Income Tax Appellate Tribunal - Ahmedabad
Rajpal Singh Shekhawt , Surat vs Department Of Income Tax on 24 June, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
''C'' BENCH - AHMEDABAD
Before S/Shri N. S. Saini, AM & Rajpal Yadav, JM.
ITA No. 1399/Ahd/2011
along with CO No.142/Ahd/2011
Asst. Year 2007-08
.Income-tax Officer, Ward 3(4), Vs Shri Rajpal Singh Shekhawat
Surat. Prop. Of Monu Industrial
Security, G-9, Nav Mangalam
Complex, Nr. Maharaja Agresen
Bhavan, City Light Area, Surat.
(Appellant) (Respondent)
PA No.ASPPS 3053C
Appellant by Shri Nimesh Yadav, Sr.DR
Respondent by Shri Rasesh Shah, AR
Date of hearing: 04/06/2015
Date of pronouncement: 24/06/2015
ORDER
PER Shri Rajpal Yadav, Judicial Member.
The Revenue is in appeal before us against the order of ld. CIT(A) dated 21st February, 2011 passed for AY 2007-08. On receipt of notice in the Revenue's appeal, assessee has filed Cross Objection bearing No.142/Ahd/2011.
2. The Revenue has taken three grounds of appeal but its grievance revolves around a single issue which is common ground ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 2 Asst. Year 2007-08 no.3 of the CO filed by the assessee. The common issue in both these grounds is that ld. AO has made an addition of Rs.68,51,309/- on account of unexplained deposit in bank account. The ld. CIT(A) after applying the peak credit theory on the bank account restricted this addition to Rs.9,41,557/-. The Revenue is aggrieved with deletion of addition whereas assessee is aggrieved with confirmation of addition at Rs.9,41,557/-.
3. The brief facts of the case are that assessee has filed his return of income on 31.10.2007 declaring total income at Rs.2,85,966/-. The case of the assessee was selected for scrutiny assessment and a notice under section 143(2) dated 4th August, 2008 was issued and served upon the assessee. The assessee was running a textile trading business, in the accounting years relevant to AYs 2003-04 and 2004-05. He discontinued this business and started the business of providing security services. On scrutiny of the accounts ld. AO has noticed two bank accounts with Dena Bank, Nanpura, Surat. Account No.CA 25397 was current account and a/c SB No.29271 was a savings bank account. The assessee has made deposits of Rs.1,12,93,090/- in the current account and Rs.28,41,085 in the ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 3 Asst. Year 2007-08 savings bank account. Thus a total deposits of Rs.1,41,34,175/- was made by the assessee in these two accounts during the accounting period relevant to this AY. On an analysis of the account the ld. AO found that a sum of Rs.61,79,940/- was deposited by the assessee in cash on various dates. He directed the assessee to explain the source of deposits. The assessee contended that he was running a textile trading business during the accounting years relevant to AYs 2003-04 & 2004-05. The said business was discontinued and all the debtors and creditors of that business were transferred to his personal balance sheet. He received payment from the debtors during the previous year and also paid the amount to the creditors. The assessee has submitted copy of the profit and loss account, balance sheet, audit report, service tax receipts etc. The AO has directed the assessee to submit the list of creditors as well as debtors and confirmations from them. He failed to submit. Accordingly ld. AO rejected the contention of assessee. He worked out intra deposits and withdrawals of these bank accounts and made addition of Rs.68,51,309/- under section 68 of the Income-tax Act, 1961 (hereafter the Act).
ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 4Asst. Year 2007-08
4. Dissatisfied with the action of the AO, assessee carried the matter before the CIT(A). He contended that after collecting the complete evidence from the bank including the details of cheque numbers it was gathered by him that he had received cheques from his clients in the business of providing the security. These cheques were discounted by him from the financier and the amounts were deposited in cash. Therefore, there is a variation between the deposits and the cheques issued by him. The first appellate authority has appreciated the contention of the assessee but did not concur with his submissions. The ld. CIT(A) has observed that assessee failed to prove the fact that he has received cash by discounting of his cheques from the financiers. The ld. first appellate authority, however, has observed that the detail analysis of the bank accounts would indicate that these bank accounts were used by the assessee for making payments as well as depositing cheques and cash. According the ld. CIT(A) the unexplained amount and the profits thereon could be worked out by applying peak credit theory. Finding of the ld. CIT(A) in this connection reads as under :-
''5.2 Upon consideration of all the facts discussed above, I find that it is not disputed by the appellant that the cash deposits in the two bank ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 5 Asst. Year 2007-08 accounts are unaccounted, that is not appearing in his books of accounts, and the appellant's contention that the cash deposited in the two accounts has been received by discounting of cheques, is also not supported by any confirmation from the financiers, however, a detailed study of the two bank accounts show that there is debt of equal or more or less of the same amounts of the cash deposited in the bank accounts at regular intervals, which lends some credence to the submission of the appellant that he has been arranging funds from the financiers in cash against cheques discounted by them. The assessing officer has rejected the alternate submission of the appellant to adopt peak of the cash deposits in the two bank accounts to arrive at the income not accounted in his books of accounts on the ground that the withdrawals made from the two bank accounts show that the cheques have been issued to different parties. The assessing officer has however, while rejecting the above alternate submission of the appellant, has not explained as to how when the cheques have been issued to different parties, representing the debits in the above two accounts the same will have a bearing the peak of the cash deposits, if it is so accepted.
5.3 In view of the discussion made above, I hold that the entire deposits cannot be taken as income of the appellant, as the two bank accounts wherein the cash deposits have been made also show debits of regular intervals. Therefore, in the fitness of things, it will be appropriate to take the 'peak' of the cash deposits in the above two bank accounts and the gross profit declared in the return of income on the cash deposits appearing in the two accounts subsequent to the date of 'peak' credit. The position of the same, as verified during the course of appellate proceedings, is as follows:-
(i) CA A/c No.25397 -peak credit of cash deposits (14.07.2006) Rs.2,78,934/-,
(ii) Savings A/C No.29271 -peak credit of cash deposits (27.1.2007) Rs.1,03,751/-.
Total of peak credit of cash deposits - Rs.3,82,685. ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 6 Asst. Year 2007-08 G.P. on turnover (cash deposits) after 14.07.2006 in current account @ 15.58% on Rs.18,52,810/- and after 27.1.2007 in savings a/c @ 15.58% on Rs.17,34,300, that is @ 15.58% on Rs.35,87,110/- Rs.5,58,872/-.
In view that 'peak'credit of cash deposits in the two accounts has been taken, the G>P. element in the cash deposits (turnover) in the two accounts upto the date of 'peak'credit is included in the amount of Rs.3,82,685/-. I, therefore, uphold the addition made on account of unexplained cash deposits in the two bank accounts to the extent of Rs.9,41,557/-. The first ground of appeal is, accordingly, partly allowed.''
5. Before us, the Revenue has contended that the theory of peak credit is not applicable in this case because the same amount of withdrawal has not been deposited again and again. A perusal of the bank statement would show that several deposits have been made in cash on different dates but the withdrawals have been made through cheques issued to different parties.
6. On the other hand, ld. counsel for the assessee relied upon the order of CIT(A) as well as he put reliance upon the decision of Hon'ble Gujarat High Court in the case of CIT vs. Tirupati Construction Co. 55 taxmann.com 308 (Gujarat). This decision has been rendered on 3rd November, 2014 in tax appeal Nos. 1010 to 1012 of 2014. He placed on record a copy of the Hon'ble High Court's ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 7 Asst. Year 2007-08 decision. In this case during the course of search a paper exhibiting debit and credit entries was found. The CIT(A) applied peak credit theory. The view of the CIT(A) has been upheld by the Tribunal. The Hon'ble High Court has also dismissed the appeal of Revenue. The ld. counsel for the assessee further placed on record copies of bank statement for the period from 1.4.2006 to 31st March, 2007. Referring to the Savings Bank account, he pointed out that for example a sum of Rs.1,00,000/- was withdrawn vide cheque no.622040 on 6th March, 2007, further sum of Rs.1,00,000/- was deposited. On 5th March, 2007 Rs.99,000/- were deposited. There is a complete chain of deposit and withdrawal.
7. On the strength of these details he submitted that ld. CIT(A) has rightly applied the peak theory and has worked out the profit element.
8. We have duly considered the rival contentions and gone through the record carefully. The ld. first appellate authority has rejected both the contentions of the assessee that he has received the amounts from his debtors from discontinued business in textile trading. The ld. CIT(A) has also rejected the contention that assessee ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 8 Asst. Year 2007-08 has discounted the cheques from the financiers received in respect of his business of providing security services. However on an analysis of the account ld. first appellate authority had arrived at a conclusion that the account was used for the purpose of some business, because there are debit and credit entries in a systematic manner. The debit of equal or more or less of the same amount of the cash deposit in the bank account at regular interval is available. The total of the cash deposits in such circumstances cannot be considered as unexplained income of the assessee. The ld. CIT(A) has worked out the peak credit in both the accounts. These credits are on 14th July, 2006 in the current account and 27th January, 2007. He worked out the total of the cash deposits and thereafter computed the GP on turnover of cash deposits after 14th July, 2006 in current account and after 27th January, 2007 in savings account. The CIT(A) has worked out the GP element in these transactions. He has added the profit earned by the assessee in the business after working out the peak credit. In other words the maximum amount of the peak deposits is Rs.3,82,688/-. This was considered as representing the investment in this activity which has been carried out with these two bank and thereafter worked out the profit element. He made an addition of ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 9 Asst. Year 2007-08 Rs.9,41,557/- which is total of Rs, 5,58,872/- + Rs.3,82,685/- i.e. profit on the turnover + alleged initial investment in the shape of peak credit. This factor can take care of both these issues.
9. The assessee in his C.O. has submitted that net profit shown by him is 3.36% in AY 2007-08. The maximum profit shown by him is 5.05% in AY 2010-2011 whereas the lowest is 1.94% in 2014-2015. Considering this subsequent history of the assessee the profit ought to be worked out by adopting a reasonable figure and not as high as 15.50% considered by the CIT(A). However, we do not see any merit in this contention of assessee because he is unable to support his claim with any authentic books of account. It is not discernible whether these net profits have been accepted in the scrutiny assessment or not. Considering the facts and circumstances of the case we do not find any reason to interfere in the order of CIT(A). The solitary ground raised by the Revenue as well as ground No.3 raised by the assessee in the CO are rejected.
10. In ground nos.1 & 2 of the C.O. assessee has pleaded that ld. CIT(A) has erred in confirming the disallowance of Rs.14,200 out of telephone and mobile expenditure. He further pleaded that ld. CIT(A) ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 10 Asst. Year 2007-08 has erred in confirming disallowance of Rs.39,310/- out of vehicle expenses, depreciation and petrol expenses. We find that assessee has failed to submit the supporting evidence in respect of these expenditures. The ld. AO has made an ad hoc disallowance at 20% of the expenses. The ld. first appellate authority has confirmed the disallowance. Since the assessee is running a proprietorship concern, element of personal benefits out of the use of these facilities i.e. phone(s) and car cannot be ruled out. The assessee was not maintaining any log book nor produced any other details, in support of his claim. Therefore, ld. revenue authorities have rightly disallowed the expenditure on an estimate basis. We do not find any reason to interfere with the order of CIT(A). Both the grounds are rejected.
11. In the result, the appeal of Revenue and C.O. of the assessee are dismissed.
Order pronounced in the open Court on 24/6/2015 Sd/- Sd/-
(N. S. Saini) (Rajpal Yadav)
Accountant Member Judicial Member
Dated 24/6/2015
Mahata/-
ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 11
Asst. Year 2007-08
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad
1. Date of dictation: 23.6.2015
2. Date on which the typed draft is placed before the Dictating Member: 24.6.2015 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk: 24/6/2015
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: