MOTI MANI SINGH,MUMBAI vs. ITO 19(3)-3, MUMBAI

The aforesaid appeal has been filed by the assessee against impugned order dated 31.12.2010 passed by CIT(A)-30 Mumbai, for the quantum of assessment passed u/s 143(3) for the assessment year 2007-08 on following grounds of appeal :-

Brief facts qua the issue raised in ground no. 1 is that, assessee is engaged in the business of trading in Hosiery goods. In the Balance sheet as on 31st March, 2007, on the liability side, outstanding sundry creditors were appearing, the details of which are as under:-

Before us, the Ld. Counsel submitted that the liability of the sundry creditors which was outstanding was mainly on account of damaged goods supplied by them, which was returned and no payment was made by the assessee to them. Further, these parties have not given up their right to receive the money from assessee, hence, addition u/s 41(1) can only be made when either the claim has become time barred or assessee writes off the sundry credits in the books of accounts. In this case, none of conditions have been fulfilled and most of the liabilities are continuing in the assessment year 2008-09 and 2009-10 also, therefore, addition cannot be made in this year as cessation of liability.

On the other hand, the Ld. DR submitted that none of the contentions raised by the assessee have been corroborated by any evidences, neither any details like names and addresses nor any confirmation from any creditors were filed, thus, assessee was unable to prove even the genuineness of the sundry creditors. Even otherwise also, it is the duty of the assessee to show that the liability of making the payment to the sundry creditors still

We have heard the rival contentions and also perused the finding given in the impugned orders. First of all, it is noted that right from the stage of the assessment proceedings, the assessee was required to furnish addresses of the creditors and to file the confirmations which up till the stage of the Tribunal also, no such details or any evidence have been filed. Further, assessee was unable to corroborate or substantiate its explanation that assessee had returned the damaged goods to the creditors and for this reason alone the assessee has not made any payment to such parties. If there was some sort of dispute regarding return of goods and non-payment, then same could have been brought on record, either by way of some kind of correspondence or communications between the parties or by way of ledger accounts of the parties. Once, the assessee is unable to discharge the primary onus cast upon him, then it is very difficult to reverse the finding of facts recorded by the AO as well as CIT(A). Under these facts, we uphold the order of the CIT(A) inasmuch as assessee has been unable to substantiate from the record that the liability in real sense is actually subsisting in this year and there is no cessation of liability. Thus, addition has rightly been made by and confirmed by the revenue authorities. Accordingly, ground no. 1 as raised by the assessee is dismissed.

In ground no. 2, the assessee has challenged the addition of Rs. 18,41,027/- made u/s 69A on account of cash deposit made in the bank account.

The AO, from the perusal of the bank statement filed by the assessee noted that, cash deposits have been made in the bank account maintained with “The Sangali Bank Ltd.”. The total cash deposits in the said bank account was to the tune of Rs. 10,65,555/- during the year. The said bank account was not 5 Shri Moti Mani Singh ITA 1331/M/2011 disclosed in the return of income. He further noted that there are some other deposits and credit to his bank account to the tune of Rs. 7,25,472/- which was in cheque, for which there was no proper explanation. Accordingly, he added total ‘unexplained credits’ to the bank account to the tune of Rs. 18,41,027/-. Before the AO, one of the main contentions of the assessee was that, these deposits and withdrawals were on account of business transactions made to the parties for purchases and sale. Therefore, at the most, gross profit or net profit of these deposits / sales should be added. The AO rejected the assessee’s contention on the ground that assessee has not given any sufficient proof in support of the contention that the money deposited were actually business receipts. After detailed discussion, he added the entire amount of all credit deposits in the bank aggregating Rs. 18,41,027/-, which was added under the head “income from other sources” u/s 69A.

Before the CIT(A), the assessee submitted that, whenever, the cash was deposited, there were corresponding withdrawals also. The total cash of Rs. 10,65,555/- was made on 25 occasions and there were withdrawals of cash on 8 occasions for sums aggregating to Rs. 2,92,000/-. Thus, there was only cash deposits of Rs. 7,73,555/-. Similarly, the assessee has deposited 35 cheque amount of Rs.7,77,000/-, which cannot be treated as ‘unexplained’ If overall amount on debit side and credit entries are to be analyzed then it can be witnessed that assessee has withdrawn total amount of Rs. 15,06,921/- on 29 occasions through account payee cheques in lieu of payment for the goods, suppliers bills. Complete details of cash and cheque deposits as well as withdrawals were furnished. Further, an expenditure of Rs. 27,683/- was also incurred through cheque which was the payment for business purpose. The assessee even filed the bills of various parties along with the confirmation from certain parties that assessee has carried out business transaction from these parties and, therefore, the same should be on account of net profit.

Before us, the Ld. Counsel reiterated the submissions made before the CIT(A) and relied upon various decisions in support of the contention that, in such a situation when contemporaneous debits and credits are there reflecting some kind of transactions or business activities, then addition can only be made on account of ‘estimated profit rate’.

On the other hand, Ld. DR strongly relied upon the order of the CIT(A) and submitted that here in this case also, the onus which lied upon the assessee has not been discharged, therefore, addition should be confirmed.

We have considered the rival contentions and also perused the relevant material on record. It is an undisputed fact that bank account of Sangali Bank Ltd. had not been disclosed in the return of income or in the books of account. Perusal of such bank account revealed that assessee had made cash deposits and cheques deposits and also issued cheques and made withdrawals. The aggregate of all deposits was Rs. 18,41027/- which has been confirmed by the CIT(A) consisting of cash deposits of Rs. 10,65,555/- and cheque amount of Rs. 7,75,472/-. The assessee before the CIT(A) had submitted that there had been corresponding withdrawals on 29 occasions both by cheque and by cash aggregating Rs. 15,06,902/- which were paid for suppliers bills and for the goods supplied by various parties. In other words, the transactions of deposits and withdrawals pertained to assessee’s 7 Shri Moti Mani Singh ITA 1331/M/2011 business activities. In support, the assessee had also filed certain details of suppliers before the CIT(A). When there are credits and debit entries, then there should have been telescoping of debit entries, which are lesser than credit entries. If overall position of entire credit and debit side is seen, then there is net credit of Rs. 3,34,107/- only. The action of the Department to confirm the entire deposits appears to be very unreasonable and unfair. Therefore, either the Department should apply a gross profit on such credit entries as prima facie it appears that these are relating to some business transaction or work-out some peak credit. Thus, in the interest of justice, we feel this matter should be restored back to the file of the AO to examine the impugned issue in the light of our observation. The assessee will give the entire requisite facts to the AO to make the proper assessment on this issue. Accordingly, ground no. 2 is treated as allowed for statistical purposes.

In the result, appeal of the assessee stands partly allowed for statistical purposes. Order pronounced in the open court on 19th October, 2015.