Income Tax Appellate Tribunal - Agra
Shri Saurabh Malhotra, Datia vs Ito Ward 1(2), Gwalior on 28 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
AGRA (SMC) BENCH: AGRA
BEFORE SHRI A. D. JAIN, JUDICIAL MEMBER
I.T.A No. 72/Agra/2016
(ASSESSMENT YEAR-2006-07)
Saurabh Malhotra, ITO, -1 (2),
338/3, Bhajanjeet Colony, Behind Gwalior.
Holy Cross School, Civil Lines
Datia (M.P.)
PAN No.ALBPM9620J
(Assessee) (Revenue)
Assessee by Shri Mahesh Agarwal, AR
Revenue by Shri Waseem Arshad, Sr.DR.
Date of Hearing 01.02.2018
Date of Pronouncement 28.02.2018
ORDER
This is assessee's appeal for assessment year 2006-07. The revised grounds taken are as follows:
"1. That having regard to the facts and circumstances of the case and in law the Ld CIT(Appeals) has erred in confirming the addition of Rs.1,75,000/- made by the AO U/s 69 of the Act in respect of alleged deposit from Smt Usha Malhotra.I.T.A No. 72/Agra/2016 2
2. That having regard to the facts and circumstances of the case and in law the Ld CIT(Appeals) has erred in confirming the addition of Rs.5,16,000/- made by the AO U/s 69 of the Act in respect of alleged deposit from Mr Mahesh Malhotra.
3. That Ld CIT(A) has erred in confirming the additions aforesaid made by the Ld AO on the basis of estimated balance sheet filed by the assessee while no books of accounts are found to have been kept by the assessee nor are so alleged by the Ld AO.
4. That having regard to the facts and circumstances of the case and in any view of the matter Ld CIT (A) was unjustified and legally wrong to confirm the impugned additions of alleged credits U/s 69 of the Act."
2. The facts are that for the assessment year 2006-07, the assessee filed his return, income on 31/03/2007 in which taxable income is shown at Rs.1,98,457/-. The assessee has shown in his return income from contract business as per provisions of section 44AD of the income Tax Act. The case was selected for scrutiny. A notice u/s 143(2) as well as notice u/s 142(1) dated 13/05/2008 was served on the assessee. As per query No. 7 of the said notice, the assessee was asked to file balance sheet for the relevant assessment year and also complete names and addresses of all the debtors and creditors, if any. Since the assessee's I.T.A No. 72/Agra/2016 3 turnover was below 40 lac and he was not maintaining any books of account, he filed on 06/08/2008, a balance sheet prepared on estimated basis. Vide order sheet entry dated 06/08/2008, the assessee was asked by the AO to clarify the source of the opening capital and to furnish confirmations for the unsecured loans shown in that estimated balance sheet. The assessee filed a revised estimated balance sheet, since certain discrepancies in the earlier estimated balance sheet had come to light. The assessee also filed confirmations for the unsecured loans from his father and mother, as appearing in the earlier estimated balance sheet.
3. The AO observed that in the revised balance sheet, there was a difference in the opening capital, for which, the assessee did not furnish any explanation but simply submitted that the balance sheet filed earlier was not correct and it was noted that cash receipts which were taken from other persons were mistakenly included in the accounts of his father and mother. The AO also observed that in the case of unsecured loan from the assessee's mother Smt. Usha Malhotra, there were cash deposits in her bank account just prior to the loan given and that for a loan of 50,000/- on 12/04/2005, no bank statement for the relevant date was filed. Similarly, in respect of the assessee's father, Shri Mahesh Malhotra, the AO observed that since the assessee had not given the basis for change/ modification in the revised balance sheet, change in the loan amount of his father could not be I.T.A No. 72/Agra/2016 4 accepted. Finally, the AO made addition of Rs.4,29,356/- towards the opening capital, Rs. 1,75,000/- towards the unsecured loan from the mother, Smt. Usha Gupta and Rs. 5,16,000/- towards the unsecured loan from the father, Shri Mahesh Malhotra, treating them as "unexplained cash credits" u/s 69 of the Act.
4. The AO also made an addition of Rs.5,62,000/- U/s 69 of the Act towards wages and other expenses payable, on the ground that it was shown in the first balance sheet filed, which changed to Rs. 10,66,200/- in the revised balance sheet and the assessee did not furnish any evidence for such revision.
5. Before the ld. CIT(A), the assessee challenged all the additions. It was submitted that the additions made u/s 69 of the Act were wrong and illegal; that any addition u/s 68/69 was possible only when the books of account are maintained, but the assessee did not maintain any books, being covered under the presumptive scheme of taxation u/s 44AD of the Act; that the AO also did not ask the assessee to produce any books of account, but insisted on him to file the balance sheet; that the accountant, in the absence of proper and regular books of account, filed an estimated balance sheet to comply with the direction of the AO; that later on, when the assessee discovered some discrepancies, a revised balance sheet was also filed; that the AO was injudicious in making the additions on the basis of the first estimated balance sheet without any independent, corroborative I.T.A No. 72/Agra/2016 5 and supporting evidence or material to support such various additions. The assessee also made specific submissions on each of the additions. The assessee also relied on certain decisions to support his argument that maintenance of accounts is a sine qua non for any addition u/s 68/69 of the Act.
6. The ld. CIT(A) called for a remand report, which was submitted by the AO.
7. In the final analysis, the ld. CIT(A) deleted the additions on account of opening capital (4,29,356/-) and expenses payable (5,62,000/-), but confirmed the impugned additions (Rs.1,75,000/- & Rs.5,16,000/-), observing that in all probability, as the assessee was having available services of an Accountant and a Chartered Accountant, he was maintaining books of account which he was not willing to show to the AO and that the facts, circumstantial evidences and human probabilities tilt in favour of the first balance sheet showing the true affairs. Vide para 4.1.7 of the Order, he also held that Sec. 69 of the Act did not require the maintenance of books of account and that as such, the additions made by the AO u/s 69 was correct.
8. The ld. Counsel for the assessee has contended that the Assessing Officer erred in making addition, u/s. 69 of the Act, of Rs.1,75,000/-, as sustained by the learned CIT(Appeals), in respect of alleged deposit from Smt. Usha Malhtora; that the Assessing Officer erred in making addition, u/s. 69 of the Act, of Rs. 5,16,000/-, I.T.A No. 72/Agra/2016 6 sustained by the learned CIT(Appeals), in respect of alleged deposit from Mr. Mahesh Malhtora; that since income was computed u/s. 44AD, there was no justification for making addition u/s 69 Rs. 6,91,000/-; that since income was computed u/s 44AD, the Assessing Officer was not justified in compelling the assessee for filing the Balance Sheet; and that in the interest of justice, the assessment should not be based on balance sheet (estimate).
9. The ld. DR has placed strong reliance on the impugned order. The following case laws have also been relied on:
"i. 'ACIT vs. Shri Jatinder Manchanda', ITA No.4060/Del/2011(ITAT-Del). ii. 'Rajmandir Estates P. Ltd. vs. Principal CIT', GA No. 509 of 2016 with ITAT No. 113 of 2016 (Calcutta-High Court).
iii. 'M/s Pragati Financial Management Pvt. Ltd vs. CIT-II', ITAT 178 of 2016, GA 997 of 2016 (Calcutta High Court).
iv. 'CIT vs. M/s Gagandeep Infrastructure Pvt. Ltd', ITA No.1613 of 2014 (Bombay High Court).
v. 'CIT vs. M/s Navodaya Castles Pvt.', ITA No. 320/2012 (Delhi High Court).
vi. 'Deniel Merchants P. Ltd. vs. ITO', (SC). Vii. 'ITO vs. Babu Lal Jain', 116 TTJ Jab 741 (ITAT- Jabalpur). I.T.A No. 72/Agra/2016 7
viii. 'Dy. CIT vs. Vishwanath Prasad Gupta', 129 ITD 95, (ITA No. 220/Jab/2008 -ITAT-Jabalpur.
ix. 'State of Gujarat vs. Gordhandas Keshavji Gandhi', AIR 1962 Guj. 128-(Guj. High Court)."
10. I have heard the parties and have perused the material on record. It is seen that as correctly contended, the impugned additions were made by the AO for the credits shown in the balance sheet, holding them to be "unexplained cash credits". Sec. 69 is applicable to unexplained "investment" and not to "cash credits". No "investment" is alleged by the AO to invoke Sec 69 of the Act. The ld. CIT(A)'s confirmation of addition u/s 69 of the Act is also incorrect. The ld. CIT(A) himself observes that "unlike section 68, under section 69 there is no condition for any investment to be recorded in the books of accounts." Thus he accepts that while maintenance of books is not a condition precedent for invoking sec. 69, it is so for section 68. The ld CIT(A) failed to appreciate that the additions made by the AO were for alleged "unexplained cash credits" and not for "unexplained investment". Thus, the ld. CIT(A) was legally incorrect in confirming the additions u/s 69.
11. The submissions of the assessee were forwarded by the CIT(A) to the AO for his comment. During the remand proceedings, the assessee again made detailed submissions before the AO. In the remand report, the AO did not bring out any new fact, nor commented anything specific against the assessee. Rather, on ground I.T.A No. 72/Agra/2016 8 wise specific submissions, the AO's comments were that no new fact had been brought on record, the cases relied by the assessee were in his favour and it was for the ld. CIT(A) to decide the issues on the facts available on record. If the provisions invoked are held to be non applicable, the very charge for making the addition does not survive and it cannot be converted to that of another entirely different provision. Section 69 of the Act concerns cases where the assessee had made investments which are 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 the investments, or the explanation offered by him is not, in the opinion of the AO, satisfactory. In the present case, the assessee is not shown to have made any "investment" and, therefore, the provisions of section 69 of the Act are not attracted.
12. Now, once the addition is not sustainable under section 69, all questions raised by the AO or the ld. CIT(A) become otiose.
13. The impugned addition, being alleged as "unexplained cash credits", could only be made u/s 68 of the Act. However, Sec 68 stipulates that if any sum is found credited in the books of account maintained by the assessee and he offers no explanation, or his explanation is not found satisfactory, such sum could be deemed to be income of the assessee. In the present case, since the assessee's gross I.T.A No. 72/Agra/2016 9 receipts were below Rs.40 lac, he has not been shown to maintain any books. The ld. CIT(A)'s observation in para 4.1.4 of his order, that there is no proposition in law for non maintenance of accounts for cases falling u/s 44AD, is incorrect. The provisions of sub section 5 of Sec. 44AD read with those of Sec. 44AA (2)(iv) statutorily mandate the maintaining of books of account for the cases filling u/s 44AD only when the net profit is less than 8%. In other words, where the case is covered by Sec 44AD, i.e., where the turnover is below Rs. 40 lacs and the declared net profit is 8% or more, no books of account are required to be maintained.
14. The fact of non maintenance of books of account by the assessee was also in the knowledge of the AO, obviously, as he did not at all call for the books of account either through the notice u/s 142(1), or through the order sheet.
15. The ld. CIT(A)'s observation regarding probable maintenance of accounts, is nothing but a mere surmise and conjecture. Appearance of the Accountant or the Chartered Accountant before the AO does not establish that books were actually maintained by the assessee. As a matter of fact, no books of account are found to have been maintained by the assessee, which is a sine-qua-non for the addition of "unexplained cash credit".
I.T.A No. 72/Agra/201610
16. No addition could be made on the basis of either of the estimated balance sheets, particularly when no books were maintained, without making further enquiries, and bringing on record any corroborative material. It is pertinent that the assessee's bank statement was before the AO, but no entries of the alleged amounts were pointed out by the AO.
17. The AO's allegation that the bank statement of mother Smt. Usha Malhotra for entry of 50,000/- on 12/04/2005 was not filed is also not correct. In the very bank statement, which was before the AO, there was this entry on 15/04/2005, posted by the bank on clearing of cheque. Further, along with the revised estimated balance sheet, the assessee also furnished confirmations from his father, mother and other lenders. If the AO wanted to verify the credits in the revised balance sheet, which were supported by confirmations, he could have easily exercised his powers either u/s 133 (6), or u/s 131. But he did not do so and simply made the additions on the basis of first estimated balance sheet, which, as observed, is unsustainable in law.
18. Apropos the decisions sought to be relied on by the Department, none of them addresses the proposition that if the provisions invoked by the taxing Authorities are held to be not applicable, the charge itself, which forms the basis of I.T.A No. 72/Agra/2016 11 the addition, no-longer survives and it cannot be converted to one under another provision. As such, these decisions are of no aid to the Department.
19. In view of the above, the grievance of the assessee is found to be justified. It is accepted as such. The order under appeal is reversed. The additions are cancelled.
20. In the result, the appeal is allowed.
Order pronounced in the open court on 28/02/2018.
Sd/-
(A.D. JAIN) JUDICIAL MEMBER Dated 28/02/2018 *AKV* Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT ASSISTANT REGISTRAR