THE ITO, WARD-3(1)(1),, RAJKOT-GUJARAT vs. SHRI GIRISHKUMAR M. PURUSWANI,, RAJKOT-GUJARAT

Assessee Represented: Shri Mehul Ranpura, A.R. Revenue Represented: Shri Shramdeep Sinha, CIT-DR Date of hearing : 21-12-2022 Date of pronouncement : 31-01-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-

These three appeals are filed by the Revenue as against the three Appellate orders all dated 05.08.2016 passed by the Commissioner of Income Tax (Appeals)-3, Rajkot arising out of the Re-assessment orders passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years (A.Ys) 2008-09 to 2010-11. Since common disallowance/additions are involved and common grounds are raised by the Revenue, except the change in the figures of disallowances, thus all these three appeals are taken up for common disposal.

2.2. In response, the assessee filed a letter to treat the original return filed u/s. 139(1) as the return in response to the notice issued u/s. 148 of the Act. The assessee raised various objections as against the reopening of assessment namely the reopening is beyond 4 years period, then the Issuing Authority is Joint Commissioner and the Sanctioning Authority is Commissioner of Income Tax whereas in this case the notice was issued by Income Tax Officer. Therefore the entire reassessment itself is bad in law. The Assessing Officer has overruled the above objection filed by the assessee and satisfied with the explanation of cash deposits to the extent of Rs. 92,51,359/- and not satisfied with the balance cash deposit of Rs. 9,80,77,641/- is added as unexplained cash deposit of the assessee and demanded tax thereon.

3. Aggrieved against the same, the assessee filed an appeal before the Ld. Commissioner of Income Tax (Appeals). The Ld. CIT(A) after a very detailed hearing held that the validity of reopening of assessment was invalid in law. On merits, the cash deposit by the assessee for his Shroff business to be treated only as stock-in-trade of the assessee’s business not as unexplained cash as determined by the A.O. Therefore the addition made by the Assessing Officer of Rs. 9,80,77,641/- is also deleted as follows: 5.4. To summarize, the A.O. received the information about the appellant, a "Shroff of depositing cash in his bank accounts and thereafter issuing the cheque to its customers. The exact communication to A.O. is not there on record but it is apparent that after verification of 4-5 years, the ADIT had not indicated to the A.O. that these cash deposits or part thereof was "income" of the appellant who was well known as "Shroff, both to A.O. as well as the ADIT. It is also apparent that prior to issue of notice u/s.148, A.O. had not carried out any verification on his own after receiving the communication from the ADIT and that only on the basis of this communication the A.O. assumed that the cash deposits represent appellant's own income. The A.O. jumped to this conclusion forgetting the fact that ADIT, after prolonged verification of 4-5 years could not form any such (explicit) opinion. 5.5. There is definite distance between the stages of receiving the information and forming an opinion. This distance is bridged by making some primary verification and/or analyzing the information (received) and further information gathered (during such verification). Only after travelling this distance, A.O. forms an opinion about escapement of income. In present case, the available information (from ADIT) tells the A.O. that the appellant, a Shroff by trade; had deposited huge cash in his bank accounts. It is but natural to presume that such deposits were made in due course of business, i.e. after receiving the cash from customers for issuing them cheques/DD for earning commission income. The ADIT's report to A.O. was apparently not contradicting this primary and logical presumption. In such circumstances, A.O., without conducting any independent verification, was not justified in forming the reason to believe that cash deposits represent undisclosed income of the appellant. The decision of the Hon'ble ITAT 'C' Bench Ahmedabad in the case of ITO s. Dineshchand Shantilal Shah (HUF) (2013) 34 taxmann.com 187 (Ahmedabad Trib.) is very pertinent as it explains that cash deposits and subsequent issue of cheque to the customers being routine business activities of the assessee cannot be treated as loans/deposits/similar unexplained income in the hands of the assessee, unless A.O./ADIT had some evidences to suggest that these cash deposits represent assessee's own money and they came back to assessee in cash from customers/clients (who received cheques of equivalent amount). No such evidence of appellant deceiving cash back was available to the A.O. nor to the ADIT, nor have they make any such allegation. It is correct that huge cash deposits were bound to raise suspicion of the ADIT as well as the A.O. but appellant being in the peculiar business of "Shroff, it was incumbent upon them to conduct initial verification to find out whether cash so deposited were actually the money of the customers/clients or of the appellant and in case adverse inference could be drawn; A.O. was within his full right to issue notice u/s.

3.1. On merits of the case, the Ld. CIT(A) deleted the additions as follows: 6.4 The A.O. had observed that appellant had valid license as "Sahukar" only on 28/3/2011 and thus it had no relevance with current financial year. A.O. apparently had failed to see that this document was only "renew" of the earlier license. It had been pointed out by the Ld. AR that license was originally renewed vide No. 13 5/2006 which was renewed every year thereafter (page 25 & 26 of paper book). Thus fact that appellant is in the business of providing cheques after receiving cash as a License-owned Sahukar is not disputed though the A.O. had pointed out that he had been granted license for the activity of Sahukar only since 2011. The appellant had successfully doused this doubt by stating that the license was renewed way back in 2006 and every year thereafter it is renewed and thus there is unanimity that the appellant is in the business of providing cheques/DDs to its customers for a commission. There is no dispute that the appellant is involved in the business of providing cheques/DD to its customers on commission basis on receiving the corresponding amount in cheque. The amount so received (for issuance of cheque) during the relevant assessment year is Rs.11,79,80,000/-, list of such customers had made available to ADIT (Inv) as well as the Assessing Officer. These ' submissions were made in lieu of the investigation carried out in 2010 wherein enquiries had seemingly been made from the customers after obtaining list of such persons from the appellant. The A.O. had also agreed with the appellant's submission and had accepted the explanation in respect of Rs.43,01,152/- after stating that appellant had submitted PAN and postal address in respect of such deposits. Thereafter he had not accepted the appellant's explanation in respect of balance Rs.11,36,78,848/- because appellant failed to produce PAN or postal address of customers involved. In my opinion, appellant might have failed to fulfil KYC norms but it does not mean that at his entire turnover should be treated as undisclosed/unexplained income. 6.5 His business itself demands that customers will provide cash which will be converted into banking instruments for a fees by the appellant. The cash received from the customers will be deposited into his bank accounts by the appellant in order to achieve sufficient balance before issuing the cheque/DDs to the customers. This modus operandi had been accepted by all, the appellant, the DDIT (Inv) who investigated the case very thoroughly for a long time as well as by the A.O. Here the cash received by the appellant (to be deposited in the bank) amounts to turnover of the business of the appellant. I agree with Ld. AR that this sum which had been treated as stock-in-trade by the appellant is not available to be treated as an unexplained cash deposit. The amount of bank deposited is not remaining with the appellant nor is it ploughed back in his business for next business/trade cycle; it is going out of the business sphere of the appellant to the possession of the customers. This is not the case that appellant is bringing out his undisclosed (untaxed) money to be used in his business in the guise of loan capital. It cannot be expected from a businessman to bring out his undisclosed income from hiding to dish out the same to an outsider. In my opinion, there is no ground for the bank deposits to be treated as unexplained cash deposit. Cash deposited had gone out of the business apparatus of the appellant in the form of cheques issued to the customers in lieu of the commission/fees @ Rs.50/- per Lac only. In such circumstance, I am in full agreement with the Ld. AR that adding the entire amount of Rs.l 1,36,78,848/- as unexplained cash deposit in the hands of the appellant merely on account of non-maintenance of proper details like having PAN & Postal Address of the customers etc. is totally unjustified. In my opinion, once the appellant had established credence of his business activities as a "Shroff and when the entire list of persons to whom cheques were issued, the onus had shifted on the Assessing Officer to establish that such exercise of issuing cheques to customers was fake and bogus and appellant was receiving back the amount in cash. I had taken note of the case laws relied upon by the Ld. AR in respect of "Sahukar/Shroff Business. In the result, the addition of Rs. 11,36,78,848/- is not sustainable on merit also. Accordingly, Ground No.3 & 4 are also allowed.

5. Ld. CIT-DR Shri Shramdeep Sinha appearing for the Revenue vehemently argued that the Ld. CIT(A) erred in holding that the reassessment is bad in law on the incorrect observation that “verification” was the prime reason for reopening of assessment. On merits of the case also, the ld. CIT(A) erred in deleting the addition of Rs. 9,80,77,641/- holding that the entire list of persons to whom cheques were issued was submitted by the assessee. Thus the onus shifted to the A.O. while making addition. However the Ld. CIT(A) in Para 6.5 of his order observed that there was non maintenance of proper details like PAN, Postal Address of the Customers, etc. Thus pleaded that the entire reassessment order is correct in law and set aside the order passed by the Ld. CIT(A) and restore that of the Assessing Officer.

06.07.2010 - Clarification of some specific transaction 30.08.2010 - Details of (i) Dinesh Sorthiya & (ii) Key West Developers

19.11.2010 25.11.2010 Total cash deposit in bank accounts 01.08.2014 08.08.2014 Commission ledger & other details 25.02.2015 27.02.2015 Other details 19.05.2015 27.05.2015 Other details 6.1. The Ld. A.R. further taken us through the reasons recorded by the Assessing Officer for reopening of assessment which is reproduced at page no. 6 of the CIT(A)’s order as follows: REASONS FOR RE-OPENING OF ASSESSMENT U/S 147 OF THE IT ACT In this case, information is received from the ADIT (Inv)-l, Rajkot that the above named assessee has made high value transactions of cash deposits and issued DD/Cheque in lieu of cash through his bank accounts owned by him. During the FY 2007-08 the assessee has deposited cash of Rs.10,73,29,000/- in the accounts of M/s Sanjay Enterprise.

2. The assessee has filed his return of income for AY 2008-09 on 11.07.2008. The fund of Rs. 10,73,29,000/- introduced by the assessee is required to be taxed as unexplained investment being not fully disclosed. I am therefore satisfied that this is a fit case of an escaped income within the meaning of section 147 of the Act to collect revenue from the assessee.

6.2. For the above reasons, the Assessing Officer has recorded the assessee had made high value transaction of cash deposits and issued DD/Cheques in lieu of cash through his bank accounts. Thus the Assessing Officer himself well known that the cash deposited in the bank accounts are transformed into DD/Cheques. Hence the same cannot be treated as the unexplained income of the assessee. The Ld. CIT(A) after considering the Money Lenders Licence issued by the Registering Authorities from time to time accepted cash deposits as the business transactions/stock in trade and deleted the additions. Therefore the same does not require any interference and Revenue appeal is liable to be dismissed.

7.1. Similarly on merits of the case also, the Revenue could not able to establish it is an unexplained cash deposited by the assessee, inspite of enquiries made by Investigation Wing for more than 5 years. Similarly the Assessing Officer failed to establish that the issuing of cheques to customers was fake or bogus and the assessee was receiving back the amount in cash. Thus the Assessing Officer failed to prove that the assessee is not in the business of “Sahukar/Shroff” as well as the cash deposited in the bank account neither remains with the assessee nor is it ploughed back in his business or in any kind of assets.

7.2. On identical issue of Shroff business, the Co-ordinate Bench of this Tribunal in the case of Anirudh J. Solanki in held as follows: “6.2. ….. The Co-ordinate Bench of the Tribunal dated 04.02.2022 in ITA No. 193/Rjt/2016 on identical facts and dismissed the revenue’s appeal as follows: 6. We have gone through the relevant records and impugned order. The question before us is whether cash depositing in aggregate amount of Rs.5,88,43,806/- made in his A/c. No.015305002632 belongs to the Ceramic Industries/Tiles Manufacturing Companies of Morbi who are the clients of Shaileshbhai Marvania or not. In this case, assessee is working as a shroff and as per CIT(A) it is not a disputed fact. The shroff acts as a channel between two parties. It is apparent from the bank account in question that the cash were deposited and withdrawn from time to time. During the proceedings, the assessee recorded his statement and categorically explained the nature of transaction that he is getting a commission at Rs.0.25 paise on transaction of Rs. one lakh. In our considered opinion, in such a case, all deposits in the bank account cannot be treated as income of the assessee. During the assessment proceedings, the learned AO came to know that assessee is working as shroff which means commission agent. After going through the bank statement, it was revealed that cash deposited and withdrawals were made regularly during the year under consideration. We do not find any ambiguity in the order passed by the learned CIT(A) and he has rightly directed the learned AO to compute the commission income @ 0.25 paise per lakh deposited in the bank account. 6.3. Further the Ld. Counsel drawn our attention to the Jurisdictional High Court Judgment in the case of Shree Sidhnath Enterprise vs. ACIT reported in [2016] 71 taxmann.com 55 wherein Hon’ble High Court held as follows: 14. It may be noted that in the affidavit-in-reply filed by the respondent, it is the case of the respondent that the petitioner is engaged in the business of cheque discounting and shroff. The firm charges commission for cheque discounting facility provided to its customers. The firm receives cash from the beneficiary and gives cheque in lieu thereof. The cheque is drawn in favour of the beneficiary. For arranging this transaction, the firm charges commission. Reference has been made in the reply to instances where the petitioner has received cash from parties and has issued cheques in lieu thereof which were deposited by such parties in its account and the cheques were cleared at Rajkot. Based on this, the Assessing Officer had stated that she had reason to believe that income chargeable to tax has escaped assessment on account of the failure on the part of the petitioner to disclose fully and truly all material facts. Thus, while it is the case of the respondent that it is the business of the petitioner to accept cash and issue cheques in lieu thereof, it is also the case of the respondent on the basis of the instances cited in the affidavit, that the cash deposits received by the petitioner are in the nature of undisclosed income, despite it being the specific case of the respondent that the petitioner had issued cheques in lieu of cash received by it which had been encashed by the concerned party by depositing the same in its bank account. It may be noted that it is not the case of the respondent that the beneficiary after encashing such amount had returned the same to the petitioner nor has any material been unearthed in this regard. Insofar as the petitioner is considered, as stated in the affidavit-in-reply, it is its business to receive cash and issue cheques in lieu thereof for which it charges commission. Under the circumstances, in the absence of any material to show that the cash in respect of which the cheque had been issued travelled back to the petitioner, one fails to understand as to how such amount may be said to be the undisclosed income of the petitioner. Under the circumstances, on the facts as recorded in the reasons as well as in the affidavit- in-reply, in the opinion of this court, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment. 6.4. The Ld. Counsel further drawn our attention to the decision of the Co- ordinate Bench of this Tribunal in the case of Sidhnath Enterprise in dated 29.06.2022 wherein held as follows: 7. We have gone through the order of the ld. CIT(A) and find no infirmity in the same. The ld. CIT(A) has deleted the addition on account of cash deposits of Rs. 224.53,23,993/-. In the back account of the assessee. Noting that identical issue had come up before the Hon’ble Gujarat High Court in the case of the assessee itself in a writ petition filed by the assessee against reopening of the case for A.Y. 2008-09 and the Hon’ble High Court had noted the fact that the assessee being in the business of Shroff, the cash deposits related to its business and did not represent any unaccounted income of the assessee. Ld. CIT(A), we find also took note of the fact that reopening resorted by the A.O. for the impugned year also subsequent to passing of the assessment order was dropped by him taking note of the decision of the Hon’ble Gujarat High Court.

8. Moreover even Assessment Year 2006-07, the ITAT found no merit in the reopening resorted to in that year also for an identical reason following the decision of the Hon’ble Gujarat High Court in the case of the assessee. Therefore, it is clear that the issue of cash deposits in the bank account of the assessee has been examined exhaustively at various levels and no merit has been found in the contention of the revenue that it represented by any undisclosed income of the assessee. Noting the fact that the assessee into business of Shroff and earned only commission on the mandatory transactions carried out by it, the cash deposits representing money belonging to his customers.

9. In view of the above, we see no reason to interfere in the order of the Ld. CIT(A) deleting the addition made of cash deposits amounting to Rs. 224.53,23,993/-. The grounds of the appeal raised by the revenue is dismissed.

8. We have given our thoughtful consideration and perused the materials available on record. It is seen from the Co-ordinate Bench Judgment in the case of Samir Kamruddin Makhani, the Co-ordinate Bench held that even though the assessee is doing the activity of Shroff without obtaining any license from Competent Authority but what is mandated under the provisions of the Income Tax Act is to tax income of the assessee, whether it was from legal or illegal source. Therefore the principles for determining the income will remain the same even the source of income is illegal in nature as held by the Hon’ble High Court of Madras in the case of CIT vs. K. Thangamani. Thus the Co-ordinate Bench held that after considering the facts in totality it was held that the assessee was acting as money transfer agent on behalf of the parties engaged in ceramic manufactures. Accordingly allowed the assessee’s appeal and dismissed the Revenue’s appeal. 8.1. It is further seen in assessee own case in relating to the Assessment Year 2006-07, the Co-ordinate Bench of this Tribunal dismissed the Revenue appeal by holding “during the assessment proceedings, the assessee recorded his statement and categorically explained the nature of transaction that he is getting commission at Rs. 0.25 paise on transaction of Rs. 1 lakh. Therefore the cash deposit in the bank account cannot be treated as the income of the assessee. It was further observed that cash deposits and withdrawals were made regularly during the year under consideration. Therefore the Co-ordinate Bench of this Tribunal held that no ambiguity in the order passed by the Ld. CIT(A) and he has rightly directed the Assessing Officer to compute the commission income at 0.25 per lakh deposited in the bank account of the assessee.

8.2. It is appropriate to follow the ruling of the Jurisdictional High Court in the case of Shree Sidhnath Enterprise (cited supra), it is the business to receive cash and issue cheques in lieu thereof for which the assessee charges commission amount. In the absence of any material to show that the cash in respect of which the cheque had been issued travelled back to the assessee, one fails to understand as to how such amount may be said to be the undisclosed income of the assessee and the Assessing Officer could not have charged the same as escaped assessment under the provisions of Income Tax Act.

7.3. Thus the grounds raised by the Revenue are devoid of merits and the same is hereby rejected.