NIRANJANABEN JAYESHKUMAR PATEL L/H OF LATE SHRI JAYESHBHAI CHANDUBHAI PATEL,HALOL vs. THE INCOME TAX OFFICER, WARD-3(1)(2), VADODARA

These appeals are by two assessees against separate orders of the ld.CIT(A), National Faceless Appeal Centre (NFAC), Delhi dated 29.11.2022 and 16.3.2023 passed under section 250 of the Income Tax Act, 1961 (“the Act” for short) for the assessment year 2017-18.

The grounds raised by the assesesses in their respective appeals are as under:

The Ld. NFAC erred on facts and in law in holding the appeal of the appellant to be infructuous on account of order u/s 263 passed by the Ld. PCIT 2. The Ld. NFAC erred on facts and in law in not adjudicating any of the grounds of appeal

Brief facts of the case are that the assessee filed return of income declaring total income at Rs.2,52,880/-. The case of the assessee was selected for scrutiny for the reason of examining large cash deposits and cash withdrawals made by the assessee during the impugned year under consideration. During the course of assessment proceedings, the AO observed that huge cash amounting to Rs.16,44,12,280/- was deposited in the bank account of the assessee during the impugned year under consideration. The assessee was asked to furnish the nature of source of cash deposits with supporting evidence. The assessee was asked to submit ledger copy of the person who deposited cash in his bank account and persons to whom the assessee had paid the cash after withdrawals. The submissions of the assessee was that, he is engaged in the business of earning commission and the amounts so deposited/withdrawn by the assessee did not belong to the assessee, and the assessee has only AND 300/Ahd/2023 4 earned commission income on such amount. The assessee was asked to submit the nature and source of cash deposits with evidences. The AO asked the assessee to submit ledger copies of the parties, who had deposited cash in his bank accounts, and the persons to whom, he paid cash after withdrawals. The AO issued notice under section 133(6) of the Act, and summons under section 131 to those persons whose addresses seemed to be complete. Notices under section 133(6) of the Act were issued in eleven cases, out of which eight notices returned with postal remark “insufficient address”. Only three parties complied with the notices in the pattern in which the details were called for.

On perusal of the replies, the AO noticed that none of the parties had admitted that they had deposited cash in the bank account of the assessee. The parties only stated that the cash was deposited by the traders all over India. Hence, as per the AO even the identity of the parties who deposited cash in the bank accounts of the assessee could not be established by the assessee. Further, summons under section 131 of the Act were issued to twelve persons from the ledger given by the assessee, out of which nine summons were returned with postal remarks “insufficient address”, and also none of the remaining parties (three in numbers) appeared before the AO. Hence, as per the AO, identity of the parties, genuineness of the transaction and credit- worthiness of the parties could not be verified. The AO held that the assessee did not submit ledger copy of the actual depositors. Since the assessee failed to justify his claim that the cash was deposited by other parties, and paid after withdrawing the same from the bank account, the AO called for further details from the assessee. The AO observed that some confirmations of the parties to whom notices under section 133(6) of the Act and summons under section 131 were issued were received. However, as per the AO, the so-called AND 300/Ahd/2023 5 confirmations filed by these parties were addressed to the AO, but was submitted from the assessee’s income-tax e-portal. The AO was of the view that it was beyond logical understanding, how could a third- party know the details called for vide the notices and summons, which were unserved on them and the reply could be submitted through the assessee’s income-tax e-portal. The AO observed that all the parties had only stated that they had not deposited cash in the bank account of the assessee. Also the concerned parties did not submit any details with regard to the cash depositors who purchased the goods from them. The AO held that confirmation/clarification of the local parties which were not depositors, is an after-thought, and prepared by the assessee himself which were submitted by the assessee himself, through his own income-tax e-proceeding portal. Accordingly, the AO held that contention of the assessee that some of the persons depoised cash in the bank account, and he only earned commission income was not acceptable. Accordingly, the AO added a sum of Rs.16,44,12,820/- to the income of the assessee under section 69A of the Act. Aggrieved by the same, the assessee filed appeal before the ld.CIT(A).

During the course of appellate proceedings, the assessee submitted that the AO had wrongly invoked the provisions of section 69A of the Act in the instant case. The assessee stated that the amount found deposited in the bank account were actually withdrawn immediately and delivered to the beneficiaries after retaining the requisite amount of commission. The commission so retained has been offered for taxation and there exists no dispute with regard to the same. The assessee submitted that the in line of Angadia business, commission is at the rate of 0.10%. The assessee submitted that he has maintained books of accounts, and has also recorded all the transactions in the books of accounts in respect of which addition AND 300/Ahd/2023 6 has been made by the AO. Secondly, the assessee submitted that he was not the owner of the cash which came to be deposited in his bank account by the beneficiaries who paid commission to the assessee. Since the assessee was not the owner of the cash deposited in his bank account, the same cannot be assessed in the hands of the assessee under section 69A of the Act. The assessee submitted before the ld.CIT(A) that the AO ought to have appreciated that the assessee is earning commission income on account of money transferred by various parties located pan India to the parties located at Halol (i.e. business place of the assessee) by using the bank account of the assessee for which the assessee charged commission and paid the residual amount to the concerned beneficiaries/parties after retaining the commission amount which the assessee in turn offered as business income and which has been assessed in the hands of the assessee, without any dispute by the tax authorities with regard to the nature of such income being commission income and nor was there any dispute with regards to the quantum of such commission earned by the assessee and offered to tax by him. However, the ld.CIT(A) dismissed the appeal of the assessee on the ground that the assessee, in the instant fact has failed to prove that the cash deposited in his bank account did not bear the character of income of the assessee, and accordingly confirmed the addition made by the AO. While passing the order, the ld.CIT(A) made the following observations:

The assessee is in appeal before us against the aforesaid order passed by the ld.CIT(A) confirming addition in the hands of the assessee.

Before us, the ld.counsel for the assessee took various arguments. Firstly, he submitted that the assessee has maintained AND 300/Ahd/2023 11 regular books of accounts, and all bank accounts are duly recorded in the books of accounts of the assessee, and therefore, the provisions of section 69A of the Act have no application. Secondly, the assessee is only a commission agent, and therefore, the cash deposited by the customers and delivered back to the customers cannot be held to be belonging to the assessee, and only commission earned by the assessee on such transaction can be taxed as the income of the assessee. Thirdly, the customers of the assessee deposited cash/RTGS/NEFT from different locations across the country in the bank account and the assessee which were subsequently withdrawn and delivered to the respective persons as per the instructions of the customers. It was submitted before us that Halol is an industrial hub, and therefore, customers across India made purchases from the units located in Halol and adjoining areas. The assessee carried out three specific activities as part of his business viz. (i) deposits were made in the bank account of the assessee through RTGS/NEFT/Cheque by the customers and payment by withdrawing cash from the bank accounts, (ii) cash deposits were made in the bank account of the assessee by customers of the assessee, and payments were made by the assessee by remitting the fund through RTGS/NEFT as per the customer’s instructions, and (iii) cash was deposited in the bank account of the assessee by the customers and payment was made by the assessee by withdrawing cash from the bank account. In all three circumstances, the assessee had charged commission to provide aforesaid services and commission income had been offered to tax by the assessee. The ld.counsel for the assessee submitted that even units located at Halol used services of the assessee by depositing cash in his account and directing him to make payment online to Gas Authority of India ltd. towards supply of gas to their units. The ld.counsel for the assessee submitted that various details like copies AND 300/Ahd/2023 12 of ledger account of the parties, cash book, affidavit explaining the nature of activities, confirmations of some of the persons, etc. were submitted before the tax authorities, were submitted during the course of assessment proceedings. However, such evidence was not appreciated by the AO.

In response, the ld.DR pointed out that despite several opportunities, the assessee has miserably failed to prove the source of cash deposits in the bank account of the assessee, and neither the assessee has been able to prove that the he was actually engaged in the business of earning commission income, and no evidence has been furnished by the assessee to demonstrate that the cash deposits made in the bank account held by the assessee are not unaccounted income of the assessee. Notably, the books of accounts of the assessee are not audited. Further, the ld.DR submitted that the assessee did not furnish ledger account during the course of proceedings before the tax authorities, and the assessee only produced cash book/bank statement during the course of proceedings. The ld.DR submitted that in the entire proceedings, no books of accounts were produced by the assessee except the cash book. Accordingly, the ld.DR submitted that the books of accounts have not been maintained/audited. The identity and credit-worthiness of the parties, who had deposited cash has not been established. The assessee has failed to furnish any corroborative evidence to show that the assessee is engaged in the business of earring commission income and, therefore, there is no infirmity in the order of the ld.CIT(A) wherein such additions have been rightly confirmed in the hands of the assessee.

We have heard rival contention and perused the material available on record.