Income Tax Appellate Tribunal - Pune
Rahul Vijay Munot,, Ahmednagar vs Assessee on 31 March, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No.1923/PN/2013
(Assessment Year : 2009-10)
Rahul Vijay Munot,
C/o Newaskar Car Care,
Old Vasant Talkies Road,
Ahmednagar - 414 001.
PAN : AGJPM8199M .... Appellant
Vs.
Income Tax Officer,
Ward- 1, Ahmednagar. .... Respondent
Assessee by : Mr. Sunil Ganoo
Department by : Mr. B. C. Malakar
Date of hearing : 18-02-2015
Date of pronouncement : 31-03-2015
ORDER
PER G. S. PANNU, AM
The captioned appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-IT/TP, Pune dated 06.09.2013 which, in turn, has arisen from an order dated 29.11.2011 passed by the Assessing Officer u/s 143(3) of the Income-tax Act, 1961 (in short "the Act") pertaining to the assessment year 2009-10.
2. In this appeal, assessee has raised the following Grounds of Appeal :-
"1. In the facts and circumstances of the case and in law, the learned C.I.T. [A] TP/IT has erred by wrongly adding the entire cash deposited in bank of Rs.1,85,97,900/- instead of peak cash deposit of Rs.65,76,900/- made by AO. The aforesaid addition being arbitrary, perverse, based on surmises and conjecture the learned C.I.T [A] enhance the same. The impugned enhance addition may please be deleted.
2. In the facts and circumstances of the case and in law, the learned C.I.T. [A] has erred in confirming for not granting the deduction by Assessing Officer of opening cash balance of Rs.7,30,561/- carried over from earlier year from peak cash deposit. The claim for not granting the credit / deduction for opening cash balance is being arbitrary, perverse, based on surmises and 2 ITA No.1923/PN/2013 conjecture the learned C.I.T. [A] ought to have allowed the said deduction. The said deduction may please be granted.
3. In the facts and circumstances of the case and in law, the learned C.I.T [A] has erred in confirming of not granting the deduction by the AO for claim of interest on borrowed fund of Rs.2,69,075/-. The aforesaid rejection being arbitrary, perverse, based on surmises and conjecture the learned C.I.T. [A] ought to have allowed the said deduction. The impugned deduction may please be granted."
3. At the time of hearing, the Ld. Representative for the assessee submitted that assessee does not wish to press the Ground of Appeal Nos.2 & 3 and in this context, he has referred to a written communication of the assessee dated 12.02.2015, copy of which is placed on record. Accordingly, Ground of Appeal Nos.2 & 3, which have withdrawn by the assessee, are treated as dismissed.
4. The only dispute remaining in this appeal is with regard to the action of the CIT(A) in treating the entire cash deposited in bank of Rs.1,85,97,900/- as unexplained income of the assessee instead of the peak credit of Rs.65,76,900/- treated by the Assessing Officer as unexplained income.
5. In brief, the relevant facts are that assessee is an individual who filed his return of income for assessment year 2009-10 on 07.05.2010 declaring a total income of Rs.5,50,510/-. In the return of income, assessee had declared incomes by way of share of profit, interest, remuneration, etc. from two partnership firms, viz. M/s Newaskar Motors and M/s Newaskar Car Care, Salary from a Pvt. Ltd. Company Sandeep Automobiles Pvt. Ltd., interest, etc.. The return of income filed by the assessee was subject to a scrutiny assessment year 143(3) of the Act whereby the total income has been assessed at Rs.1,21,33,490/-. The subject-matter of consideration before us relates to an addition of Rs.65,76,900/- made by the Assessing Officer on account of unexplained deposits in three saving bank accounts. The relevant 3 ITA No.1923/PN/2013 facts are that the Assessing Officer noted that assessee had made cash deposits in his three saving bank accounts amounting to Rs.1,85,97,900/-, as detailed in para 3 of the assessment order. The assessee was show-caused to explain the cash deposits made in the three savings bank accounts. Assessee explained that the cash deposits were out of unaccounted business carried out by him in automobile spares, accessories tyres, tubes, etc.. It was further explained by the assessee that he purchased goods in cash without supporting purchase bills and also sold goods without issuing sale bills to the customers and that no books of account or any other rough record was maintained by him with respect to such unaccounted business activity. The assessee submitted before the Assessing Officer, that only profit from such business activity be assessed to tax and in this context, it was stated that net profit @ 5% of total cash deposits of Rs.1,85,27,900/- be accepted as unaccounted business income. In this manner, a sum of Rs.9,26,400/- was offered to tax as income from such unaccounted business activity.
6. The Assessing Officer noted that assessee had not furnished any precise information like since when he was in such a business, what was the extent of initial capital, places from where such goods were purchased, etc.. Further, the Assessing Officer noted that assessee did not furnish any information about the extent of turnover, value and position of stock at the closing, amount of debtors/creditors, etc.. In the absence of any evidence of having conducted such unaccounted business, Assessing Officer held that assessee's explanation that the cash deposits in the bank account had come out of unaccounted business receipts could not be accepted. Instead, the Assessing Officer proceeded to tax the amount of peak credit in all the three bank accounts. The peak credit in all the three bank accounts was determined at Rs.65,76,900/- which was added as undisclosed income in the hands of the assessee. The assessee carried the matter in appeal before the CIT(A) 4 ITA No.1923/PN/2013 contending that the Assessing Officer was not justified in making an addition of Rs.65,76,900/- on the facts and circumstances of the case. Alternatively, assessee also contended that the addition made by the Assessing Officer be scaled down by an amount of Rs.7,30,561/- which represented opening cash balance. However, the CIT(A) was of the opinion that the Assessing Officer was not justified in merely taxing the peak credit of Rs.65,76,900/- as undisclosed income but according to him the entire amount of cash deposits amount to Rs.1,85,27,900/- was liable to the assessed as undisclosed income. Accordingly, the CIT(A) show-caused the assessee as to why the income be not enhanced on the aforesaid aspect. Assessee objected to the enhancement proposed by the CIT(A) and defended the action of the Assessing Officer in computing the undisclosed income on the basis of the peak credit of the three bank accounts. The plea of the assessee was that the peak deposit has been correctly worked out by the Assessing Officer on the basis of the cash book prepared and that the source of subsequent cash deposit is explained by the amount of earlier cash withdrawn. In other words, assessee sought the benefit of earlier cash withdrawals for explaining the subsequent cash deposits. The CIT(A), however, has not accepted the plea raised by the assessee. According to the CIT(A), assessee did not lead even a single evidence of having carried out any undisclosed business. According to the CIT(A), the onus was on the assessee to establish the source of the cash deposits and that assessee had failed to explain such sources. The CIT(A) has further held that the benefit of set-off of earlier cash withdrawal against the subsequent cash deposits being claimed by the assessee was not automatic and the assessee was required to justify the same. The CIT(A) has contended that such benefit could only be granted on the basis of the evidence available on record. In the present case, according to the CIT(A), such benefit could not be allowed to the assessee because assessee had failed to establish the existence of the unaccounted business itself. Since 5 ITA No.1923/PN/2013 assessee had failed to establish the existence of unaccounted business, it could not be presumed that there was a rotation of cash so as to allow the benefit of the peak credit theory to the assessee. In this manner, the CIT(A) enhanced the addition made by the Assessing Officer to Rs.1,85,27,900/- on account of the undisclosed income represented by the cash deposits in the three saving bank accounts. Against the aforesaid, assessee is in appeal before us.
7. Before us, the Ld. Representative for the assessee pointed out that the only issue in dispute was relating to the enhancement of income effected by the CIT(A). The Ld. Representative submitted that there was no justification for the CIT(A) to negate the computation of peak credit made by the Assessing Officer for the purposes of computing undisclosed income relating to the transactions in the three bank accounts. The Ld. Representative pointed out that the peak credit theory has been accepted by the Hon'ble Allahabad High Court in the case of CIT vs. Fertilizer Traders, (2014) 98 DTR 323 (All) and also by the Hon'ble Bombay High Court in the case of CIT vs. Jawanmal Gemaji Gandhi, (1985) 151 ITR 353 (Bom), which were also relied upon before the CIT(A).
8. On the other hand, the Ld. Departmental Representative appearing for the Revenue has relied upon the order of the CIT(A) in support of the case of the Revenue.
9. We have carefully considered the rival submission. In the present case, assessee does not dispute that the cash deposits found to have been made in the three saving bank accounts in question are unexplained. We say so for the reason that the explanation rendered by the assessee that the cash deposits represented proceeds of unaccounted business carried on by him 6 ITA No.1923/PN/2013 has not been accepted by the Assessing Officer as well as by the CIT(A). Both the authorities below have recorded concurrent finding that the existence of the unaccounted business canvassed by the assessee could not be proved on the basis of any material or evidence. Even before us, the said position continues and therefore we proceed on the basis that there is no material on record to indicate presence of unaccounted business by the assessee. The CIT(A) held that the entire gross amount of cash deposits are assessable as unexplained and not merely the amount of peak credit of the three bank accounts.
10. We are in agreement with the CIT(A) that fundamentally the onus is on the assessee to establish the source of any cash credit and in the present case assessee has failed to explain the source of cash deposits in the banks accounts. The alternate plea of the assessee was that the withdrawals made from the bank account should be given credit vis-à-vis the subsequent cash deposits made in the bank accounts. The CIT(A) has rejected the aforesaid alternate plea and according to him, benefit of the earlier cash withdrawals cannot be allowed against the subsequent deposits since assessee was not able to establish the existence of the unaccounted business. The moot question is that in the absence of any clinching explanation with regard to the withdrawals and deposits, can the assessee be allowed the benefit of the earlier cash withdrawals against the subsequent cash deposits. In this context, the Hon'ble Allahabad High Court in the case of Fertilizer Traders (supra) has observed as under :-
"13. After hearing both the parties and on perusal of the record, it appears that the basic dispute is regarding the re-computation of the peak pertaining to the credits/debits for the purpose of undisclosed income. The Tribunal in its impugned order has observed that :-
"... We fail to understand as to how the AO has worked out the peak on the basis of pick and choose. It is settled law that in the block assessment, the computation of undisclosed income could be made 7 ITA No.1923/PN/2013 only on the basis of seized material and matters seized during search. The AO cannot ignore some material."
14. Regarding the peak theory, it may be mentioned that the peak theory was defined in the Sampath Iyengar's Law of Income-tax, Vol. 3, 9th edition, page 3547. Accordingly, "Peak credit" theory - One of the commonest defects of an assessee, where a single credit or number of credits appear in the books in the account of any particular person side by side with a number of debits is that they should all be arranged in serial order, that a credit following a debit entry should be treated as referable to the latter to the extent possible and that, not the aggregate but only the "peak" of the credit should be treated as own explained. To give a simple example, suppose there are credits in the assessee's book in the account. A or Rs.5,000 each on 1st October, 1990 and again on 5th November, 1990 but there is a debit by way of repayment shown on 27th October, 1990, the explanation will be that the credit appearing on 5th November, 1981 has or could have come out of the withdrawal/repayment on 27th October, 1981. This plea is generally accepted as it is logical and acceptable (whether the creditor is a genuine party or not), provided there is nothing in the material on record to show that a particular withdrawal/repayment could not have been available on the date of the subsequent credit.
15. A refinement or extension of the plea occurs where the credits appear not in the same account but in the accounts of different persons. Even then, if the genuineness of all the person is disbelieved and all the credits appearing in the different account are held to be the assessee's own moneys, the assessee will be entitled to set off and a determination of the peak credit after arranging all the credits in the chronological order.
16. Such proposition was also considered by this Hon'ble Court in the matter of CIT vs. Neemar Ram Badlu Ram, 122 ITR 68 (All) in which the relevant paragraphs are reproduced as under:-
"The Tribunal also did not agree with the departmental authorities that merely because the assets in the balance sheet changed from time to time, the difference would not be available for explaining a similar difference in subsequent years."
17. In the light of above discussion, we find nothing wrong in the directions given by the Tribunal before restoring the matter back for re-computation."
11. In terms of the aforesaid discussion, as per the Hon'ble High Court, even where the creditors are found to be not genuine, the peak credit theory was available to the assessee provided there is no material on record to show that a particular withdrawal/repayment could not have been available on the date of the subsequent deposit. The aforesaid decision of the Hon'ble Allahabad High Court clearly supports the plea of the assessee in-spite of the assessee having failed to establish the existence of the unaccounted business.
8 ITA No.1923/PN/2013
12. The Ld. Departmental Representative referred to a judgement of the Hon'ble Allahabad High Court in the case of Bhaiyalal Shyam Behari vs. CIT, (2005) 276 ITR 38 (All), which has also been relied upon by the CIT(A) to justify the denial of peak credit theory to the assessee. We have perused the said judgement of the Hon'ble Allahabad High Court and find that the facts therein were quite different. In the aforesaid case, assessee was claiming that all the cash credit entries in the different names were genuine. The Revenue had treated the amounts of cash credits as unexplained and brought to tax the same in terms of section 68 of the Act. In this background, assessee canvassed that the peak credit should alone be treated as income of the assessee and not the entire deposits. The aforesaid plea was rejected by the income-tax authorities and the said action was approved by the Hon'ble Allahabad High Court. In rejecting such a plea, the Hon'ble High Court noted that the amount of cash credit standing in the names of different persons were all along claimed by the assessee to be genuine deposits, and therefore, the withdrawals/payment of the amounts to different set of persons during the previous year would not entitle the applicant to claim benefit of peak credit. Quite clearly, facts in the present case stand on a different footing inasmuch as in the present case, the transactions in the three savings bank accounts are not at all claimed to be explained transactions, rather assessee has accepted them to be unexplained transactions. Therefore, the fact-situation in the case of Bhaiyalal Shyam Behari (supra) considered by the Hon'ble Allahabad High Court is not comparable to the present case. Thus, the said decision does not help the case of the Revenue in the present circumstances.
13. Another decision relied upon by the Ld. Departmental Representative as also by the CIT(A) is the judgement of the Hon'ble Allahabad High Court in the case of CIT vs. Vijay Agricultural Industries, (2007) 294 ITR 610 (All). In the said decision, the Hon'ble Allahabad High Court followed its earlier 9 ITA No.1923/PN/2013 decision in the case of Bhaiyalal Shyam Behari (supra) because the facts were similar. As we have already noted earlier that the fact-situation in the present case is quite distinct from the facts in the case of Bhaiyalal Shyam Behari (supra), therefore the aforesaid decision also does not help the case of the Revenue in the present case.
14. Another judgement relied upon by the Ld. Departmental Representative is the judgement of the Hon'ble Madhya Pradesh High Court in the case of Jhamatmal Takhatmal Kirana Merchants vs. CIT, (1999) 152 CTR 311 (MP). In the case before the Hon'ble Madhya Pradesh High Court, unexplained credit and debit entries were found recorded in a rough cash book. The explanations of the assessee were found untrue by the income-tax authorities as also by the Tribunal. The Assessing Officer had made addition of the gross amount of the credit entries appearing in the rough cash book. Assessee had sought the benefit of peak credit theory which was denied by the income-tax authorities. The Hon'ble Madhya Pradesh High Court also denied the benefit of peak credit theory by noticing that the entries of crediting and debiting itself showed that assessee had undertaken only a jugglery to somehow evade the income tax. In the context of such factual appreciation of the matter, the Hon'ble High Court held that there was no question of allowing benefit of the peak credit theory in such a situation. The aforesaid decision has been rendered by the Hon'ble Madhya Pradesh High Court in the background of its own peculiar facts. It cannot be understood as a proposition to say that the peak credit theory cannot be applied in all circumstances. In-fact, the Hon'ble Supreme Court in the case of Anantharam Veerasinghaiah & Co. vs. CIT, (1980) 123 ITR 457 (SC) has noted that "it is a matter of consideration in each case whether the cash credit can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year".
10 ITA No.1923/PN/2013
15. Quite clearly, the parity of reasoning by the Hon'ble Supreme Court is to the effect that it would be a matter of consideration in each case whether a cash credit can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by the reference to the concealed income earned earlier in the very same year. To the similar effect also is the judgement of the Hon'ble Bombay High Court in the case of Jawanmal Gemaji Gandhi (supra). In-fact, in the case before the Hon'ble High Court, addition related to the value of gold seized and confiscated by the Excise Authorities. The value of gold was held to be the income of the assessee from undisclosed sources. For the relevant assessment year, Assessing Officer also made an addition on the ground that the rate of gross profit shown by the assessee was low. In doing so, the Assessing Officer estimated the turnover and the rate of gross profit. The assessee was agitating both the additions before the Appellate Authorities. However, in the appeal before the Tribunal, assessee also made an alternative contention that as there had been intangible addition for the same assessment year, there was no reason to make a separate addition for the value of the gold. The Tribunal accepted the said position and held that there was no ground for making a separate addition for the value of the gold. The aforesaid aspect of the matter travelled to the Hon'ble Bombay High Court, which affirmed the action of the Tribunal. The Hon'ble High court specifically noted that though the assessee did not contend before the Assessing Officer that the source for the acquisition of the gold was the addition made by the Assessing Officer to the turnover, yet it was assessee's case before the Assessing Officer that the gold had been legitimately acquired. The Hon'ble High Court further noted that even before the Tribunal assessee had adopted similar stand but only as an alternate plea it was contended that the value of gold can be said to have come out of the intangible addition on account of estimated turnover. This aspect of the matter was accepted by the Hon'ble High Court. A premise which can be drawn from 11 ITA No.1923/PN/2013 the aforesaid judgement of the Hon'ble Bombay High Court is to the effect that the assessee was competent to plead for the benefit of peak credit theory even when his plea of the impugned bank transactions were from unaccounted business, was not accepted.
16. Therefore, in conclusion, we hold that there was no justification for the CIT(A) to enhance the income amounting to Rs.1,85,97,900/- having regard to the facts and circumstances of the present case. The Assessing Officer was quite justified in applying the peak credit and bringing to tax a sum of Rs.65,76,900/- on account of the unexplained deposits in the three saving bank accounts. As a consequence, we set-side the order of the CIT(A) and retain the addition of Rs.65,76,900/- made by the Assessing Officer as undisclosed income in the hands of the assessee. Consequently, assessee succeeds in Ground of Appeal No.1.
17. In the result, the appeal of the assessee is partly allowed.
Order pronounced on 31 st March, 2015.
Sd/- Sd/-
(SUSHMA CHOWLA) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated: 31 st March, 2015.
Sujeet
Copy of the order is forwarded to: -
1) The Assessee;
2) The Department;
3) The CIT(A)-IT/TP, Pune;
4) The CIT-IT/TP, Pune;
5) The DR "B" Bench, I.T.A.T., Pune;
6) Guard File.
By Order
//True Copy//
Assistant Registrar
I.T.A.T., Pune