Addition u/s. 69A quashed as nature and source of deposit clearly established: ITAT Nagpur

Akash Anand Puri Vs ITO (ITAT Nagpur)

ITAT Nagpur held that the addition made under section 69A of the Income Tax Act towards unexplained money is liable to be quashed since the nature and source of deposit is clearly established.

Facts- The assessee was engaged in the business of distribution of Videophone Sim Card and easy recharge vouchers. AO received information from the Income Tax Department that the assessee has deposited cash amounting to Rs. 1,53,31,060, in current account. The case was re–opened u/s. 147 of the Income Tax Act, 1961.

Since the assessee failed to respond to the notices u/s. 142(1) of the Act, AO had no alternate but to pass ex-parte order by invoking provisions of section 144 of the Act and on the basis material available on record. Accordingly, AO made addition of Rs. 1,53,31,060, on account of unexplained money.

CIT(A) NFAC dismissed the appeal. Being aggrieved, the present appeal is filed.

Conclusion- CIT(A), NFAC, has not considered the fact as well as documents submitted by the assessee and has not pointed out any defect in the documents furnished by the assessee and made addition of entire sale as business income and confirmed the addition made by the Assessing Officer at ₹ 1,53,31,937, without considering the same being business turnover and consequent abatement of payment were made to Vodafone Mobile Services Limited for purchase of Sim Card and vouchers. He only harped upon about the non–compliance of various notices.

Held that the addition made under section 69A of the Act is hereby quashed since the nature and source of deposit is clearly established. Needless to mention here that there will be tax liability in the hands of the assessee since income is below basic exemption limit.

FULL TEXT OF THE ORDER OF ITAT NAGPUR

The assessee has filed this appeal challenging the impugned order dated 24/06/2024, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 20 17–18.

2. The assessee has raised following grounds:–

“1. The order passed by CIT(A) NFAC is illegal, invalid and bad in law;

2. On the facts and circumstances the CIT(A) NFAC erred in not considering that notice U/s. 148 was not received by the assessee, therefore consequential assessment framed U/s.147 r. w.s. 144B is illegal, invalid and bad in law;

3. On the facts and circumstances the CIT(A) NFAC ought to have accepted the notice U/s. 148 issued by obtaining prior approval is contrary to the provisions of section 151 of the Act as the same were not provided to the assessee, therefore notice issued and order confirming addition by CIT(A) NFAC is illegal, invalid and bad in law;

4. On the facts and circumstances the CIT(A) NFAC erred in not considering that the learned assessing officer not provided the reasons recorded for issue of notice U/s. 148, therefore consequential assessment framed U/s. 147 row’s. 144 row’s. 144B is illegal, invalid and bad in law;

5. On the facts and circumstances the CIT(A) NFAC erred in not accepting the assessee filed documents alongwith application U/s. 46A and CIT(A) NFAC has considered part reply and not the entire reply, without going into fact of the case and without considering cash book and bank book of assessee confirmed the addition, therefore passed order and same is illegal, invalid and bad in law;

6. On the facts and circumstances the CIT(A) NFAC ought to have accepted that cash book and bank statement submitted during the appellate proceedings and without considering the same confirmed addition of Rs. 1,53,31,060/- as unexplained money U/s. 69A alongwith U/s. 115BBE, the addition made is unjustified, unwarranted and excessive and in violation of principle of natural justice;

7. On the facts and circumstances the CIT(A) NFAC erred in not considering that the entire cash deposits were business receipt duly recorded in cash book and bank book and amount were paid to Vodafone Mobile Services, for which assessee is distributor, therefore addition confirmed by the CIT(A) NFAC is unjustified, unwarranted and excessive;

8. On the facts and circumstances the CIT(A) NFAC erred in confirming addition without considering the facts of the case and considering that the cash was deposited in the F. Y. 2015-2016 in body of assessment order as there is no such cash deposited in F. Y. 2015-2016 and treating the same is typographical error which cannot be rectified by the assessing officer, therefore order passed is unjustified, unwarranted and excessive;

9. On the facts and circumstances the CIT(A) NFAC ought to have accepted the income of the assessee were below the prescribed limit treating the sum of Rs. 877/- as unaccounted income is unjustified, unwarranted and excessive;

10. The assessee is denied the liability of interest charge U/s. 234A, 234B and 234C of the Income Tax act, the same may kindly be deleted

11. The appellant craves leave to amend, add or take a new ground or grounds at the time of hearing.”

3. Facts in Brief:– –In this case, the assessee did not file his return of income for the relevant assessment year under consideration. The assessee was doing business in the name and style of Rashi Traders and was engaged
in the business of distribution of Videophone Sim Card and easy recharge vouchers. The Assessing Officer received information from the Income Tax Department that during the preceding financial year 2015–16 relevant to the assessment year 2016–17, the assessee has deposited cash amounting to ` 1,53,31,060, in current account maintained with the Bank of Maharashtra. The case was re–opened under section 147 of the Income Tax Act, 1961 (“the Act”). It is the contention of the Department that the notice dated 27/03/2021, under section 148 of the Act was issued through e–proceedings, which was said to have not received by the assessee and hence, the assessee did not file his return of income in response to the notice under section 148 of the Act. It is also the contention of the Department that notices under section 143(2) and 142(1) of the Act were issued to the assessee through e– proceedings portal, which were also said to have not received by the assessee. Even the notice under section 142(1) of the Act sent by Registered Post with A/D, was also said to have not received by the assessee. During the course of assessment proceedings, the Assessing Officer issued notices under section 142(1) of the Act on several occasions, however, there was no response from the side of the assessee. The Assessing Officer took into account the lackadaisical and casual approach in not responding to the notices issued by the Department which were served through the email-registered as per the SOP issued by the NFAC, New Delhi. A reference through Insight Portal was made on 26/02/2022, to the NFAC-Verification Unit (VU) with a request to arrange to service of the Notices through Speed Post on the assessee. It was informed by the Designated Officer of the VU that the notices were served on the assessee through speed post. In response to that also the assessee has not made any reply. Since the assessee failed to respond to the notices under section 142(1) of the Act, the Assessing Officer had no alternate but to pass ex-parte order by invoking provisions of section 144 of the Act and on the basis material available on record. For this purpose, a final show cause notice u/s 144 of the Act, vide DIN:ITBA/AST/F/144(SCN) (F)/2021–22/ 104095802(1) 17/3/2022 was issued and the same was served upon the assessee on the email-Id registered with the Department with a request to submit the details/information. Despite this, there was no response from the side of the assessee. Accordingly, the Assessing Officer made addition of ` 1,53,31,060, on account of unexplained money aggrieved by which the assessee filed appeal before the first appellate authority.

4. Before the learned CIT(A) NFAC, the assessee has filed a meticulous reply and the learned CIT(A) NFAC did not consider the reply of the assessee and dismissed the appeal filed by the assessee by observing as follows:–

“The appellant in 7.1 his statement of facts submits that During the previous year relevant to Asset. Year 2017-2018, he was doing business under the name and style of Rashi Traders and has distributorship of Vodafone Mobile Services Limited. He was in new line of business. He used to make payments to Vodafone Mobile Services Limited for purchases of Sim cards, recharge vouchers and easy vouchers and used to sale the same to various retail shops in and around the city. Out of the entire sale and purchase transactions of Sim cards and recharge vouchers he used to earn commission. The amount received out of the sale were business receipts deposited in the bank during the previous year relevant to A.Y. 2017-2018 and not A.Y. 2016-2017 as stated in the assessment order and reinvested in purchase of new Sim cards and vouchers from Vodafone Mobile Services Limited. The income earned from the business were below the prescribed limit therefore he has not filed return of income. During the year under consideration the appellant states that he has received sum of Rs. 1,53,31,060/- from customers by way of sale of Sim cards, recharge vouchers and easy vouchers and said amount were directly paid to Vodafone company through cheques and RTGS for purchase of new Sim cards and vouchers. He further submits that the entire payment were made by proper banking channel directly to Vodafone Company duly reflected in the bank statement.

7.2 The appellant during the appellant proceedings although submits the details of bank statements and cash book to support his submission I am decline to accept the same as he failed to file his return of income either u/s 139 or u/s 148 of the Income tax act 1961. He has not complied to any notices u/s 148, u/s 142 and final show cause notices issued and served upon him during the assessment proceeding before passing the order u/s 147 r. w.s 144 read with section 144B of the Income tax Act on 2 9/03/2022.

7.3 In view of the above appeal of the appellant on this ground is dismissed.”

The assessee being not satisfied with the order so passed by the learned CIT(A), again filed appeal before the Tribunal.

5. Before us, the learned Counsel for the assessee argued that during the preceding year 2015–16 relevant to the assessment year 2016–17, the assessee did not deposit any cash in the said current account in the Bank of Maharashtra and tgeh notice under section 142(1) of the Act is factually ____ . The learned Counsel submitted that the assessee, during the course of business, used to make payments to Vodafone Mobile Services Limited for purchases of Sim cards, recharge vouchers and easy vouchers and used to sale the same to various retail shops in and around the city. Out of the entire sale and purchase transactions of Sim cards and recharge vouchers, the assessee used to earn commission. The amount received out of the sale were business receipts deposited in the bank during the previous year relevant to assessment year 2017-2018 and not the assessment year 2016-2017, as stated in the assessment order and reinvested in purchase of new Sim cards and vouchers from Vodafone Mobile Services Limited. The income earned from the business was below the prescribed limit, therefore, the assessee has not filed return of income in terms of section 139 of the Act. During the year under consideration the assessee has received sum of ` 1,53,31,060, from customers by way of sale of Sim cards, recharge vouchers and easy vouchers and said amount were directly paid to Vodafone through cheques and RTGS for purchase of new Sim cards and vouchers. The entire payment was made by proper banking channel directly to Vodafone which were duly reflected in the bank statement of the assessee. The learned Counsel further submitted that the assessee was having no knowledge of Income Tax and since the income were below prescribed limit, therefore, the assessee had no compulsion to file the return of income. The assessee has not received any notice under section 148 as well as notice under section 142(1) of the Act during the assessment proceedings hence, the assessee has not made any compliance to notices. It was only came to knowledge of the assessee when the assessee received recovery notice from the Department. The assessee came to know about the demand after ex-parte assessment was framed. Consequent upon such receipt of notice for recovery of demand, the assessee immediately took steps to explore legal opportunities. The learned Counsel further argued that the Assessing Officer has not granted any opportunity of being heard to the assessee and passed order under section 147 r/w section 144 read with section 144B of the Act and without going into the merits of the case, made addition ex–parte and taxed the assessee under section 115BBE at Rs. 1,53,31,940. The learned Counsel accordingly prayed that the addition made by the Assessing Officer and confirmed by the learned CIT(A) be deleted.

6. The learned Departmental Representative supported the order passed by the authorities below. He, however, fairly accepted that the entire deposit cannot tantamount to income.

7. We have given a thoughtful consideration to the arguments made by the rival parties and perused the material available on record. Keeping in view the overall facts and circumstances of the case, we find that the assessee being a distributors of Sim card, vouchers and easy vouchers of Vodafone Mobile Services Limited and earned commission on sale of Sim Card sale to various retail shops in and around the city. The amount received out of the sales were business receipts deposited in the bank account of the assessee and reinvested in purchase of new sim cards and vouchers from Vodafone Mobile Services Limited. There is a consistent rotation of funds in the Bank statement. The assessee submitted the following evidences and details in the form of Paper Book, which are tabulated below:–

8. We also find that the assessee has furnished bank statement of Bank of Maharashtra which is placed at Page-4 To 34, of the Paper Book showing the entire deposits and payments made to Vodafone Mobile Services Limited. During the course of appellate proceedings, the assessee has furnished group summary of sales account along with ledger account, which are placed at Page–55 To 65, which is also clearly shows that the assessee has made sale of ₹ 1,21,33,383, by way sale E-Top-up, and made sale ₹2,69,930, and sale of voucher of ` 28,08,975. On the said transaction, the assessee has received commission at ₹ 1,81,969, and incentive at ` 3,05,256, and the same were gross receipt of the assessee. The CIT(A), NFAC, has not considered the fact as well as documents submitted by the assessee and has not pointed out any defect in the documents furnished by the assessee and made addition of entire sale as business income and confirmed the addition made by the Assessing Officer at ₹ 1,53,31,937, without considering the same being business turnover and consequent abatement of payment were made to Vodafone Mobile Services Limited for purchase of Sim Card and vouchers. He only harped upon about the non–compliance of various notices. Considering the facts of the case, we hereby direct the Assessing Officer to calculate estimated profit @1% at ₹1,53,311, on transactions of ₹ 1,53,31,060, being the net income of the assessee which will meet the ends of justice. Consequently, the addition made under section 69A of the Act is hereby quashed since the nature and source of deposit is clearly established. Needless to mention here that there will be tax liability in the hands of the assessee since income is below basic exemption limit. Thus, grounds no.1 to 9, are allowed in terms indicated above and the assessee gets relief of ₹ 1,51,77,749 i.e., [₹ 1,53,31,060 (–) ₹ 1,53,311].

9. Ground no.10, relates to levy of interest under section 234A, 234B and 234C of the Act.

10. The assessee has denied the liability of interest charged under section 234A, 234B and 234C of the Act. Since the income of the assessee is below taxable limit, there is no scope of charging any interest.

11. We need to add here that these types of cases should be dealt with very carefully and the Assessing Officer being an adjudicator and investigator cannot remain a silent spectator.

12. In the result, appeal filed by the assessee is allowed in terms indicated above.

Order pronounced in the open Court on 22/10/2024