Income Tax Appellate Tribunal - Kolkata
Provash Sardar,C/O-S.K. Khetan, ... vs Assessee on 15 July, 2016
1
ITA No. 1377-1378/Kol/2012
Provash Sardar, AYs 2009-10 & 2010-11
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA
[Before Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]
I.T.A Nos. 1377 & 1378/Kol/2012
Assessment Years: 2009-10 & 2010-11
Provash Sardar (PAN: AKWPS9665B) Vs. Deputy Commissioner of Income-tax,
C.C. XIII, Kolkata.
(Appellant) (Respondent)
Date of hearing: 13.07.2016
Date of pronouncement: 15.07.2016
For the Appellant: Shri K. K. Chhaparia, FCA
For the Respondent: Shri A. K. Sinha, JCIT, Sr. DR
ORDER
Per Shri M. Balaganesh, AM:
This appeal by assessee is arising out of order of CIT(A), Central-II, Kolkata vide appeal No. 171/CC-XIII/CIT(A)C-II/11-12 dated 16.07.2012. Assessment was framed by DCIT, C.C-XIII, Kolkata u/s. 153A/143(3) of the Income tax Act, 1961 (hereinafter referred to as the "Act") for AYs 2009-10 and 2010-11 vide his order dated 17.10.2011. Since issue is identical in both the years, we dispose of both these appeals by this consolidated order for the sake of convenience.
2. The only issue to be decided in this appeal of assessee is as to whether an addition in the sum of Rs.34,50,000/- and Rs. 5,50,000/- could be made towards unexplained cash credit by adopting peak credit theory in the facts and circumstances of the case.
3. At the outset, the Ld. AR stated that ground nos. 1, 2 and 4 for AYs 2009-10 and 2010- 11 raised by the assessee are not pressed. The same is taken as the statement from the Bar and accordingly, ground nos. 1, 2 and 4 for both the years are dismissed as not pressed.
4. The assessee has raised the following grounds for AY 2009-10:
"3.Without prejudice to the above, the Ld. AO erred in not restricting the additions under 'peak credit theory' to the extent to appellant's own funds and not examining the explanation with respect to the same filed at the assessment stage. The action of the AO was wholly unreasonable, 2 ITA No. 1377-1378/Kol/2012 Provash Sardar, AYs 2009-10 & 2010-11 uncalled for and bad in law. The Ld. CIT(A) was unjustified in disregarding the explanation without passing any speaking order.
5. Without prejudice to the above, in the facts and circumstances of the case, the Ld. AO erred in taxing income both under 'peak credit theory' and the 'undisclosed commission income'. The action of the AO was wholly unreasonable uncalled for and bad in law. He should have considered higher of the above two income and not aggregate them.
6. For that in the facts and circumstances of the case, the Ld. AO erred in charging interest u/s. 234A, 234B and 234C and/or incorrectly calculating the same. The action of the AO was wholly unreasonable, uncalled for and bad in law. The Ld. CIT(A) was unjustified in not adjudicating the issue."
The assessee has raised the following grounds for AY 2010-11:
"3. Without prejudice to the above, the Ld. AO erred in not restricting the additions under 'peak credit theory' to the extent to appellant's own funds and not examining the explanation with respect to the same filed at the assessment stage. The action of the AO was wholly unreasonable, uncalled for and bad in law. The Ld. CIT(A) was unjustified in disregarding the explanation without passing any speaking order.
5. For that in the facts and circumstances of the case, the Ld. AO erred in taxing income both under 'peak credit theory' and the 'undisclosed commission income'. Thus, he has taken both mode of earning and application of such earnings. The action of the AO was wholly unreasonable, uncalled for and bad in law. The Ld. CIT(A) was unjustified in confirming the action of the AO.
6. For that in the facts and circumstances of the case, the Ld. AO erred in charging interest u/s. 234A, 234B and 234C and/or incorrectly calculating the same. The action of the AO was wholly unreasonable, uncalled for and bad in law. The Ld. CIT(A) was unjustified in confirming the action of the AO."
5. The assessee is proprietor of M/s. Alankita Traders. Brief facts of the case are that pursuant to the search and seizure operation u/s. 132 of the Act conducted on 08.12.2009 in the cases of Shashikant Khetan Group at their business and residential premises, the following bank accounts were found at the time of search:
i) The bank A/c No. 605019206 held in the name of M/s. Alankita Traders held with ICICI Bank, 20, R. N. Mukherjee Road, Kolkata;
ii) Bank A/c No. 33105144977 held in the name of M/s. Raghupati Enterprises held with Standard Chartered Bank, N. S. Road, Kolkata;
iii) Bank A/c. No. 33105139973 held in the name of M/s. Moto Enterprises held with Standard Chartered Bank, N. S. Road Branch, Kolkata and
iv) Bank A/c. No. 0206062000000546 held with Dhanlaxmi Bank, 15, Portugese Church, Kolkata are found to be belonging to the assessee.3
ITA No. 1377-1378/Kol/2012 Provash Sardar, AYs 2009-10 & 2010-11 The assessee made a disclosure statement u/s. 132(4) of the Act disclosing Rs.5450/- and Rs.3,46,531/- in the AYs 2009-10 and 2010-11 respectively to be offered as his commission income for rendering services in respect of providing accommodation entries to various people who were also parallelly covered in the aforesaid search operation. In the said disclosure statement, the assessee explained that these bank accounts were used for the purpose of providing accommodation entries for which the assessee had earned commission to the tune of 25p. to 50p. and accordingly, came forward to offer the aforesaid sums towards commission income for both the assessment years. The assessee also requested the Ld. DDIT (Inv.) to adjust the balance lying with the bank amounting to Rs.2,02,200/- which were attached towards the tax liabilities and interest for the aforesaid income. The assessee owned up the following bank accounts as undisclosed :
S. No. Name of account Name of bank and branch Bank a/c. no.
holder
1 Alankita Traders ICICI Bank 20, R.N.Mukherjee Road 605019206
2 Raghupati Enterprises Standard Chartered Bank, N. S. Road Branch 33105144977
3 Moto Enterprises Standard Chartered Bank, N.S. Road branch 33105139973
Dhanlaxmi Bank 15, Portugese Church 0206062000000546
6. The basis for arriving at the undisclosed income by the assessee is as under:
S. No. Account Name Bank Name Account No. Total cash deposits FY 2008-09 FY 2009-10 1 Alankita Traders ICICI Bank 20, 605019206 1,090,000 28,591,103 R.N.Mukherjee Road 2 Raghupati Standard Chartered Bank 33105144977 - 29,745,000 Enterprises N. S. Road Branch 3 Moto Enterprises Standard Chartered Bank 33105139973 - 10,970,000 N. S. Road Branch Dhanlaxmi Bank 15, 0206062000000546 - -
Portugese Church Total 1,090,000 69,306,103 Commission @ 5,450 346,531 0.50% In the return filed u/s 153A/143(3) of the Act for the instant year, pursuant to the search operations the assessee voluntarily declared total income of Rs. 1,25,250/- which, inter-alia, included commission income of Rs. 5450/ - referred above. The assessee also included Rs.3,46,531/ - in the return for AY 2010-11. During the course of assessment proceedings, the 4 ITA No. 1377-1378/Kol/2012 Provash Sardar, AYs 2009-10 & 2010-11 assessee voluntarily offered 'additional income' under 'peak credit theory' as he was not able to give details of all undisclosed transactions in the bank account. While submitting a detailed workings assessee voluntarily offered an additional income of Rs 1,00,000/- under 'peak credit theory' for AY 2009-10 and Rs 3,00,000/- for AY 2010-11. During the course of assessment proceedings, a specific questionnaire was raised by the Ld. AO vide notice dated 04-07-2011 with regards to the disclosure made by the assessee u/s. 132(4) of the Act which is reproduced below:
1. Please furnish the nature of undisclosed income disclosed u/s. 132(4) of the Act
2. Please specify the manner in which the undisclosed income was derived.
3. Please substantiate the manner in which the undisclosed income was derived.
In response to the same, the assessee while reiterating the submission made with the Ld. DDIT (Inv), further submitted as follows:
"The credit entries in the aforesaid bank accounts can be broadly classified into three types - Cash, contra cheques and clearing cheques. Contra cheques and clearing cheques represent cheque received from persons working in conduit for providing accommodation entries. "Contra Cheques" represent receipt of cheques from persons simultaneously covered during search operations and who have made disclosures u/s. 132(4) of Income Tax Act simultaneously. Cash represent amount received from the beneficiaries from where I used to get commission. No commission was received from contra cheques or clearing cheques who were working in conduits. The commission income at 0.50% has thus been calculated only on cash deposits in my undisclosed bank accounts."
7. Further, during the course of assessment proceedings, summons was issued on assessee. The extracts of statements recorded u/ s 131 of the Act on 26-07-2011 are reproduced below :
"Q.3. During the course of search at 46, B.B.Ganguly Street, 1st floor Room no. 4, Kolkata 700 012 on 08.12.2009, bank account no 33105139973 and 0206062000000546 with Standard Chartered Bank and Dhanlaxmi Bank respectively in the name of Moto Enterprise and bank account no 605019206 with ICICI Bank in the name of Alankita Traders were found. Please explain the nature and source of the transactions in these bank accounts?
A.3. This bank accounts were undisclosed and does not form part of my regular income and were used for the purpose of providing book entries and earning commission thereon. Other than initial cash deposit for the purpose of opening of bank account, no amount deposited in the bank accounts represent my money, nor any withdrawals represent my personal drawings or investments. In other words, the transactions in the bank account are in the nature of accommodating entry transactions. I have earned commission income @ 0.50 % of the total cash deposits in the aforesaid account and resultant income has been returned in my returns for AY 2009-10 and AY 2010-11 filed subsequent to search. As regards to the source of cash deposits initially cash was received from the arrangers of the beneficiaries. The cash so received was deposited in the bank accounts maintained by us. Subsequently, I used to issue cheques to some other concerns working in conduit for transfer of funds to ultimate beneficiaries. As regards to 5 ITA No. 1377-1378/Kol/2012 Provash Sardar, AYs 2009-10 & 2010-11 cheque deposited, the same were from persons working in conduit for providing accommodation entries. In accommodation entry transactions, it is imperative that the funds move through a number of bank accounts after deposit of cash in a bank account before issuing cheque to the ultimate beneficiaries.
Q.4. Please justify the receipt of commission @ 0.50 % on the total cash receipt? Please note that you have substantial cheque deposits too in your bank accounts also. Please justify why you have not offered commission on cheque deposits in your account?
A.4. I do not have any evidence of commission earnings. However, as submitted by me to the Investigation Wing, I have voluntarily offered commission income at higher slab (50 paisa) on cash deposits on all the banks belonging to my proprietorship concern in my calculation of undisclosed income. The cheque deposits are from persons who were working in conduit for providing accommodation entries. You shall appreciate that in accommodation entry transactions, it is imperative that the funds move through a number of bank accounts after deposit of cash in a bank account before issuing cheque to the ultimate beneficiaries. No commission is received for transfer in intermediary bank accounts. Most of the intermediary bank accounts from whom cheques received and given were covered during search operations simultaneously. Ultimately, it is the cash deposit only from where we used to get commission and which has already been offered for income calculation."
With regard to the specific query raised by the AO as to why the provisions of section 68 of the Act should not be invoked while completing the assessment, the assessee replied that as stated above, that he was earning commission for converting cash into cheques which was my main source of livelihood. The assessee stated that he had not maintained any books of accounts. The assessee stated that both cash deposits and cheques issued were transactions of trading nature and do not represent his own investments/drawings in any manner. His business was to deposit cash and issue cheques from the bank accounts and earn commission thereon. The question of applicability of section 68 of the Act for the transactions in the aforesaid bank accounts do not arise.
It was further stated that without prejudice, looking at different angle, the aforesaid bank accounts were undisclosed and the debits/withdrawals have not been used for any investment or any expenditure by him, which means that the money deposited into the bank accounts were regularly routed back for the issue of cheques. It is evident from search/survey operations, seized records, and the statements recorded during the investigation proceedings that he was involved in providing accommodation entries and the deposit of cash/cheque in the bank account was incidental to the business as entry operator. Since the deposits and withdrawals were interlinked trading transactions, the "peak credit theory" shall apply on his peak balance 6 ITA No. 1377-1378/Kol/2012 Provash Sardar, AYs 2009-10 & 2010-11 in the bank accounts and not on entire cash deposits in the said accounts. Reference may be made to following judgments.
(i) ITO Vs. Md. Asraf Ali, ITA No.169/K/2009 order dated 02.07.2010;
(ii) Tanmoy Chatterjee Vs. ITO, ITA No. 1434/Kol/2009 order dated 30.07.2010;
(iii) Asit Baran Uttasanee Vs. ITO, ITA No.1327/K/2008 order dated 30.04.2010;
(iv) ACIT Vs. Praveen Kumar Agarwal, IT(SS)A No. 61 & 74/Kol/2003;
(v) ACIT Vs. Loknath Prasad Gupta, IT(SS)A No. 185 & 190/Kol/2003;
(vi) G. Venkatareddy & Co. Vs. DCIT (2002) 124 taxman 261;
(vii) S. R. enterprise Vs. ITO (2002) 77 TTJ (Ahd.) 69;
(viii) Addl. CIT Vs. Chetan Dass (1975) 99 ITR 46 and
(ix) CIT Vs. Neemar Ram Bandhu Ram (1980) 122 ITR 68.
As evident from the aforesaid judgments, the principal of 'peak credit' is applicable on peak balance owned by the assessee and the entire deposits cannot be subject matter of additions.
8. The assessee stated before the AO that the initial deposit made in cash for opening the bank account and the bank balance on the date of search totaling to Rs.5,02,000/- to be treated as undisclosed income for both the assessment years put together. Out of these, he stated that the commission income by providing accommodation entries would be Rs.1,02,000/- and Rs. 4,00,000/- to be offered as peak credit income as follows:
Asstt. Year amount (Rs.)
2009-10 Rs.1,00,000/-
2010-11 Rs.3,00,000/-
Accordingly, he pleaded the deposition of section 68 of the Act should not be invoked in the facts and circumstances of the case. The Ld. AO while accepting the fact that peak credit theory is applicable in the case of the assessee, came to the conclusion that under peak credit theory income should have been Rs.34,50,000/- and Rs.40,00,000/- for AY 2009-10 and 2010- 11 respectively being the peak of the cheque deposit amount credited in the bank accounts as unexplained income of the assessee.
7ITA No. 1377-1378/Kol/2012 Provash Sardar, AYs 2009-10 & 2010-11
9. The Ld. CIT(A) upheld the addition in the sum of Rs.34,50,000/- for AY 2009-10 and upheld the addition of Rs.5,50,000/- for AY 2010-11 as he felt that the addition made in the earlier year would explain the source for deposit made in the next year i.e. AY 2010-11. In effect, the total addition of Rs.40,00,000/- was confirmed in both the assessment years put together by the Ld. CIT(A). Aggrieved, assessee is in appeal before us.
10. The Ld. AR vehemently argued for adoption of Rs.5,02,000/- as undisclosed income of the assessee for both the AYs 2009-10 and 2010-11 put together. Alternatively, he came forward for adoption of peak credit worked out taking into account all the transactions in the undisclosed bank accounts and determined the undisclosed income accordingly. In response to this, the Ld. DR vehemently relied on the orders of the lower authorities.
11. We have heard rival submissions and gone through facts and circumstances of the case. Admittedly, the bank accounts found during the course of search were undisclosed by the assessee. We find that the assessee had from the date of search stated that he was engaged in the business of selling cheques and main business was to convert cash into cheques and earned commission income in the range of .25% to .50% and accordingly, even made a disclosure petition u/s. 132(4) of the Act by giving a detailed working of the commission income purportedly earned by him. However, the same was not believed by the Ld. AO as assessee could not prove with any evidence. We find lot of force in the alternative argument of the assessee that the peak credit should be worked out after considering all the transactions in the undisclosed bank account and the peak credit so arrived should be treated as undisclosed income. We find that the Ld. AO took 'peak deposit' in the bank account acceptable under peak credit theory which, in our opinion, is against the spirit of such theory. It is well settled that the peak credit theory is based on practical way of determining the undisclosed income of a person. We find that the Ld. AO did not dispute that all the deposits in bank accounts were interlinked with withdrawals. We find that the concept of peak credit has been approved in the aforesaid decisions. In our opinion, adoption of peak credit balance after considering all the transactions in the bank account and adding the same as undisclosed income of each year would meet the ends of justice. Accordingly, we deem it fit and proper in the interest of justice and fair play to set aside this issue to the file of the Ld. AO to determine the undisclosed 8 ITA No. 1377-1378/Kol/2012 Provash Sardar, AYs 2009-10 & 2010-11 income based on the peak credit workings as directed above. The assessee is directed to provide the workings of peak credit as per above directions and the Ld. AO is directed to verify the veracity of the said workings for both the assessment years and determine the undisclosed income of the assessee accordingly. The Ld. AO is also directed to eliminate the commission income offered by the assessee in the return of income in view of the directions contained above for determination of income of the assessee for both the assessment years. Hence, the grounds raised by the assessee are allowed for statistical purposes for both the assessment years.
12. In the result, both the appeals of the assessee are allowed for statistical purposes.
Order is pronounced in the open court on 15.07.2016
Sd/- Sd/-
(S. S. Viswanethra Ravi) (M. Balaganesh)
Judicial Member Accountant Member
Dated :15th July, 2016
Jd.(Sr.P.S.)
Copy of the order forwarded to:
1. Appellant - Shri Provash Sardar, C/o S. K. Khetan, Room No. 104, 46, B. B. Ganguly Street, Kolkata-700 012.
2 Respondent -DCIT, CC-XIII, Kolkata.
3. The CIT(A), Kolkata
4. CIT , Kolkata
5. DR, Kolkata Benches, Kolkata /True Copy, By order, Asstt. Registrar.