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Section 68 in The Income- Tax Act, 1995
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Income Tax Appellate Tribunal - Ahmedabad
Bipinchandra Nareshkumar ... vs Department Of Income Tax on 4 November, 2011
           IN THE INCOME TAX APPELLATE TRIBUNAL
                    'C' BENCH - AHMEDABAD

  (BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. K. GARODIA, AM)

                        ITA No.1367/Ahd/2011
                             A. Y.: 2007-08

   The Income Tax Officer,         Vs    Shri Bipinchandra Nareshkumar
   Ward-5 (1), Room No.313,              Thakkar,
   Aayakar Bhavan,                       Jay Jalaram Kapad Stores,
   Majura Gate, Surat 395 001            4/5016, Zampa Bazar,
                                         Surat

                       PA No. AATPT 7268 C
           (Appellant)                   (Respondent)

          Department by         Shri K. Madhusudan, Sr. DR
          Assessee by           Shri K. N. Bhatt, AR

                     Date of hearing: 04-11-2011
                 Date of pronouncement: 11 -11-2011

                                 ORDER

PER BHAVNESH SAINI: This appeal by the revenue is directed against the order of the learned CIT(A)-IV, Surat, dated 12-1-2011 for assessment year 2007-08, on the following grounds:

"1. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A), Surat has erred in deleting the addition of Rs.2,02,500/- made on account of Unexplained Cash Credit u/s. 68 of the Act.

2. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A), Surat has erred in restricting the addition to peak amount of Rs.6,67,500/- instead of Rs.15,60,067/- made on ITA No.1367/Ahd/2011 2 ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar account of Unexplained Deposited in the undisclosed Bank Account.

3. The Ld. CIT(A) has not appreciated the fact that most of the amount were debited towards cheques payment and not towards each withdrawals through self/bearers cheques as claimed by the assessee.

4. The Ld. CIT(A) has failed to appreciated that Onus was on assessee to substantiate that cash deposit was utilized in the purchase/sale of the business. No evidence in this regard was furnished before the A. O. neither it is clear from the order of the CIT(A) as what was the end result of alleged trading for want of supporting evidence for each and every debit/credit entry the deposits/withdrawals remain unexplained.

5. The Ld. CIT(A) erred in law and on facts by accepting the additional evidences without providing an opportunities to the AO to verify the same as envisaged under Rule 46A (2) of the I. T. Rules 1962.

6. On the facts and in the circumstances of the case, and in Law, the Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer.

7. It is, therefore, prayed that the order of the Ld.

CIT(A)-IV, Surat may be set-aside and that of the Assessing Officer restored."

2. We have heard the learned representatives of both the parties and perused the findings of the authorities below.

3. Briefly, the facts of the case are that the assessee challenged the findings of the AO before the learned CIT(A) holding the deposit of Rs.15,60,067/- and cash credit of Rs.2,02,500/- as unexplained.

ITA No.1367/Ahd/2011 3

ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar The AO had information on the basis of A. I. R. that the assessee had deposited cash exceeding the prescribed limit in his account with IDBI Bank. The existence of this account was not acknowledged by the assessee. From the copy of the bank statement obtained by the AO, he observed that cash amounting to Rs.11,31,000/- and clearing credits/cheques including interest aggregating to Rs.4,29,067/- were credited to this bank account. The said account was not reflected in the balance sheet of the assessee. The assessee was asked to explain the credit entries and destination of withdrawals but no explanation was submitted before the AO despite several opportunities. The AO concluded that total of the credits in the bank account were unexplained investment from undisclosed sources as the bank account was not disclosed and the assessee has not established that the withdrawals had been re-deposited. The AO, therefore, made addition of Rs.15,60,067/-.

3.1 The AO also found that the assessee has shown loans totaling to Rs.2,02,500/- in the names of (i) Bipin Cloth Stores Rs.1,50,000/-,

(ii) Dimpleben N. Thakkar Rs.15,000/-, (iii) Manishaben B. Thakkar Rs.19,000/- and (iv) Sonalben Kirankumar Rs.18,500/-. Since the assessee did not furnish any confirmation nor any details were submitted, the AO considered the same as unexplained cash credits u/s 68 of the IT Act and made the addition accordingly. It was submitted before the learned CIT(A) that the assessee had become unsound of mind as he had incurred heavy losses, had gone missing and his whereabouts were not known to the family members. It was ITA No.1367/Ahd/2011 4 ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar explained that due to these reasons compliance could not be made at the time of assessment.

3.2 As regards addition of Rs.2,02,500/-, it was submitted before the learned CIT(A) that loan creditors were all family members and friends who had given temporary loans and that these were outstanding for the same amount in the preceding years. The assessee submitted balance sheet for the preceding assessment years 2005-06 and 2006-07 to show that the same creditors appear for the same amount in the balance sheet for the preceding two years including the assessment year under appeal. It was, therefore, established that loans were not taken in the current year under appeal. The learned CIT(A) accordingly deleted the addition of Rs.2,02,500/-.

4. On consideration of the findings of the learned CIT(A), we do not find any merit in ground No.1 of the appeal of the revenue. The balance sheets of earlier years are part of the record of revenue department. Even if copies of the same were filed before the learned CIT(A) would not show that these were fresh evidence in nature. Since the balance sheets of the earlier years are available on record of the AO and it shows that the same amount of cash credit appearing in earlier years which is continuing in the assessment year under appeal, would prove that no fresh cash credits have been received in the assessment year under appeal. The learned CIT(A) was, therefore, justified in deleting the additions. Nothing is produced before us to rebut the findings of the learned CIT(A) in this regard.

ITA No.1367/Ahd/2011 5

ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar We, therefore, do not find any merit in ground No.1 of the appeal of the revenue. The same is accordingly dismissed.

5. As regards the remaining grounds No.2 to 7 of the departmental appeal with regard to addition of Rs.15,60,067/-, it was explained before the learned CIT(A) that the bank account with IDBI Bank was of undisclosed account but the assessee submitted that addition only of peak credit should be considered as unexplained investment. It was further submitted that the contention of the AO that cash withdrawal had not been re-deposited is not correct as the amounts have been withdrawn from ATM and bank counter and these have been deposited within short period on same occasion on the same day. As regards cheques deposits, it was mentioned that these had been made out of personal loans taken from other banks. It was explained that the assessee had taken several personal loans which he had used to square off previously taken loans. Working of the peak credit in the bank account considering only re-deposits of cash which were withdrawn in self name was submitted along with bank statement of the concerned account and the other loan account from which credits have been brought to the impugned account. The assessee worked out peak credit of undisclosed account in a sum of Rs.6,47,500/-. The learned CIT(A) on going through the undisclosed bank account in question seen that cash has been withdrawn several times within the day and at times re-deposited within short period. The learned CIT(A), therefore, accepted the peak theory of the assessee. The learned CIT(A) further found that the sources of the credit on account of the cheques has been established to be personal ITA No.1367/Ahd/2011 6 ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar loans and, therefore, held that the same would not be unexplained. The learned CIT(A) however, found that the maximum peak balance would be Rs.6,67,500/- as against working of the assessee and accordingly addition was restricted to Rs.6,67,500/- as against the addition of Rs.15,60,067/-.

6. The learned DR besides relying upon the grounds of appeal No.2 to 7 submitted that no explanation was filed before the AO, therefore, the learned CIT(A) violated Rule 46A of the IT Rules. He has submitted that the assessee never owned up the bank account with IDBI Bank at the assessment stage. Therefore, theory of peak is not established in this case. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the learned CIT(A) and submitted that addition has been rightly deleted by the learned CIT(A) partly. He has submitted that due to the reasons explained before the learned CIT(A), no details could be furnished before the AO. The learned Counsel for the assessee relied on the following orders:-

(1) Smt. Urmila Ratilal Vs CIT (1982) 136 ITR 797 (Guj.) (2) ITO Vs Maheshkumar Jayantilal Vora (2004) 3 SOT 96 (Rajkot) (3) Asstt. CIT Vs Tritan Happy Home (P.) Ltd. (2005) 94 TTJ (Ctk.) 628 (4) Sanjay Kumar Jain Vs CIT (2001) 118 Taxman 821 (Cal.) (5) Jagadamba Construction Co. Vs ITO (2004) 3 SOT 670 (Jodh.) ITA No.1367/Ahd/2011 7 ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar (6) Arun Kala Vs Asstt. CIT (2005) 98 TTJ (Jp.) 1046
7. We have considered the rival submissions and gone through the findings of the authorities below. The AO on going through the A. I. R. information found that the assessee has a bank account with IDBI Bank. But the assessee claimed before the AO that he has only one bank account with Surat People Co-operative Bank Ltd. Thus, the assessee denied any bank account maintained with IDBI Bank.

The AO called for the bank statement of the bank account of the assessee with IDBI Bank and found that the assessee had made cash deposits of Rs.11,31,000/- and cheques deposit with interest of Rs.4,29,067/-. The said bank account with IDBI Bank was not reflected in the balance sheet of the assessee. The AO gave specific show cause notice to the assessee to explain the source of the deposit in the bank account and the withdrawals etc. but the assessee failed to explain the source of the credits in this bank account. The AO, therefore, treated the same as unexplained investment u/s 69 of the IT Act.

7.1 Rule 46A of the IT Rules provides that the assessee/appellant shall not be entitled to produce before the Commissioner (Appeals) any evidence, whether oral or documentary, other than the evidences produced by him during the course of the proceedings before the Assessing Officer except in the following circumstances namely:-

(a) Where the AO has refused to admit evidence which should have been admitted, ITA No.1367/Ahd/2011 8 ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar

(b) Or where the assessee was prevented by sufficient cause from producing the evidences which he was called upon to produced by the AO,

(c) Where the assessee was prevented by sufficient cause from producing before the AO the evidence which is relevant to the grounds of appeal and

(d) Where the AO had made the order appealed against without giving sufficient opportunities to the assessee to adduce evidence.

It is also provided that no evidence shall be admitted unless the Commissioner (Appeals) records in writing the reasons for its admission. It further provides that Commissioner (Appeals) shall not take into account such evidence produced unless the AO has been allowed reasonable opportunity to examine or cross examine such evidence or witnesses produced by the assessee.

7.2 The facts and circumstances noted above in the light of the finding of the AO would clearly prove that the assessee did not produce any evidence or explanation before the AO and whatever explanation or evidence was produced before the learned CIT(A) was not subjected to examination by the AO and the learned CIT(A) has also not recorded in the impugned order any reasons for admission of the additional evidence. The learned CIT(A) has also not recorded any sufficient cause which prompted him to go through the additional evidence at the appellate stage in violation of Rule 46A of the IT Rules. Thus, the learned CIT(A) violated Rule 46A of the IT Rules while considering the evidence produced before him at the appellate stage. All the conditions of Rule 46A of the IT Rules are not satisfied ITA No.1367/Ahd/2011 9 ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar by the assessee, therefore, reliance placed by the learned CIT(A) on additional evidences at the appellate stage is clearly unjustified.

7.3 Further, it is not in dispute that the assessee made cash deposits in his account with IDIB Bank. Such bank account was not reflected in the balance sheet of the assessee. The assessee denied maintenance of any such bank account with IDBI Bank before the AO. The assessee did not explain the source of the deposits in the bank account with IDBI Bank despite opportunities provided by the AO. Thus, the AO was justified in holding that the assessee made unexplained investment from the undisclosed sources. No evidence of withdrawal from the same bank account or for re-deposit was filed. Thus, the assessee never owned up unexplained investment in the bank account at the assessment stage. Before, the learned CIT(A), the assessee accepted the undisclosed bank account with IDBI Bank for the first time. The theory of withdrawal from ATM and bank counter and re-deposit within short period was not established through any evidence or material on record. The assessee has not laid out any foundation of peak credit before the AO. The Hon'ble Allahabad High Court in the case of Bhaiyalal Shyam Behari Vs CIT, 276 ITR 38 held as under:

"In order to adjudicate upon the plea of peak credit the factual foundation has to be laid by the assessee. He has to own all cash credit entries in the books of account and only thereafter can the question of peak credit be raised.

Held, that as the amount of cash credits stood in the names of different persons which all along the ITA No.1367/Ahd/2011 10 ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar assessee had been claiming to be genuine deposits, withdrawals/payments to different persons during the previous years, the assessee was not entitled to claim the benefit of peak credit."

7.4 The Hon'ble Allahabad High Court in the case of CIT Vs Vijay Agricultural Industries, 294 ITR 610 held as under:

"The Assessing Officer for the assessment year 1979-80 noticed certain credits in the squared up accounts of the assessee-firm and treated them as unexplained deposits liable to be treated as income from unexplained sources under section 68 of the Income-tax Act, 1961. This was upheld by the Appellate Assistant Commissioner. On further appeal contending that the peak credits should alone be considered for addition under section 68 of the Act and not as added by the Assessing Officer and confirmed by the Appellate Assistant Commissioner, the Tribunal held that only the amount of peak credit should be determined by the Assessing Officer and added as unexplained cash credit under section 68 of the Act. On a reference:
Held, that in respect of the squared up accounts of the two depositors, the Assessing Officer himself had taken the peak credit as unexplained deposit and added it under section 68 of the Act. So far as the remaining deposits were concerned there was no transaction between the depositors and the assessee. The principle of peak credit could not apply in case of different depositors where there had been no transaction of deposits and repayment between a particular depositor and the assessee. The Tribunal was not justified in directing the Assessing Officer to take the peak credit for the purpose of section 68 of the IT Act."
ITA No.1367/Ahd/2011 11

ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar 7.5 The learned CIT(A) without examining the conduct of the assessee that the bank account with IDBI Bank was denied before the AO accepted the peak theory without any just cause. Since the theory of the peak was not supported by any evidence or material and the bank account with IDBI Bank was denied before the AO, therefore, the learned CIT(A) should not have accepted the explanation of the assessee for peak theory with regard to the cash deposits in the bank account with IDBI Bank. The Hon'ble Supreme Court in the cases of Durga Prasad More, 82 ITR 540 and Sumati Dayal, 214 ITR 801 held that "the Courts and Tribunal have to judge the evidences before them by applying the test of human probabilities after considering the surrounding circumstances." The decisions cited by the learned Counsel for the assessee are not applicable to the facts of the case. In the present case, the assessee has taken contrary stand before the AO and the learned CIT(A) because before the AO the assessee denied to have maintained any bank account with IDBI Bank because it was claimed that the assessee maintained only one bank account with Surat People Co- operative Bank Ltd. and when explanation was called for by the AO, the assessee choose not to reply to the show cause notice, however, before the learned CIT(A) the assessee accepted the undisclosed account when he was already confronted by the AO of the materials collected against him. The learned CIT(A) in violation of Rule 46A of the IT Rules admitted the peak theory of the assessee, therefore, he was not justified in accepting the theory of peak credit on the matter in issue. No reliance could be placed on the evidence furnished before the learned CIT(A) in violation of Rule 46A of the IT Rules.

ITA No.1367/Ahd/2011 12

ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar Thus, it stands established that the assessee failed to explain undisclosed investment in the IDBI Bank which are not recorded in the books of accounts of the assessee and also failed to explain the sources of the cash deposits. The learned CIT(A) was, therefore, not justified in deleting the addition. We accordingly, set aside the order of the learned CIT(A) deleting the addition of Rs.11,31,000/- on account of cash deposits in bank account. The order of the AO is restored to that extent. We accordingly confirm addition of Rs.11,31,000/-.

8. As regards the deposit of Rs.4,29,067/- on account of cheques deposit/clearing credits, the assessee explained the source to be personal loan taken from other banks. The assessee did not file any evidence before the AO in this regard. The learned CIT(A) has not mentioned anything in the appellate order if the assessee made any request for admission of the additional evidence under Rule 46A of the IT Rules. The learned CIT(A) did not record any reasons for entertaining the additional evidences. The learned CIT(A) did not mention if any such circumstances have been made for admission of any additional evidences. Rather, in Para 2 of the appellate order, the learned CIT(A) contrarily noted that opportunities have been provided to the assessee at the assessment stage. It would, therefore, show that proper opportunities have been granted to the assessee at the assessment stage and the assessee has failed to make out any case of denial of opportunity or having any sufficient cause for failure to adduce the evidences before the AO at the assessment stage. The learned CIT(A), therefore, was not justified in entertaining the ITA No.1367/Ahd/2011 13 ITO, W-5 (1), Surat Vs Shri Bipinchandra Nareshkumar Thakkar additional evidence at the appellate stage in violation of Rule 46A of the IT Rules. As noted above, the learned CIT(A) also wrongly applied the theory of peak credit in the matter because the amount debited through cheque payment would not speak of peak theory. Therefore, deletion of addition on this issue is also highly unjustified. We accordingly, set aside the order of the learned CIT(A) to that extent also and restore the order of the AO. In view of the above discussions, the addition deleted by the learned CIT(A) is set aside and the order of the AO is restored. Grounds No.2 to 7 of the appeal of the revenue are accordingly allowed.

9. In the result, the appeal of the revenue is partly allowed.

Order pronounced in the open Court.

                    Sd/-                               Sd/-
             (A. K. GARODIA)                     (BHAVNESH SAINI)
        ACCOUNTANT MEMBER                        JUDICIAL MEMBER

Lakshmikant/-

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