ITO, GHAZIABAD vs. M/S. S.K. SONS (HUF), GHAZIABAD

O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :

This appeal, at the instance of the Revenue, is filed against the order of CIT (Appeal), Ghaziabad dated 07.09.2009 for the assessment year 2001-02. 2. The revenue has taken the following effective grounds of appeal :-

“1. Whether on facts and in law the ld. CIT (A) was justified in deleting the addition of Rs.10,00,000/- made u/s 68 of the Income Tax Act, 1961 and in not properly appreciating the facts as well as the reasons given by the AO in his order.

3.1 A search and seizure was carried out by the Investigation Wing, Ghaziabad, in the premises of one Shri Mahender Kumar Gupta, who was found to have indulged in giving accommodation entries in the nature of capital gain/loans in lieu of cash received from intending beneficiaries by charging some commission in cash. On the basis of search and seizure operation, information from the concerned banks were gathered from where Shri Mahendra Kumar Gupta and his companies had issued DDs/cheques to the intending beneficiaries and also from the branches from where these Cheques/DD were encashed. As a result of the above investigation, information was received from ADI (Inv.) Ghaziabad, that following cheques were issued in the name of assessee, M/s Satish Kumar & Sons (HUF), Ghaziabad :-

Cheque No. Date of clearing Name of Clearing Bank Amount (Rs.) of cheque 474801 21.06.2000 OBC, Nehru Nagar, 5,00,000/- Ghaziabad 474802 21.06.2000 OBC, Nehru Nagar, 5,00,000/- Ghaziabad Accordingly, the AO initiated proceedings u/s 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’) against the assessee for the assessment year under consideration and issued a notice u/s 148 on 27.03.2008. In response, the assessee filed a return on 29.04.2008 declaring an income of Rs.59,000/-. Thereafter, the AO issued statutory notices u/s 143(2) & 142(1). 3.2 During assessment proceedings, the AO noticed that the assessee was maintaining a SB A/c NO.03022010061740 (old no.13849) with Oriental Bank of Commerce, Nasirpur, Nehru Nagar, Ghaziabad. The AO asked the said Bank to provide the bank statement of the assessee for the FY 1999-00 & 2000-01 to verify the information about the aforesaid cheques, but the Bank had informed that due to fire in their branch, they were unable to provide the statement for the said period. The AO further asked the Bank about clearing of the cheques to which the Bank replied that they had checked all their vouchers from the period 18.06.2008 to 22.06.2008 but no such cheques were on our records. The AO, however, noted the discrepancy in the reply furnished by the bank and observed that when the records of F.Y. 2000-01 were destroyed in fire, how the bank could categorically state that no such cheques were cleared by the bank on above dates. The records further show that during assessment proceedings, the assessee has refuted the receipt of these cheques and also filed an affidavit to this effect. The AO, however, pointed out that the assessee has failed to produce the copy of his bank statement for the A.Y. 2000-01.

During assessment proceedings, the assessee has furnished his statement of affairs as on 31.03.2000 and 31.03.2001, details of which have been reproduced at page 2 of the assessment order. From the same, the AO noticed that the assessee had shown balance as per OBC A/c No.13849 at Rs.1,30,169 as on 31.03.2000 and as on 31.03.2001 no bank balance was shown and only cash in hand was shown at Rs.47,136/-. Therefore, the AO required the assessee to provide the bifurcation of cash in hand and balance as per bank as on 31.03.2001 along with bank statement of the assessee in his books of accounts. In response, the assessee submitted as under :-

" It is explained that at the time of preparation of balance sheet for FY 1999-00 assessee had the pass book with him and balance as on 31.03.2000 of Rs.1,30,169/- was from it. In FY 2000-01 the bank balance was included in cash in hand and bank. In this respect please refer to our letter dated 25.08.2008, where it was stated that assessee has misplaced the pass book. Assessee has tried from bank also but record is not available with bank also. Bank account number and address of bank have already been furnished. Transaction for AY 2001-02 can be verified from bank also.

Assessee has filed affidavit with letter dated 25.08.2008 where it is categorically stated that the assessee has not received any amount from Mahendra Kumar Gupta through cheque no.474801 & 474802 of Rs. 5 lakh each. "

From the aforesaid reply, the AO noted that the assessee had not been able to give the bifurcation of cash in hand and that of the balance as per the bank. The AO found contradication in the replies filed by the assessee and wondered as to when the bank statement was not available with the assessee, how it was possible for him to arrive at the figure of bank balance at Rs.5,616 as on 31.03.2001 and held that this was a clear cut evidence that the assessee was deliberately avoiding the furnishing of the bank statement and that there was no truth in the earlier submissions and affidavit filed by the assessee thereby refuting the receipt of Rs.10,00,000 through accommodation entries. Accordingly, the AO treated the receipt of the sum of Rs.10,00,000/- as unexplained cash credits in the books of the assessee and added the same to the total income of the assessee.

3.3 The AO further added a sum of Rs.1,00,000/- being commission paid to Shri Mahender Kumar Gupta by observing as under :-

"In view of the clear admission of Shri Mahender Kumar Gupta, the entry operator, that he had given entries by charging some commission, the commission paid is estimated @ 10% on the accommodation entry of Rs.10,00,000/-, which comes to Rs.1,00,000/-. The same is being treated as unexplained investment made u/s 69 of the Income Tax Act, 1961, and added back to the income of the assessee."

3.4 Aggrieved the assessee filed an appeal before the first appellate authority against the aforesaid two additions and the ld. CIT (A) deleted the both the additions by observing as under :-

“5.3 The issue has been considered. The AO has proceeded to add back the sum of Rs.10,00,000/- on the basis of information received from the ADI that Shri Mahender Kumar Gupta is indulged in giving accommodation entries in the nature of cheques and that two cheques were issued by in favour of the assessee. The assessee, however, refuted the receipt of these cheques. The AO has made direct enquiries from the Bank, but upon enquiry, no evidence has been obtained by the AO from the bank to establish the issue of above two cheques by Shri Mahender Kumar Gupta in favour of the assessee. The material available on record clearly indicates that the department has not brought on record any material to establish that Shri Mahender Kumar Gupta had issued two cheques Rs.5,00,000/- each in favour of the assessee which were cleared on 21.06.2000. When the assessee has refuted the receipts of the said cheques and that the AO has no material evidence to establish the receipt of the said cheques by the assessee, there is no reason to add the said sum of Rs.10,00,000/- to assessee's total income as unexplained cash credit. As regards non-submission of assessee's bank statement for the relevant period, the facts on record show that the assessee could not obtain the same from the bank because there was a fire in the bank on 21.09.2001 and in the fire the bank records of F. Y. 2000-01 were destroyed so the assessee could not furnish the same before the AO. The bank has also confirmed regarding destruction of their records of F.Y. 2000-01 in fire. The bank has further informed the AO that they have checked all over vouchers for the relevant period but no such cheques are on their records. These facts thus clearly show that there is nothing on record to establish the receipt of two cheques of Rs.5,00,000/- each by the assessee and its clearing. In view of the above discussion, the addition made by the AO at Rs.10,00,000/- is hereby deleted.

6. The next issue pertains to the addition of Rs.1,00,000/- being the commission paid by the assessee on the above amount of Rs.10,00,000/-. Since I have already deleted the addition of Rs.10,00,000/- as discussed in the preceding para, this addition of Rs.1,00,000/- is also hereby deleted.”

Apart from letter from Director (Investigation) dated 17.03.2008 (page No. 13 PB) to the AO, wherein it is stated that vide two cheques ,the assessee is in receipt of Rs.10 Lakhs, no other evidence is found on record. The Ld. DR could not point out from the statement of Shri Mahendra Gupta, the purported entry operator against whom search was done and statement recorded u/s 132(4) of the Act, any statement which could throw some light on the issue before us. When the assessee was confronted, the assessee has denied the receipt of the said amount from Mahender Gupta and has filed affidavit saying so; and also the AR pointed out that the assessee had in fact filed return of Income and the averment in the reasons recorded by the AO to reopen u/s 147 and 148 that the assessee had not filed the return of income timely in the assessment year was factually incorrect. The bank also has expressed its inability to provide any details and blamed the fire which occurred in its premises, however, has made a statement albeit how is a mystery, that the two entries as noted by ADI (Inv), has not happened in the assessee’s account. So, in the absence of any other evidence/material which could link the Rs.10 Lakhs in his account, and the fact remains that the assessee has denied the same, it cannot be added as income of the assessee and has been rightly deleted by the Ld. CIT (A) and so the commission of Rs.1 Lakh added also cannot be sustained, so rightly deleted by the Ld. CIT(A). Accordingly, we uphold the order of the ld.CIT (A) and dismiss both the grounds.