CA NeWs Beta*: Additions on account of unexplained credits in bank account sustained under section 69A of the Income Tax Act, 1961

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Sunday, October 12, 2014

Additions on account of unexplained credits in bank account sustained under section 69A of the Income Tax Act, 1961

2014 (9) TMI 92 - GUJARAT HIGH COURT Commissioner of Income Tax-I Versus Sarwan Kumar Sharma
 
No. - Tax Appeal No. 252 of 2014 Dated July 15, 2014  M. R. Shah And K. J. Thaker JJ
For the Appellant : Mr. Sudhir M. Mehta
For the Respondents : Mr. Dipak Shah with Mr. Tej Shah

JUDGMENT

(Per : Honourable Mr. Justice M. R. Shah)


Estimation of income @ 8% of total turnover - Entire deposits in bank account treated as total turnover - Undisclosed business of trading in art silk cloth – Onus to prove the source of credit entries on revenue or not -Whether the Tribunal was justified in accepting the amount as trading receipt of the assessee though the same was never proved by the assessee
either at the time of assessment proceeding or appellate proceeding –
 
Held that:- The Tribunal directed to treat the entire deposit made by the assessee in his bank account in cash - The working out pick credit and sustaining addition to the extent of pick credit would arise if it is established by the assessee that his undisclosed income is relatable to the trading in art silk cloth - When it has been found that the assessee has miserably failed to establish and prove that he was in the business of trading in art silk cloth and that the deposit made in cash in his bank account was with respect to his undisclosed business of trading in art silk cloth, there is no question of further making addition on the basis of estimation at 8% of the total turnover working out pick credit - there is no such discussion and/or the reasons assigned by the Tribunal on the directions that the income of the assessee shall be estimated at 8% of the total turnover - Even nothing is on record how and on what basis the Tribunal has even estimated the income at 8% of the total turnover – the order directing that the income of the assessee shall be estimated at 8% cannot be sustained – thus, the order of the CIT(A) in making addition in his total income of the assessee u/s 69A of the Act is restored – Decided in favour of Revenue.

*JUDGMENT*
(Per : Honourable Mr. Justice M. R. Shah)

1. Feeling aggrieved and dissatisfied with the impugned judgment and order
dated 14.08.2013 passed by the learned Income Tax Appellate Tribunal,
CBench, Ahmedabad [hereinafter referred to as “Tribunal”] in ITA
No.2302/Ahd/2011 for AY 2008-09 by which the learned Tribunal has partly
allowed the said appeal preferred by the assessee quashing and setting
aside the order passed by the learned CIT(A) and the Assessing Officer and
treating the entire deposits of ₹ 45,85,861/- made by the assessee in his
bank account as total turnover of the assessee with respect to his
undisclosed business of trading in art silk cloth and accordingly the
income of the assessee shall be estimated at 8% of the total turnover, the
Revenue has preferred the present tax appeal to consider the following
substantial questions of law.

[A] “Whether on the facts and circumstances of the case and in law, the
Hon’ble ITAT was justified in accepting the amount of ₹ 45,85,861/as
trading receipt of the assessee though the same was never substantiated /
proved by the assessee either at the time of assessment proceeding or
appellate proceeding?

[B] Whether on the facts and circumstances of the case and in law, the
Hon’ble ITAT was justified in holding that the onus of proving source of
credit entries in an unaccounted bank account is on Revenue?”

2. Facts leading to the present tax appeal in nutshell are as under:

2.1 The assessee and individual earning earning income from salary interest
filed his return of income for the AY 2008-09 on 09.03.2009 declaring total
income of ₹ 1,07,160/-. The case was subsequently selected for scrutiny and
a notice under Section 143(2) of the Income Tax Act, 1961 [hereinafter
referred to as “IT Act”] was issued on 17.02.2010 alongwith a questionnaire
requiring the assessee to file various details mentioned therein alongwith
books of accounts. It was found by the assessee that AIR information shows
that the assessee had a bank account with Punjab National Bank, Surat and
had deposited cash totaling to ₹ 45,16,192/- on various dates. Therefore, a
letter under Section 133(6) of the IT Act was issued to the said Bank on
19.09.2010 asking to furnish certain details including bank statement of
the account held by the assessee. As per the details furnished by the said
Bank it was found that the assessee held a bank account
No.3102000100093025, in which, such cash were found to have been deposited
on various dates. It was found that when the assessee filed the return on
income in ITR-2 form wherein the details of the said bank name and the
account number was not reflected. During the course of assessment, it was
found by the AO on perusal of the bank statement of the said bank account
that the assessee had deposited total amount of ₹ 66,75,030/- including the
sum of ₹ 45,16,192/- in cash. In view of the above, vide office showcause
notice dated 08.12.2010, the assessee was called upon to show cause as to
why the cash deposit of ₹ 45,16,192/- should not be added to his total
income as unexplained money under Section 69A of the IT Act. That in
response to the above showcause notice the assessee submitted that the
transactions in saving account belong to business transactions sales and
purchases of art silk cloth. It was also submitted that cash was deposited
by outside party from different places against sale. It was submitted that
as he has done business, it was requested to consider gross profit as
income.

2.2 The AO was not satisfied by the reply / explanation given by the
assessee and thereby treating the aforesaid amount of ₹ 45,16,192/- as
unexplained money under Section 69A of the IT Act and added the aforesaid
amount of ₹ 45,16,192/- into the total income of the assessee. That while
making addition of the aforesaid amount of ₹ 45,16,192/- into total income
of the assessee as unexplained money under Section 69A of the IT Act, the
AO observed as under:

“3.3 The reply furnished by the assessee is not convincing one and an
afterthought and not acceptable for the following reasons:

(i) In the first submission, the assessee has stated that the source of
income is salary and interest and he has maintained the saving bank account
with Federal Bank A/c. No.1988. However, when the show cause regarding cash
deposit was issued, the assessee has changed his stand and stated that the
transaction in saving account belong to business transaction of art silk
cloth.

(ii) As per section 69A of the Act, “wherein in any financial year the
assessee is found to be the owner of any money, bullion, jewellery or other
valuable article and such money, bullion, jewellery or valuable article is
not recorded in the books of account, if any, maintained by him for any
source of income, and the assessee offers no explanation about the nature
and source of acquisition of the money, bullion, jewellery or other
valuable article, or the explanation offered by him is not, in the opinion
of the Assessing Officer, satisfactory, the money and the value of the
bullion, jewellery or other valuable article may be deemed to be the income
of the assessee for such financial year.”

(iii) The assessee has maintained an undisclosed bank account and deposited
such cash, out of unaccounted income earned during the year under
consideration. It is worthwhile to mention here that the details regarding
the debit entries of the said bank account have been called for from the
said bank shows that the assessee has made unaccounted investment in
various assets and incurred unaccounted expenditure out of such unaccounted
income reflected at the credit side of the said bank account.

(iv) The assessee was repeatedly asked to produce source of acquisition of
such money and nature of cash deposit. But assessee failed to provide such
details even though sufficient opportunity is given. This proves that
assessee is nothing to produce as said amount of money owned by him in form
of cash deposit is unexplainable.”

2.3 That feeling aggrieved and dissatisfied with the order passed by the AO
in making addition to the aforesaid amount of ₹ 45,16,192/- into the total
income as unexplained money under Section 69A of the IT Act, the assessee
preferred appeal before the learned CIT(A) and the learned CIT(A) dismissed
the said appeal by the assessee and has upheld the order passed by the AO
by observing in paras 6.1 and 6.2 as under:

“6.1 The arguments of the Assessing Officer as well as appellant have been
considered. The appellant has contended that he is a Trader and that
deposit in the Bank A/c. is in the nature of sales receipt deposited by
various customers at different places. However, the appellant has given no
supporting evidences to substantiate its contention. On the contrary, in
the return of income, the appellant had shown income from salary and no
income from so called business activity, was disclosed in the return. Even
during the course of appellate proceedings, the appellant was asked to
adduce evidence in support of its claim that he is carrying out trading
activity. However, the appellant has not produced any such evidence even at
the appellate stage.

6.2 In view of the above, it is clear that the entire story as proposed by
the appellant that the deposit in the bank a/c is in the nature of trading
receipts is at best a figment of imagination. The strong reasoning given by
the Assessing Officer in the assessment order as mentioned above clearly
indicates that the cash deposit in the Bank A/c is out of ‘undisclosed
sources’. In view of the reasoning given by the A.O., it is held that the
entire amount of cash deposit in the bank is ‘Unaccounted Income’ of the
appellant during the year.”

2.4 Feeling aggrieved and dissatisfied with the order passed by the learned
CIT(A) in dismissing the appeal preferred by the assessee and upholding the
order passed by the AO, the assessee preferred appeal before the learned
Tribunal and by impugned judgment and order the learned Tribunal has partly
allowed the said appeal and has directed to treat the entire deposit of ₹
45,85,861/- made by the assessee in his bank account as undisclosed
business income of trading in art silk cloth and directed that the income
of the assessee shall be estimated at 8% of the total turnover.

2.5 Feeling aggrieved and dissatisfied with the impugned judgment and order
passed by the learned Tribunal, the Revenue has preferred the present tax
appeal with aforesaid substantial questions of law.

3.0 Shri Sudhir Mehta, learned advocate appearing on behalf of the
appellant – Revenue has submitted that the learned Tribunal has materially
erred in directing to treat the entire deposits of ₹ 45,85,861/- made by
the assessee in his bank account as his undisclosed business income of
trading in art silk cloth. It is submitted that as such the learned
Tribunal has not properly appreciated the facts and the findings recorded
by the learned AO as well as learned CIT(A) that as such there was no
evidence and/or material produced by the assessee in support of his case
that he was in the business of trading in art silk cloth and that the
aforesaid deposits of ₹ 45,85,861/- was out of his undisclosed business of
trading in art silk cloth. It is submitted that as such the finding
recorded by the learned Tribunal that the assessee was in the business of
trading in art silk cloth and the entire deposits of ₹ 45,85,861/- made by
the assessee in his bank account was an undisclosed business of trading in
art silk cloth is absolutely perverse and as such not appreciated by any
cogent evidence.

3.1 It is submitted that as such the AO as well as the learned CIT(A) both
specifically observed that the assessee had not produced any evidence
whatsoever to show that as such he was also in the business of trading in
art silk cloth. It is submitted that as such when the assessee filed the
return of income, he stated that the source of income is salary and
interest and he declared the saving bank account with Federal Bank only. It
is submitted that as such his bank account in the Punjab National Bank was
unearthed on the basis of AIR information and it was found that out of
total amount of ₹ 66,75,030/- deposited by the assessee, the amount of ₹
45,16,192/- was deposited in cash.

3.2 It is further submitted that as such the learned Tribunal though agreed
that the onus is on the assessee to establish his trading activity which he
failed to do, the learned Tribunal has proceeded to delete the additions
confirmed by the learned CIT(A) by observing that “however, the revenue has
also not brought anything on record to show that the cash deposited in the
bank account of the assessee is from his income from undisclosed sources
without commenting on the cash withdrawals made by the assessee. It is
submitted that the learned Tribunal has materially erred in shifting the
onus/burden upon the Department to prove contrary. It is submitted that as
such and as per the settled proposition of law, it was for the assessee to
prove / establish his claim of trading activity of art silk cloth by
leading cogent evidence. It is submitted that as such the learned Tribunal
has materially erred in shifting the said onus/burden upon the department.

3.3 It is further submitted that even the learned Tribunal has erred in
holding the activity carried out by the assessee was also related to
business. It is submitted that aforesaid finding has been arrived at by the
learned Tribunal by observing that there was some activity carried on by
the assessee relating to business. It is submitted that as such the
aforesaid finding and observation is absolutely based on no evidence and on
surmises and conjectures only, which cannot be sustained.

3.4 Shri Mehta, learned advocate appearing on behalf of the Revenue has
heavily relied upon the decision of the Delhi High Court in the case of
Commissioner of Income Tax v. Modi Stone Ltd. reported in [2011] 15
Taxmann.com 112 (Delhi) as well as the decisions of the Punjab & Haryana
High Court in the case of Dayal Singh and Sons v. Commissioner of IncomeTax
reported in [2011] 335 ITR 90 (P&H) and in the case of Commissioner of
Income Tax v. Sanjay Chhabra, Proprietor of Sanjay Chhabra Traders reported
in [2011] 3336 ITR 71 (P&H).
 

Relying upon the above decisions and making above submissions, it is
requested to allow the present tax appeal.

4. Present appeal is opposed by Shri Dipak Shah, learned advocate appearing
for Shri Tej Shah, learned advocate appearing on behalf of the assessee. It
is submitted that in the facts and circumstances of the case the learned
Tribunal has not committed any error and in arriving at a conclusion that
the entire deposits of ₹ 45,85,861/- made by the assessee in his bank
account was with respect to the undisclosed business of trading in art silk
cloth. It is submitted that as such by holding so as such the learned
Tribunal has given cogent reasons and has considered the relevant entries
in the bank account. It is submitted that therefore thereafter the learned
Tribunal has rightly directed that the said income of the assessee shall be
estimated at 8% of the total turnover working out pick credit and
sustaining addition only to the extent of pick credit. In support of his
above submissions and to dismiss the present appeal by confirming the
impugned judgment and order passed by the learned Tribunal, Shri Shah,
learned advocate appearing on behalf of the assessee has heavily relied
upon the decision of Rajasthan High Court in the case of Commissioner of
IncomeTax v. Ishwardass Mutha reported in (2004) Vol. 270 597. However,
Shri Shah, learned

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