Time gap between withdrawal of cash & spending of cash not relevant unless it is proved that assessee spent the amount somewhere else

Time gap between withdrawal of cash & spending of cash not relevant unless it is proved that assessee spent the amount somewhere else. Addition of minimum guarantee cannot be made if the same has been taken in business gross receipts. Only assesss’s share in the property is to be considered for the investment made in the property. Past history of GP ratio and NP ratio is to be considered if the books of accounts are not found reliable. If LIP payment is made through cheque then it cannot be considered as unexplained investment. If opportunity of being heard is not given to the assessee then addition cannot be made on any ground.

Brief of the case:

ITAT Chandigarh held in ITO Vs. Shri pardeep Singh Hooda that it’s not necessary that if the assessee is withdrawing the money from bank then he should spend the same immediately. He could spend the same at his own wish. So, as in the above case the assessee had withdrawn the money form bank about 2 months ago and had spent the same 2 months after and invested in purchasing house then addition could not be made on the basis of unexplained investments because the assessee had explained that it had withdrawn the money from bank and utilized the same in purchasing the house.

ITAT Chandigarh held in ITO Vs. Shri pardeep Singh Hooda that if the assessee was getting minimum guarantee amount which also included the rental amount of the showroom and the assessee had shown the same in its business receipts. So, the rental amount already included in minimum guarantee amount could not be taxed as income from house property because the same had been included in the business receipts as a minimum guarantee amount.

ITAT Chandigarh held in ITO Vs. Shri pardeep Singh Hooda that for calculating the amount of investment made by the assessee in the property only his share in the property was to be considered out of total investment made in the property. Considering the total amount invested in the property for construction purpose as assessee’s whole share was unjustified. So, considering the total investment as made by assessee as unexplained investment was unjustified so addition should not be made.

ITAT Chandigarh held in ITO Vs. Shri pardeep Singh Hooda that if the assessee had not rejected the books of accounts and found it to be not reliable then past history of assesse;s showing NP ratio and GP ratio should be considered and accordingly decision should be taken. Adhoc addition of percentage in GP ratio is not justified.

ITAT Chandigarh held in ITO Vs. Shri pardeep Singh Hooda that if the assessee had made payment through cheque of life insurance premium then the same could not be considered as an unexplained investment.

ITAT Chandigarh held in ITO Vs. Shri pardeep Singh Hooda that for making any addition in the income of assessee proper opportunity of being heard should be given to the assessee. Otherwise addition should not be made.

Facts of the case:

The AO had made addition of Rs 397000/- on account of undisclosed investment in residential houses which was challenged by assessee.

The revenue had made addition of Rs 12,27,500/- to the income of assessee on account of not showing the part of rental amount in the minimum guarantee amount as an income from house property but on the other hand assessee had included the same in its business receipts.

The revenue had made addition of Rs 8,78,969/- in its income on the basis of unexplained investment in the construction of showroom but the assessee had presented all the cash book , cash flow statement and fixed asset register which justifies the source of investment. Assesse was in appeal with ITAT.

The revenue had applied the profit rate of 10% without rejecting the books of account just by considering the accounts to be non-reliable. But assessee had presented the past history of GP ratio and NP ratio according to which the assessee was showing the higher percentage of profit as compared to previous year. So, assessee filed an appeal with ITAT.

The revenue had made addition of Rs1 Lacs on account of investment made by assessee in LIC form undisclosed sources but assessee contented that it had made the payment through cheque. Assessee was in appeal with ITAT.

The revenue had made addition in the income of assesse without giving any opportunity of being heard to the assessee. So, assessee filed an appeal with ITAT for giving opportunity of being heard to the assessee.

Contention of the assessee:

Assessee was of the view that he had withdrawn the money from bank on 25-08-06 and the house was purchased on 04-10-06. So, the payment had been made from the above withdrawn amount.

Assessee was of the view that the minimum guarantee amount had already been included in the business receipts so it should not be taxed again. Otherwise there would be double taxation.

Assessee explained that the show- room was jointly purchased by the assessee along with the above two co-owners. The copy of the Sale Deed was filed. It was mutually agreed by all the co-owners that funds shall be made available to the assessee for construction of the show- room. The assessee submitted copy of the MOU and cash book narrating the construction expenditure incurred, copy of the bills of raw material, valuation repor t and Form-J to explain the source of investment in

construct ion of building. The Assessing Officer had completely ignored these evidences. It was also

submitted that since show- room was co-owned by the assessee with two other co-owners above, therefore, cost of construction of Rs. 32,97,822/- was jointly met by the assessee and other two co-owners. So, the source of share of assessee was explained by presenting the cash flow statement and cash book.

Assessee was of the view that the AO had not pointed out any discrepancy in the GP ratio which was quite reasonable. The Assessing Officer had not rejected the books of account under sect ion 145(2) by pointing out any specific defects in the books of account , therefore, addition was unjustified.

Assessee was of the view that as he had made the payment of LIP through cheque so addition should not be made because it could not remain unexplained investment.

Assessee was of the view that as no opportunity of being heard was given to the assessee so addition should not be made because one chance to explain the capital introduction should be given to the assessee. So, addition should be deleted.

Contention of the revenue:

The revenue submitted that since there was a gap of 1 month and 10 days between withdrawal and purchase of the house, therefore, amount lying at house could not be accepted. So, the amount invested was from undisclosed sources.

Revenue was of the view that as the breakup of the sale was not presented so addition should be made. As it was not evidenced that, whether the minimum guarantee amount was included in the business receipts or not. So, addition should be made.

As the documentary evidence with regard to the ownership of the agricultural land was not produced . Only J forms could not be conclusive evidence.

Revenue was of the view that as the assesse was given the time to prepare the books of accounts as he had filed return u/s 44AF but actually assessee did not fall under section 44AF. But the accounts presented by the assessee was not reliable so, addition should be made.

Revenue was of the view that as the assessee had not explained the source of payment of LIP so addition should be made.

Revenue was of the view that as no source of capital introduction was explained by the assessee so addition should be made for unexplained investments.

Held by ITAT:

ITAT held that there was no big or unreasonable gap between the amount withdrawn from the bank account and paid for purchase of the property. Since the amount was taken into cashbook after withdrawal from the bank account, therefore, it was available to the assessee for using for purchase of the house. ITAT relied on the decision given by Hon’ble High Court in the case of Shiv Charan Dass 126 ITR 263 in which it was held that the revenue should prove that the assessee had spent the amount somewhere else.

ITAT held that as the fact that the assessee had already shown as gross receipts of the business was not considered by the AO and CIT(A) and moreover breakup of the sales was not filed by the assessee. So the appeal was allowed for statistical purpose. ITAT directed the AO to reconsider the case after giving reasonable opportunity of being heard to the assessee.

ITAT held that if the construction account was shown in the books of account and all entries were coming from the cash book of the assessee, there was no quest ion of treating any amount to be unexplained cost of construction in the hands of the assessee. Thus, the entire addition in the hands of assessee was wholly unjustified.

ITAT held after relying on the decision given in case of Rajinder Prasad Jain 374 ITR 545 in which it was held that if no enquiry had been held in respect of books of accounts and no books of accounts had been rejected u/s 145(3) then the past history should be considered and in the above case of assessee considering the past history the GP and NP ratio shown by the assessee was higher than previous years. So, addition should not be made.

ITAT held that if the assesse had made payment through cheque then it did not remain undisclosed investment so addition should not be made.

ITAT held that since, no opportunity had been given to assessee to explain this issue, therefore, the file should be restored to the file of Assessing Officer with direction to re-decide this ground after giving reasonable sufficient opportunity of being heard to the assessee.