Case Law Details
Kamalbhai Babulal Kahar Vs ITO (ITAT Ahmedabad)
ITAT Ahmedabad held that addition u/s. 69 of the Income Tax Act towards unexplained investment unsustainable since assessee had explained the source of investment in FDs as being from his FD/OD account. Accordingly, matter remanded to CIT(A) for fresh adjudication.
Facts- Vide the present appeal, the appellant contested the addition made on account of interest income amounting to Rs.6,04,915/-. Notably, the assessee had earned interest income on term deposits of Rs.6,04,915/-, he had returned income only of Rs.3,01,958/- on the same. Assessee contested that since the FDRs. was in the joint-name of the assessee along with his wife, therefore, he had treated only 50% of the interest income as his.
Further, the appellant also contested the addition made to the income of the assessee on account of investment in FDRs, the sources of which remained unexplained amounting to Rs.8,82,546/-.
Conclusion- Held that taxability of interest income surely does not depended on the names in which term deposits have been made. It is the person who has made the investment to whom interest income is said to accrue irrespective of the fact in whose name the investment is made. Accordingly, we confirm the order of the ld.CIT(A).
Held that the assessee had explained the source of investment in FDs as being from his FD/OD account and submitted copy of the same. The Ld.CIT(A) for reasons unknown has failed to take cognizance of the same and has accordingly confirmed addition holding that assessee has failed to substantiate source of investment in FD’s. Since the fact as pleaded by the assessee needs to be verified, we consider it fit to restore the issue back to the ld.CIT(A) for adjudication afresh after affording due opportunity of hearing to the assessee.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The above appeal has been filed by the assessee against order passed by the Ld. Commissioner of Income-Tax(Appeals), National Faceless Appeal Centre (“NFAC”) Delhi [hereinafter referred to as “ld.CIT(A)] dated 15.3.2024 under section 250 of the Income Tax Act, 1961 (“the Act” for short) pertaining to Assessment Year 2014-15.
2. Briefly stated facts of the case are assessment under section 147 of the Act was framed on the assessee and addition made to the income of the assessee on three counts viz;
i) Cash deposits in bank remained unexplained of Rs.13,35,342/-;
ii) Interest on Fixed Deposits not returned to tax amounting to Rs.3,01,958/-; and
iii) Investment in FDs, source of which was not explained, amounting to Rs.8,82,546/-
All the additions were confirmed by the ld.CIT(A). Aggrieved by the same, the assessee has come up in appeal before the Tribunal.
3. Ground no.1 raised by the assessee challenges addition made to the income of the assessee on account of cash deposits in the bank account of the assessee amounting to Rs.13,35,342/- which remained unexplained, and the same reads as under:
“The Ld. CIT(A) was grievously erred in upholding the addition of Rs.13,35,342/- on account of cash deposit in the Bank made by the Ld. A.O. u/s. 69A is illegal and bad in law.
It is submitted that the complete details and documentary evidences explaining the sources of cash deposits were filed before CIT(A), however, the same had not been considered/appreciated by him while confirming the addition. On the facts and circumstances of the case, the action of lower authorities making the addition of Rs.13,35,342/- treating the same u/s. 69A of the IT Act is completely incorrect and illegal. It is further submitted that in case of previous year the Ld. CIT(A) has deleted the addition of the same nature in favour of the appellant on merits.”
4. The facts relating to the issue are that the AO noted huge cash deposited during the impugned year in the bank account of the assessee ,amounting to Rs.62,32,200/-. When asked to explain the source of the same, he stated the same to be sourced from the cash earned from his business of fish-trading and cash withdrawn from his bank account subsequently re-deposited. The cash flow in this regard was filed by the assessee, which is reproduced at page no.4 to 6 of the assessment order.
5. The assessment order notes that initially the assessee had not filed any return of income in response to notice under section 148 of the Act. Subsequently the assessee filed return of income declaring income from salary/pension and interest income totaling to Rs.3,03,660/-. Thereafter, the assessee filed a revised return during reassessment proceedings including income earned from fisheries trading, returning profits earned thereon to tax on presumptive basis in terms of provisions of section 44AD of the Act at the rate of 8% on total receipts from fishery trading, which he stated to be to the tune of Rs.14,88,200/-. The assessee, therefore, accordingly returned an amount of Rs.1,19,056/- earned on account of fishery trading. These receipts from sale of fisheries was all stated to be received in cash and was submitted by the assessee to be the source of cash was deposited in his bank account to the tune of Rs.14,88,200/-. The remaining cash deposits were attributed to cash withdrawals from his bank account. The AO noted that the assessee had not initially returned the income from fish trading nor shown it in the return filed pursuant to the notice under section 148 of the Act, and had subsequently disclosed the same in his revised return filed. He therefore held that this was only as a cover up to explain the source of cash deposited in his bank account; He further noted that no evidence whatsoever of indulging in fish trading business was filed by the assessee. Accordingly, he reframed the cash flow statement submitted by the assessee, excluded all the cash received from sale of fish trading reflected by the assessee and found that it resulted in negative cash balance with the assessee. Taking the peak of negative cash balance during the entire year, amounting to Rs.13,35,342/-, he added the same to the income of the assessee as cash deposited in the bank account source of which remained unexplained. Thus, out of cash deposits of Rs.62,81,200/- made in the bank account of the assessee, the AO held the deposits to the tune of Rs.13,35,342/- only to remain unexplained vis-à-vis their source and that too by rejecting the assessee’s explanation of the source with regard to the same being attributable to the cash received from his fish trading business.
6. The matter was carried in appeal before the ld.CIT(A) who confirmed the order of the AO holding that since the assessee had not substantiated/given any evidence for the cash deposits of Rs.13,35,342/-, the same needed to be added to his income. His findings in this regard are at para 5 (V) of his order as under:
“V. FINDINGS OF HE CIT(APPEALS)- wherever there is negative cash balance cash has to be introduced to fill the gap. The cash deposits made by the taxpayer at Rs 6232200 is not taxed by the assessing authority directly, only the negative cash balance on 16/4/2013 as reflected in the cash flow statement is considered and from the cash flow statement, it is clear that the assessee has made cash deposits of Rs. 13,35,342/- when there is no cash balance available with the assessee. Cash sales made from 1/4/2013 to 16/4/2013 amounting to Rs 1488200 and the cash receipts amounting to Rs 1488200 is added to the cash flow. The assessing authority concluded that these arguments are not properly evidenced and assessee failed to offer any satisfactory reply in respect of the cash deposits to the tune of Rs. 13,35,342/- made on various dates. Further the assessee was given ample opportunities to furnish evidences in support of the cash deposits on various dates of the relevant financial year. The assessee failed to adduce any evidence for cash deposits of Rs.13,35,342/- made on various dates in his bank accounts i.e. SBI A/c. No. 10884412538 & SBI Ale. No. 307085 16326. In the light of the above, the assessee failed to prove sources of cash deposits totalling to Rs. 13,35,342/-, the same is, therefore, treated as unexplained u/s 69A of the Act. The addition made by the assessing authority is upheld as unexplained money to be brought to tax.”
7. The contention of the ld.counsel for the assessee before us was that the assessee had reiterated his submissions made before the AO explaining the source of cash deposits to be attributed to the cash receipts from his fish trading business; that he had pointed out the fact of having obtained the license to do the fish trading activity; that the income from such activity returned under section 44AD of the Act was accepted in the immediately preceding year; that he had also filed evidence of having paid in cash/cheque for purchase/procuring fish-seeds for carrying out this activity in the impugned year. He contended that the ld.CIT(A) completely ignored all the submissions made by the assessee in this regard, and went on to confirm the addition made by the AO holding that no evidence of having carried out any fish-trading activity was filed by the assessee.
8. In this regard, the ld.counsel for the assessee pointed out that the fact that the ld.CIT(A)had ignored all these submissions of the assessee is evident from the reproduction of the assessee’s submissions on this issue at para-IV of the CIT(A)’s order contained in para-4.1 to 4.6. The ld.counsel for the assessee contended that while the ld.CIT(A) sought to reproduce the assessee’s submissions before him, it was an incomplete reproduction of the assessee’s submissions. He pointed out that what the ld.CIT(A) had reproduced was only the portion of the assessee’s submission before the ld.CIT(A) which related to the narration of the issue as dealt with the AO, leading to the addition of Rs.13,35,342/- in the hands of the assessee. He, thereafter, drew our attention to the copy of the written submissions filed before the ld.CIT(A), placed before us on page no.43 to 50 of the PB. He pointed out therefrom that while the assessee’s submissions with respect to the impugned addition of Rs.13,35,342/-began from page no.45 and went to upto page no.53, the ld.CIT(A) had reproduced only assessee’s submissions contained at page no.45 to 48. He pointed out that this contained only the contents of the AO’s order; that from page no.49 onwards upto page no.53 contained the assessee’s submissions on the issue, which pointed out the fact that the cash flow prepared by the AO reflecting negative cash balance was defective (para-4A) page no.51 of the PB; that the assessee was in the business of catching and farming fishes from Guhai Dam under the license issued by the Government of Gujarat (Page No.52 of the PB); that in the preceding assessment year i.e. Asst. Year 2013-14, the assessee had agreed to take 8% of the total sales from fishing business as his income, which was accepted by the ld.CIT(A); that the same resulted in accepting the assessee’s income from fisheries business to the tune of Rs.80,97,490/- in the immediately preceding assessment year i.e. Asst.Year 2013-14, mentioned at para-6.1 Page No.52 and 53 of the PB; that the assessee had made payment in cheque for the purchase of seeds of fishes mentioned in para-6 of the page no.52 of the PB; and that ledger account of the said payment was also made available to the ld.CIT(A).
Ld.Counsel for the assessee contended that the Ld.CIT(A) had not taken note of the entire submissions made by the assessee, displaying total non-application of mind to the submissions made by the assessee before him, and went on to confirm the addition.
9. The ld.DR was unable to controvert the contentions of the assessee before us that the ld.CIT(A) had confirmed the addition without taking note of the pleadings made by the assessee before him, as pointed out above, though, at the same time, he pointed out that the ld.CIT(A) had rightly confirmed the addition in the absence of any evidence filed by the assessee of having carrying out on any fish-trading business, as source of cash deposits in the bank account.
10. Having heard contentions of both the sides, we agree with the Counsel for the assessee that the ld.CIT(A) has confirmed the addition of cash deposit in the bank account of the assessee remaining unexplained to the tune of Rs.13,35,342/- without application of mind, as demonstrated by the ld.counsel for the assessee before us. He has not taken note of the entire submission made by the assessee before him, and has considered only the portion of the submissions wherein the assessee narrated the facts of the case before the AO. Having ignored the submissions of the assessee before him, therefore, the ld.CIT(A), we agree with the ld.counsel for the assessee, has confirmed the addition on an incorrect factual premise that the assessee has filed no evidence of the source of carrying out any fish-trading business. As pointed out by the ld.counsel for the assessee before us, the assessee had submitted to the ld.CIT(A) that identical business had been carried out by him in the immediately preceding year, and the income for the same had been accepted by the Department . The assessee has also pointed out the fact of having paid for the purchase of fish-seeds by way of cheque. He had also pointed out the fact of having a license to carry out the fisheries trading activity. Since, we have noted the ld.CIT(A) to have confirmed the addition without considering the contention of the assessee, we consider it fit to restore this issue back to the ld.CIT(A) for reconsideration afresh, and direct him to adjudicate the issue after giving due opportunity of hearing to the assessee.
Ground no.1 is accordingly allowed for statistical purposes.
11. Ground no.2 raised by the assessee relates to the issue of addition made on account of interest income amounting to Rs.6,04,915/- and the ground reads as under:
“The Ld. CIT(A) was grievously erred in upholding the addition of Rs.6,04,915/- on account of interest amount made by the Ld. A.O. is illegal and bad in law.
The appellant submits that the FDRs were in joint names of the appellant’s wife and so 50% of the interest income is to be considered in case of the appellant.”
12. The facts relating to the issue, as emerge from the order of the authorities below are to the effect that the assessee was noted to have returned only 50% of the interest earned on term deposits; that while the assessee had earned interest income on term deposits of Rs.6,04,915/-, he had returned income only of Rs.3,01,958/- on the same. In the absence of any explanation for the same, the addition of difference amounting to Rs.3,01,958/- was made to the income of the assessee. The same was confirmed by the ld.CIT(A) at para-6.1 of his order. The assessee had pleaded before him that since the FDRs. was in the joint-name of the assessee along with his wife, therefore, he had treated only 50% of the interest income as his. The ld.CIT(A), we find, has noted that the assessee produced no documentary evidence to support his claim that only 50% of the income pertained to him; neither was the assessee noted to have demonstrated before the ld.CIT(A) that the balance 50% of the interest income was returned to tax by his wife. Accordingly, he rejected the explanation and confirmed the addition made on interest income earned on term deposits amounting to Rs.3,01,958/-.
13. Before us, the ld.counsel for the assessee was unable to come up with any reasonable explanation as to why only 50% of the interest earned on term deposits be treated as relating to him. He merely reiterated the submissions made before the authority below that FDs being in joint name, only 50% of the interest income was taxable in his hand.
14. We do not find any merit in the contentions of the ld.counsel for the assessee. The ld.CIT(A), we find has rightly dismissed this explanation of the assessee. Taxability of interest income surely does not depended on the names in which term deposits have been made. It is the person who has made the investment to whom interest income is said to accrue irrespective of the fact in whose name the investment is made. Accordingly, we confirm the order of the ld.CIT(A).
Ground no.2 is accordingly dismissed.
15. Ground no.3 raised by the assessee relates to the issue of addition made to the income of the assessee on account of investment in FDRs, the sources of which remained unexplained amounting to Rs.8,82,546/- as under:
“The Ld. CIT(A) was grievously erred in upholding the addition of Rs.8,82,546/- on account of unexplained investment made by the Ld. A.O. u/s. 69A, is illegal and bad in law.”
16. Orders of the authorities below reveal that the assessee was found to have made term deposits on three different dates amounting in all of Rs.8,82,546/-, source of which remained unexplained before the AO. The details of FDs so made by the assessee are contained on page no.11 of the AO’s order as under:
authorities below reveal
17. The ld.CIT(A) confirmed the addition, and the findings in this regard are para 7.2 of his order as under:
“7.2 In view of the non-submission of details and source of the above listed term deposits amounting to Rs.8,82,546/- by the assessee, the deposits are considered to be unexplained and added back to the total income of the assessee. Taxpayer submitted that the Id. AO made the addition of investment of Rs.8,82,546/- stating that they have not been found from the statement submitted by the bank pursuant to notice us. 133(6) of the IT. Act. The appellant submits that the above deposits are made by him from FD-OD A/C. Since the assessee failed to submit details of deposits of Rs.4632546 it is understood that the deposits are considered to be unexplained and has to be brought to tax. By appellant’s own submission the above deposits are made from FD-OD account. This amount is added back as unexplained investment u/s 69.”
18. As is evident from the above, the assessee had explained the source of investment in FDs as from his FD/OD account. For lack of substantiation of the same, the ld.CIT(A) confirmed the addition made by the AO under section 69 of the Act.
19. Before us, the ld.counsel for the assessee contended that the ld.CIT(A) was incorrect in stating that the assessee had not substantiated his explanation of having made the investment out of his FD/OD account. He drew our attention to the PB filed before us, pointing out that the assessee had submitted, copy of his FD/OD account for the year, which clearly reflected this investment made in FDs. Our attention was drawn to the said bank statement placed before us at PB Page no. 124-141. He therefore contended that the ld.CIT(A) had confirmed the addition ignoring the facts before him, and recorded an incorrect premise.
20. The ld.DR stated that the issue be restored back to the ld.CIT(A) to verify the contention of the assessee, though he was unable to controvert the fact that the assessee had placed evidence of source of investment in FDs before the ld.CIT(A).
Having heard both the parties, We hold that the impugned addition confirmed by the ld.CIT(A) needs to be set aside for adjudication afresh since, we have noted that the assessee had explained the source of investment in FDs as being from his FD/OD account and submitted copy of the same. The Ld.CIT(A) for reasons unknown has failed to take cognizance of the same and has accordingly confirmed addition holding that assessee has failed to substantiate source of investment in FD’s. Since the fact as pleaded by the assessee needs to be verified, we consider it fit to restore the issue back to the ld.CIT(A) for adjudication afresh after affording due opportunity of hearing to the assessee.
Ground no.3 is allowed for statistical purpose.
21. In effect, the appeal of the assessee is partly allowed for statistical purposes in the above terms.
Order pronounced in the Court on 21st November, 2024 at Ahmedabad.
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