstances. Firstly the Ld. CIT(A) has not considered the withdrawal of the date used for working out the peak credit balance. Secondly the combined peak credit balance should be considered for the working of peak credit balance. In holding so we are relying in the case of Dilip Kumar Nahata Vs. Department of Income Tax ITA No. 141/Kol/2012 ITAT Kolkata Bench “A”, wherein the ITAT has held in para-5 as under:-
ITA No.382 &405/Kol/2012 A.Y. 2008-09 Golam Mostafa v. ITO Wd-49(1) Kol. Page 6 “5. After hearing the rival submissions and on careful perusal of materials available on record, it is observed that neither the AO nor the ld. CIT(A) as followed the direction given by this Tribunal in its order date 27,05.2009. on careful perusal of the grounds taken by assessee, we find force in the grounds taken by assessee that under these facts and circumstances of the case when there are six undisclosed bank accounts while assigning the peak credit the proper method is to make a consolidated fund flow statement by taking into account of all the undisclosed bank accounts and after setting off contra entries, if any, and then the peak credit of these consolidated bank transactions should be taken as undisclosed income of assessee. The assessee also has taken in his grounds the same. The ld. CIT(A) ought to have accepted the consolidated peak of all the bank accounts taken together as undisclosed income of assessee instead of aggregate of the separate peak of the individual bank accounts. We accept the contention of assessee and therefore we set aside the orders of ld. CIT(A) to the file of AO to arrive at the peak credit of the consolidated bank accounts to be taken together and after making adjustments of the contra entries.”
Taking a consistent view of co-ordinate Bench in the case of Dilip Kumar Nahata (supra) and we agree with the arguments made before us by Ld. AR and in the facts and circumstances of the instant case, we set aside the order of Ld. CIT(A) and restore this ground of appeal to the file of AO with the direction to work out the peak credit after consolidated all the bank accounts together and after making adjustments of the contra entries and also allow the withdrawals to adjudicate the issue as per law. Accordingly this ground of appeal of the assessee is allowed for statistical purposes.
Next issued raised by assessee in this appeal is that the learned CIT(A) erred in sustaining the addition of Rs. 4.55 lacs on account of introduction of fresh capital in the business. For this, assessee has raised following effective ground of appeal:- “3. For that, the addition of Rs.4,55,000/- (Rupees four lakh fifty five thousand only) on account of introduction of Fresh Capital partially confirmed by the Ld. CIT(A) was devoid of any logic and it was liable to be deleted in full because it is based on surmises, suspicion and conjectures.”
ITA No.382 &405/Kol/2012 A.Y. 2008-09 Golam Mostafa v. ITO Wd-49(1) Kol. Page 7 7. The assessee during the year has introduced capital of Rs.8.20 lacs and explained the source of the same by stating that it was out of past savings. However, AO disregarded the claim of the assessee on the ground that past saving has already been capitalized in the business. Hence, AO treated the same as unexplained cash credit u/s 68 of the Act and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal to Ld. CIT(A) where the assessee submitted that there was withdrawal of Rs. 4.20 lacs and drawing of Rs.96,000/- which was duly reflected in the balance sheet of the assessee. Accordingly, the ld. CIT(A) has partly given the relief to the assessee by observing as under:- “Considering the facts of the case, I estimate the assessee’s household expenditure at Rs.1,50,000/- for the year under appeal. Hence, it is reasonable to deduce that a sum of Rs.3,65,000- was available to the assessee to be utilized for introduction of fresh capital. Hence, the addition on account of unexplained introduction of fresh capital is restricted to Rs.4,55,000/-. “
Being aggrieved by this order of Ld. CIT(A) the assessee is in second appeal before us.
Ld AR before us submitted that that the introduction of fresh capital to the tune of Rs. 4.55 lacs should be treated out of the profit worked out on the cash deposit in the bank in the form peak credit and the same has already been taxed. Accordingly there should not be any further addition for the introduction of fresh capital. On the other hand, Ld. DR relied on the order of AO.
We have heard rival contentions and perused the materials available on record. From the aforesaid discussions, we find that the assessee has introduced fresh capital to the tune of Rs.8.20 lacs but failed to substantiate the source of the same at the time of assessment. Accordingly the AO has
ITA No.382 &405/Kol/2012 A.Y. 2008-09 Golam Mostafa v. ITO Wd-49(1) Kol. Page 8 made the addition of the same but at the appellate stage Ld CIT(A) has partly given relief to the assessee. Now before us the assessee claims that this introduction of fresh capital should be treated out of the income worked out on the basis of peak credit theory and the same income has already been taxed so there should not be any further addition on account of fresh capital introduction. Now the question before us is that whether the amount of fresh capital introduced in the business represents the income taxed on the basis of peak credit theory. From the facts of the case we find that the direction for making the addition on account of cash deposited in the bank account on the basis of peak credit theory has already been given to the AO as per ground no. 1 but the quantification of the amount has not been done. Therefore in our view whatever amount of profit shall be ascertained out of peak credit balance then the assessee can bring that amount in the books in the form of capital. Accordingly we opined that in case the addition made by the AO in terms of direction issued in ground number 1 exceeds the amount of fresh capital introduced in the business then it can be presumed that introduction of fresh capital is out of the aforesaid income and in that situation no further addition is required. However, at the same time if the income worked out on the basis of peak credit theory is less than the amount of fresh capital introduction then the excess amount of fresh capital introduction should be treated as undisclosed income of the assessee under Sec. 68 of the Act. At this juncture, it is important to note that the amount of fresh capital introduction shall be treated Rs.8.20 lacs without giving relief of the withdrawal of Rs.3.65 lacs as given by the Ld. CIT(A). Accordingly, we set aside the issue to the file of AO for fresh adjudication in terms of the aforesaid direction and as per law. Hence, this ground of appeal of the assessee is allowed for the statistical purposes.
Now coming to Revenue’s appeal in ITA No. 405/Kol/2012. 11. As we have already remit back assessee’s appeal to the file of AO where we discuss the peak cash credit in assessee appeal ITA No.382/Kol/2012 in para 5 and unexplained introduction of Rs.8.20 lakhs in
ITA No.382 &405/Kol/2012 A.Y. 2008-09 Golam Mostafa v. ITO Wd-49(1) Kol. Page 9 para-10 of this order, in terms of our above direction we restore back this matter to the file of Assessing Officer for fresh adjudication accordingly. This appeal of Revenue’s appeal is allowed for statistical purpose.
In the result, both appeals of assessee and Revenue stand allowed for statistical purpose. Order pronounced in the open court 22/04/2016 Sd/- Sd/- (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp �दनांकः- 22/04/2016 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-Sri Golam Mostafa, Vill. Model Belghoria, Basirhat, Dist. 24-Parganas (N), Pin. 743427 2. राज�व/Respondent-ITO Ward, 49(1) Maniktala Civic Centre, Uttarapan Shopping Complex, 2nd Floor, Kolkata-700 054 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता ।