THE ASSISTANT COMMR. OF INCOME TAX, CEN. CIRCLE-1,, RAJKOT-GUJARAT vs. SHRI ANIRUDDHSINH J. SOLANKI,, RAJKOT-GUJARAT

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted Through Virtual Court) Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member

ITA Nos: 454/Rjt/2018 & 02/Rjt/2019 Assessment Year: 2008-09

Anirudh J. Solanki The Assistant Flat No. 2, Commissioner of Jyoti Apartment, Vs Income Tax, Nirmala Convent Road, Central Circle-1, Rajkot Rajkot PAN No: AFYPS6990L Anirudh J. Solanki The Assistant Flat No. 2, Commissioner of Jyoti Apartment, Income Tax, Nirmala Convent Central Circle-1, Rajkot Road, Rajkot PAN No: AFYPS6990L (Appellant) (Respondent) Appellant by : Shri R.K. Doshi, A.R. Respondent by : Shri Shramdeep Sinha, CIT/DR Date of hearing : 19-09-2022 Date of pronouncement : 19-10-2022 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-

These cross appeals are filed by the Assessee and Revenue against order dated 17.10.2018 passed by the Commissioner of

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Income Tax (Appeals)-11, Ahmedabad, as against the reassessment order passed u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2008-09.

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transferred. The assessee received money in cash from different parties and different locations in India in its bank accounts from which it would disburse/remit the funds to actual beneficiaries (mostly ceramic units) after charging its commission. Thus the assessee acts as an intermediary between the remitter and receiver of the funds. For the Assessment Year 2008-09, the Assessing Officer noticed that assessee was having one bank account no. 015305005167 with ICICI Bank Ltd., wherein there was cash deposit of Rs. 31,31,81,622/-. The assessee, vide show cause notice dated 29.02.2016 was asked to explain the source of this cash deposits. As there was no proper reply, the entire cash deposit of Rs. 31,31,81,622/- is treated as unaccounted cash of the assessee and added as the income of the assessee and demanded tax thereon and also initiated penalty proceedings u/s. 271(1)(c) of the Act.

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deposited in its bank account at Rajkot cash of Rs. 31.31 Crores during the Financial Year. The assessee contended that he is an Angadia only and his commission income at the rate of 0.25% should be taxed in his hands. The A.O. has not accepted the above explanation and added the total cash deposits in ICICI Bank account as undisclosed income of the assessee.

5.1. Aggrieved against the Assessment Order, the assessee filed an appeal before Ld. CIT(A). The Ld. CIT(A) after hearing the case held that on identical issue in the case of Karimbhai Makhani wherein he passed an appellate order dated 27.09.2017 holding that the additions to the extent of 30% of the cash deposits are confirmed and remaining 70% deleted. Following the above ratio of the order, he partly allowed the appeal filed by the assessee.

6.1. Ld. A.R. Shri R.K. Doshi appearing for the assessee submitted that he is not pressing ground nos. 1 & 2 namely reopening of assessment, the same are dismissed as not pressed. The only effective ground is the addition of Rs. 9,39,54,486/- being 30% of the addition of cash deposit of Rs. 31.31 Crores as unexplained cash deposits in the bank account by the Ld. CIT(A) is illegal and unjustifiable. The Ld. A.R. submitted a detailed Paper Book containing Rejoinder to the Remand Report, Statement recorded before Director General of Central Excise Intelligence, Zoanl Unit, Ahmedabad in the case of the assessee as well as in the case of

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Shailesh Marvaniya on 05.05.2018 and various decisions passed by the Tribunal and Gujarat High Court. The Ld. Counsel further submitted the additions made in the case of Shri Samir Kamruddin Makhani by the Ld. CIT(A) were being deleted by the Co-ordinate Bench of this Tribunal vide order dated 04.06.2020 in IT(SS)A No. 138 & 119/Rjt/2017 held as follows: 19. The Ld. A.R. also contended that the entire deposit of cash cannot be treated as income after considering the fact that the amount deposited in the bank was subsequently withdrawn and distributed to the manufacturers. 20. The Id. AR alternatively contended that if commission income is not accepted then the addition should be based on peak credit theory. The assessee also alleged that the AO has made high pitched addition without giving any opportunity of being heard. The Id. AR also reiterated the contentions raised by the assessee before the Id. CIT-(A). 21. On the other hand the learned DR before us submitted that the assessee has not furnished the details of the parties to whom the cash was belonging. 22. The Id. DR also contended that the assessee was engaged in the illegal activity by providing the accommodating entries. 23. Both the learned AR and the DR before us vehemently supported the order of the authorities below to the extent as favorable to them. 24. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, there were huge cash deposit in the bank account of the assessee. But at the same time there were huge withdrawals from the bank in cash. Thus, we are of the view that if the cash deposits are treated as income of the assessee then at the same time cash withdrawal from the bank should be treated as expenses. As such the AO cannot take a view which is benefiting the Revenue without considering the fact for the withdrawal of cash. In this regard we have perused the bank statement of the assessee which is available on record and find from the same that there were continuous cash deposits and withdrawals. 25. We also note that as per the accounting rule all the withdrawal of cash goes into cash book and if it is unspent it would bear the character of cash in hand so that if any amount is deposited into the bank it would undoubtedly correspond to the available cash in hand. Moreover, the Income tax law does not contain any provision to maintain record of

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reason- or purpose of each withdrawal in cash from the bank. Thus the assessee should be given a benefit of doubt to relate the deposits in cash out of previous withdrawal from the banks. 26. We also find that there is no iota of evidence suggesting that the assessee has made any investments or incurred any expenditure of personal nature out of the cash withdrawn from the bank. Thus we are of the view that the amount of cash deposits alone cannot be treated as income of the assessee. Thus the action of the AO of making addition, on accounts of all deposits made in the bank accounts of the appellant is without any justification and resulting to the high pitch assessment. 27. In addition to the above, it is also pertinent to note that the assessee in the statement furnished under section 132(4) of the Act, has disclosed the name of certain/major parties of the ceramic manufacturers on whose behalf he was accepting the money from the dealers which was finally returned to such manufacturers. The relevant question raised to the assessee and its answer by the assessee is reproduced as under: Q-3 PI. Explain your main profession/service. Ans. The manufacturers of Morbi who sells its goods in Gujarat as well as outside Gujarat, the payment thereof are collected through my account. This means the cash are deposited in my account and on this amount I collect Rs. 50 to Rs. 100/ lacs as commission and balance is paid to the seller in cash. Q-4. 'As stated by you that you are associated with ceramics companies of Morbi on commission, pi. State the for which companies you are dealing Ans. I am associated with the following ceramics companies of Morbi. 1).Hem ceramics, 2)SIogan Ceramics, 3) Ashar trading, 4) set me ceramics, 5) Centre ceramics, 6) Origin, 7) Sun City, 8) Cendrosa, 9) Shantibhai, 10) Winner,11) Subh Marketing. Q-5 You are associated with above companies on commission on sale, what is your daily and monthly turnover. Ans. My daily turnover is about rupees seven lacs and monthly is about 1.75 crores. Q-6 What is your monthly income? Ans. My monthly income is about Rs. 17007- to Rs. 1800/-. 28. However, the authorities below has not carried out any verification from such parties despite having sufficient powers with them granted under the statute. As such, the assessee discharged his onus by furnishing the details of the parties as discussed above and the onus was shifted upon the revenue to disprove the contention of the assessee that he was not working on behalf of such ceramic manufacturers.

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of the bank account and the debit side i.e. withdrawal has been ignored altogether. This cannot be considered justified because, it is legally settled principle that the evidence should be relied upon in total and not in piece-meal manner. It is also legally settled principle that if there are withdrawal from the same account in cash prior to the deposit in cash, it is considered that the cash withdrawn has been utilized to deposit in the same account, if that has not been found invested in other asset or incurred as expenditure by the assessee. Keeping in view the facts of the case that the cash deposited in the bank account and amount was withdrawn in cash from the same bank account; the additions of total cash deposits made by the A.O. are not found justified. If these cash deposits would have remained in the bank account or found by the A.O. as invested by the appellants in other assets or incurred expenditure; additions .to the extent of such investment expenditure could have been justified. But in the present case, no such findings have been given by the A.O. Therefore, it is held that the additions of total cash s deposits made by the A.O. are found excessive. 31. However, the learned CIT (A) without cogent reason has changed his stand by concluding that the amount of deposit of cash represents the turnover of the business of the assessee. Accordingly, he estimated the income of the assessee at the rate of 25% of the cash deposits in the bank. Such finding of the learned CIT (A) was not based on any scientific information. As such the learned CIT (A) has assumed the profit of the parties engaged as dealer of ceramic manufacturer at the rate of 25% of the turnover without bringing any material on record. Accordingly, we are not inclined to make any reference to such finding of the learned CIT (A). 32. There was no material found during the course of search proceedings suggesting that the assessee was acting as a dealer of ceramic manufacturer. Therefore, the question of making any investment in such business does not arise. Accordingly we are of the view that there cannot be any addition on account of investment of Rs. 13,53,224/- in such undisclosed business of the assessee. 33. The next question arises what should be the rate to be applied determining the income of the assessee from its activities of money transfer. As such, none of the authority below has brought anything on record suggesting the rate to be applied for determining the income of the assessee from its activities. Accordingly, in the absence of such information available on record, we accept the rate of the income disclosed by the assessee in his income tax return. 34. In view of the above and after considering the facts in totality we hold that the assessee was acting as money transfer agent on behalf of the parties engaged in ceramic manufacturers. Accordingly, we allow the ground of appeal of the assessee and dismiss the ground of appeal of the revenue.

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6.2. The Ld. A.R. further submitted in assessee’s own case for the Assessment Year 2006-07, 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

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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 ITA No. 374/Rjt/2017 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

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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.

6.5. Thus pleaded that the additions made by the Ld. CIT(A) is to be deleted. The assessee also further submitted that the commission amount of 0.25% per lakh deposit in the bank account to be assessed to tax.

7.1. The Ld. CIT DR relied upon Supreme Court Judgment in the case of Sudhir Kumar Sharma (HUF) vs. Commissioner of Income Tax reported in [2016] 69 taxmann.com 219 wherein SLP filed by the assessee was dismissed by confirming the Punjab & Haryana High Court Judgment ruling that when the assessee had failed to

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give list of persons who advanced huge cash to him and deposit in his bank accounts, the Assessing Officer was justified in adding said amount to assessee’s taxable income.

7.2. The Ld. CIT DR further relied upon Delhi High Court Judgment in the case of Ravinder Kumar vs. ITO [2020] 118 taxmann.com 166 (Delhi) wherein it was held when the assessee had failed to produce any material to authenticate his contention that cash deposits in his account were on account of sales being made by him from Kirana business, tax authorities were justified in making addition of unexplained cash entries in bank account in the hands of the assessee.

7.3. The Ld. CIT DR further relied upon other High Court Judgments and contended that the assessee has not been able to discharge his onus of providing confirmation from parties from whom he claims to have received Cash which was deposited in the Bank accounts owned and operated by him. As per the self- submission of the assessee and findings of the Ld. CIT(A), the assessee is engaged in a patently illegal transactions of aiding and abetting businesses in Tax evasion and money launderings, and as such violating the general scheme of taxation in India.

7.4. In the above circumstances, Ld. D.R. requested to confirm the addition of entire cash deposits in the hands of the assessee as per the provisions of the Income Tax Act and thereby allow the Revenue’s appeal and dismiss the assessee’s appeal.

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8.1. It is further seen in assessee own case in ITA No. 193/Rjt/2016 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

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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.

8.3. We are further guided by Hon’ble Supreme Court Judgment not only the income but also the losses for the purpose of taxation in the case of CIT vs. SC. Kothari [1971] 82 ITR 794 wherein the Apex Court held that for the purpose of section 10(1) of the Act, a loss incurred in carrying on an illegal business must be deducted before the true figure of profits brought to tax can be computed. Grover, J., speaking for the Court, observed: "If a business is illegal, neither the profits earned nor the losses incurred would be enforceable in law: but that does not take the profits out of the taxing statute. Similarly, the taint of illegality of the business cannot detract from the losses being taken into account for computation of the amounts which can subjected to tax under section 10(1). The tax collector cannot be heard to say that he will bring the gross

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receipts to tax, he can only tax profits of a trade or business. That cannot be done without deducting losses and the legitimate expenses of the, business."

Order pronounced in the open court on 19-10-2022 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 19/10/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, राजकोट