Addition towards unexplained investment u/s 69 based on presumptions unsustainable

By POONAM GANDHI Income Tax Judiciary September 6, 2023

TaxGuru Citation: 2023 taxguru.in 5603
Case Name: Anoop Kumar Soni Vs DCIT (ITAT Delhi)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2015-16
Courts: All ITAT, ITAT Delhi

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Anoop Kumar Soni Vs DCIT (ITAT Delhi)

ITAT Delhi held that entire addition towards unexplained investment under section 69 of the Income Tax Act merely on the basis of presumption is unsustainable in law.

Facts- During the course of search on M/s Jindal Bullion Ltd. Group (JBL) on 05.01.2017, data pertaining to the F.Y. 2014-15, 2015-16, and 2016-17 in the form of digital data and loose sheets were seized. Digital data was maintained in a software named “Hazir Johri” at the residential cum business premises of Sh. Kusharg Jindal (promoter and Director of JBL) in a dongle. Loose sheets detailing daily pakka and kachha transactions of transfer of cash, gold and silver, found and seized at the residential premises of Sh. Parul Ahluwalia (Director of JBL).

AO held that the transactions detailed in the loose sheets have been fed into “Hazir Johri” software to create parallel books of accounts of JBL apart from those maintained in Tally Software. AO held that on analysis of the said data showed that JBL had been systematically engaged in cash transactions with a number of entities, mostly bullion traders and jewellers. The JBL books of accounts as maintained in the Hazir Johri software, contained both cash transactions of JBL as well as its transactions through banking channels. The transactions through banking channels are reflected in the Tally books of accounts of JBL whereas the cash transactions are not reflected in the same. AO held that in the Hazir account of a particular entity, there were transactions like “cash received” and “gold paid” in lieu of the cash received. Along with these transactions there is description of amounts received by JBL from that particular entity through banking channels and the gold/silver paid in return.

AO has totaled up the entire credits in the said account for the year amounting to Rs.1 ,72,92 ,950/- and treated the same u/s 69 of the Income Tax Act, 1961. CIT(A) computed the peak unaccounted cash involved and determined the unexplained investments to Rs.11,70,000/- against the addition of Rs.1,72,92,951/-.

Conclusion- Held that the entire addition by treating the account AP as belonging to Anoop Soni has been made on the basis of presumption drawn and the statement of Shri Parul Ahluwalia. However, statement of the assessee has not been recorded on this issue either at the time of search, post search inquiries or even during the assessment proceedings. A careful examination of the account AP as reproduced in the assessment order would reveal that in the remarks column various acronyms have been used against different transactions such as JD, KCX, RBG Overseas, KMTY, Oven AJ, JBL Coins, Oppo Mobile, Satia, Ishaan, Anshul, Vinod 8676, Guddu etc. These abbreviations show that the transaction recorded is neither through bank nor cash because since specific acronyms have been used, these transactions cannot be inferred to be pertaining to the assessee even if it is presumed with account AP belongs to the assessee.

Hence, keeping in view, the entire factual matrix of the case, we hold that no addition is warranted in the case of the assessee. In the result, the peak credit theory set out by the ld. CIT(A) would also become infructuous. The appeals of the assessee on this ground are allowed and accordingly the appeals of the revenue are liable to be dismissed.

FULL TEXT OF THE ORDER OF ITAT DELHI

1. The present appeals have been filed by the assessee and the revenue against the orders of ld. CIT(A)-24, New Delhi dated 19.08.2021.

2. In ITA No. 1641/Del/2021, following grounds have been raised by the assessee:

“1. That on the facts and circumstances of the case and in law the order passed by CIT (A) -24, New Delhi is contrary to facts and bad in law.

2. That on the facts and circumstances of the case and in law the CIT (A) was not justified in upholding the action of the Assessing Officer in treating the Ledger Account titled “AP” appearing in “Hazir Johri” software which was seized during the course of search action on a different party namely M/s Jindal Bullion Ltd. as belonging to the appellant and making an addition on the basis of such material in the hands of the appellant in assessment order passed u/s 153A of the Act.

2.1 That the CIT (A) erred in upholding the action of the Assessing Officer in making addition based upon material seized from the premises of a third party by relying upon the statement of Shri Parul Ahluwalia, Director of Jindal Bullion Ltd.

2.2 That on the facts and circumstances of the case and in law the CIT (A) erred in giving a finding in Para 4.2.18 of the order by holding that the appellant did not request for cross-examination of Shri Parul Ahluwalia at the assessment stage

2.3 That on the facts and circumstances of the case the CIT (A) was not Justified in upholding addition of Rs.11,70,000/- out of total addition of Rs.1,72,92,951/- as unexplained investments u/s 69 of the I.T. Act.

3. That on the facts and circumstances of the case and in law, the CIT (A) erred in not disposing off the objections of the appellant challenging the maintainability of the assessment order passed u/s 153A of the IT Act in which additions were made on the basis of alleged incriminating material seized during the course of search on a different party, although the objections have been reproduced on page 73 to 75 of the impugned order.

3.1 That as per the proposition of law settled by the Delhi High Court in the case of Pr. CIT (Central) Vs. Anand Kumar Jain ITA No.23 of 2021, no addition can be made in the assessment order passed u/s 153A of the Act on the basis of material seized during the course of search of a different party.”

3. In ITA No. 1642/Del/2021, following grounds have been raised by the assessee:

“1. That on the facts and circumstances of the case and in law the order passed by CIT (A) -24, New Delhi is contrary to facts and bad in law.

2.3 That on the facts and circumstances of the case the CIT (A) was not Justified in upholding addition of Rs.92,67,812/- out of total addition of Rs.9,32,78,397/- as unexplained investments u/s 69 of the I.T. Act.

3. That on the facts and circumstances of the case and in law, the CIT (A) erred in not disposing off the objections of the appellant challenging the maintainability of the assessment order passed u/s 153A of the IT Act in which additions were made on the basis of alleged incriminating material seized during the course of search on a different party, although the objections have been reproduced on page 73 to 75 of the impugned order.

4. In ITA No. 1643/Del/2021, following grounds have been raised by the assessee:

“1. That on the facts and circumstances of the case and in law the order passed by CIT (A) -24, New Delhi is contrary to facts and bad in law.

2.1 That the CIT (A) erred in upholding the action of the Assessing Officer in making addition based upon material seized from the premises of a third party by relying upon the statement of Shri Parul Ahluwalia, Director of Jindal Bullion Ltd.

2.3 That on the facts and circumstances of the case the CIT (A) was not Justified in upholding addition of Rs.44,77,077/- out of total addition of Rs.2,47,95,486/- as unexplained investments u/s 69 of the I.T. Act.

3. That on the facts and circumstances of the case and in law, the CIT (A) erred in not disposing off the objections of the appellant challenging the maintainability of the assessment order passed u/s 153A of the IT Act in which additions were made on the basis of alleged incriminating material seized during the course of search on a different party, although the objections have been reproduced on page 73 to 75 of the impugned order.

4. That on the facts and circumstances of the case and in law, the CIT (A) was not justified in confirming the addition of Rs.6,46,505/- on the grounds of some unaccounted sale of 251.07 gms gold, only on the basis of a rough jotting seized as Annexure A-1, party JO-7.

5. That on the facts and circumstances of the case and in law, the CIT (A) was not justified in partly confirming the addition of Rs.6,72,923/- (out of addition of Rs. 51,50,000/-) u/s 69 of the IT Act by holding that the appellant had made some unaccounted purchase of 2Kg gold. This addition was confirmed only on the basis of a rough jotting seized as Annexure A-1, party JO-7.

6. That on the facts and circumstances of the case and in law, the CIT (A) was not justified in confirming the addition of Rs.10,64,762/- u/s 69 by holding that the appellant had made some unexplained investment in stock of gold, only on the basis of a rough jotting seized as Annexure A-1, party JO-7.

7. That on the facts and circumstances of the case and in law, the CIT (A) was not Justified in confirming the addition of Rs.2,89,383/- u/s 69 by holding that the appellant had made some unexplained investment in stock of Silver, only on the basis of a rough jotting seized as Annexure A-1, party JO-7.

8. That on the facts and circumstances of the case and in law, the CIT (A) was not Justified in confirming the addition of Rs. 54,80,828/- by inferring seized document Annexure A-2, page-4 as a trial balance disclosing profit earned by the appellant from dabba transactions.

9. That on the facts and circumstances of the case and in law, the ld. CIT(A) was not justified in confirming the addition of Rs.1,50,000/- by holding cash and jewellery amounting to Rs.36,66,598/-seized during the course of search action as unexplained.

10. That on the facts and circumstances of the case and in law, the ld. CIT(A) was not justified in confirming the addition of Rs.44,870/- u/s 69A by holding the 1055.400 gms of silver found during the course of search action as unexplained investment.”

5. In ITA No. 156/Del/2022, following grounds have been raised by the Revenue:

“1. Ld. CIT(A) had erred in accepting request of assessee for allow 8,40,1 benefit of peak credit as assessee never accepted that entries belongs to him during assessment proceedings and appellate proceedings.

2. Ld. CIT(A) had erred in allowing peak credit to assessee as it is a settled legal position that peak credit is not applicable where deposits remain unexplained under section 68. “In the case of CIT(A) Vs. D. K. Garg [2017] 84 taxmann.com 257 (Delhi), HC held that peak credit is not applicable where deposits remain unexplained u/s 68 of the Act”. As in present case, entries remained unexplained and additions were made u/s 68 if the Act, benefit of peak credit should not be allowed to assessee.

3. Ld. CIT(A) had erred in allowing peak credit to assessee as the principle of peak credit is not applicable in the cases of where deposits remain unexplained during the assessment proceedings. For adjudicating upon plea of peak credit factual foundation has to be laid by assessee, who has to own all cash credit entries in books of accounts and only thereafter question of peak credit can be raised. In this case, assessee never accepted that credit entries belongs to him. Assessee only requested as per para 4.2.20, 4.2.21 and 4.2.22 of appellate order to allow benefit of peak credit. Ld. CIT(A) in para 4.2.19 himself held that AO was justified in adding back undisclosed income arising from seized material in the hands of the appellant.

4. Ld. CIT(A) had erred in allowing peak credit to assessee as the assessee had failed to explain the source and destination of credits. In the case of CIT Vs. Vijay Agricultural Industries [2007] ITR 610 (Allahabad)’, it was held by court that where an assessee was unable to explain the sources of deposits and the corresponding payments then he would not get the benefit of ‘peak credit’.

5. Ld. CIT(A) had erred in allowing peak credit to assessee as the same can be given only when the assessee owns up all the cash credits in the books of accounts. [Bhaiyalal Shyam Bihari vs. CIT [2005] 276 ITR 38 (Allahabad)/[2006] 202 CTR 515 (Allahabad).

6. Ld. CIT(A) had erred in not charging Gross Profit (GP) on out of books transaction while given the benefit of peak credit to the assessee and accepting the fact that it is trading account of the assessee.”

6. In ITA No. 157/Del/2022, following grounds have been raised by the Revenue:

“1. Ld. CIT(A) had erred in accepting request of assessee for allow benefit of peak credit as assessee never accepted that entries belongs to him during assessment proceedings and appellate proceedings.

3. Ld. CIT(A) had erred in allowing peak credit to assessee as the principle of peak credit is not applicable in the cases of where deposits remain unexplained during the assessment proceedings. For adjudicating upon plea of peak credit factual foundation has to be laid by assessee, who has to own all cash credit entries in books of accounts and only thereafter question of peak credit can be raised. In this case, assessee never accepted that credit entries belongs to him. Assessee only requested as per para 4.2.20, 4.2.21 and 4.2.22 of appellate order to allow benefit of peak credit. Ld. CIT(A) in para 4.2.19 himself held that AO was justified in adding back undisclosed income arising from seized material in the hands of the appellant.

5. Ld. CIT(A) had erred in allowing peak credit to assessee as the same can be given only when the assessee owns up all the cash credits in the books of accounts. [Bhaiyalal Shyam Bihari vs. CIT [2005] 276 ITR 38 (Allahabad)/[2006] 202 CTR 515 (Allaha bad).

ITA No. 1641/Del/2021 : A.Y. 2015-16 (Assessee Appeal) Hazir Johri Software/Addition u/s 69:

7. The relevant facts are that a search & seizure action u/s 132 of the Income Tax Act, 1961 was carried out on Jindal Bullion Ltd. Group of cases on 05.01.2017. A warrant of authorization u/s 132 was issued in the name of Sh. Anoop Soni, 99, Deepali Enclave, Pitampura, Delhi.

8. During the course of search on M/s Jindal Bullion Ltd. Group (JBL) on 05.01.2017, data pertaining to the F.Y. 201415, 2015-16, and 2016-17 in the form of digital data and loose sheets were seized. Digital data was maintained in a software named “Hazir Johri” at the residential cum business premises of Sh. Kusharg Jindal (promoter and Director of JBL) at Plot No. 25, Vaishali Enclave, Pitampura, Delhi in a dongle. Loose sheets detailing daily pakka and kachha transactions of transfer of cash, gold and silver, found and seized as Annexure A4 at the residential premises of Sh. Parul Ahluwalia (Director of JBL) at D-70, Pundrik Vihar, Pitampura, Delhi-110034. The Assessing Officer held that on analysis of the above two sets of evidences it was found that the transactions detailed in the loose sheets have been fed into “Hazir Johri” software to create parallel books of accounts of JBL apart from those maintained in Tally Software. The Assessing Officer held that on analysis of the said data showed that JBL had been systematically engaged in cash transactions with a number of entities, mostly bullion traders and jewellers. The JBL books of accounts as maintained in the Hazir Johri software, contained both cash transactions of JBL as well as its transactions through banking channels. The transactions through banking channels are reflected in the Tally books of accounts of JBL whereas the cash transactions are not reflected in the same. The Assessing Officer held that comparison of the two accounts data viz. the one maintained in Johri-Hazir software and the one maintained in Tally software, reveals a number of discrepancies between the two sets of accounting data pertaining to JBL. It was held that most of the ledger accounts maintained in Hazir are in code names and a relation was established between the ledger account of the actual entity which was found in the tally accounts and the ledger account of the same entity as per Hazir-Johri accounts. The identification of the said Hazir accounts has been done on the basis of a number of criteria like of statements given by Shri Parul Ahluwalia, Kusharg Jindal Directors of JBL and also on the basis of banking transactions appearing in the Hazir Johri ledger accounts. The Assessing Officer held that in the Hazir account of a particular entity, there were transactions like “cash received” and “gold paid” in lieu of the cash received. Along with these transactions there is description of amounts received by JBL from that particular entity through banking channels and the gold/silver paid in return.

9. The AO has also relied on the statement of Sh. Parul Ahluwalia, Director and former employee of JBL was recorded u/s 132(4) of the Act on 05.01.2016. In the said statement, Sh. Parul Ahluwalia was confronted with the loose sheets detailing the daily, accounted for as well as unaccounted cash, gold bullion and silver bullion transactions.

10. A scanned copy of one of such loose sheet found and seized as page 56 of Annexure A4, from the residential premises of Sh. Parul Ahluwalia during the course of Search operations on 05.01.2017, was examined in detail. The loose sheet pertains to 15.01.2015, wherein the page has been divided into three sections. Each of the three sections detail the “IN” and “OUT” transactions of gold, silver and cash, respectively, of JBL on that particular date.

11. As per the said statement of Sh. Parul Ahluwalia the above reproduced loose sheets as well as the data maintained in the Hazir Johri software contain the cash as well as transactions through banking channels, of JBL. It is pertinent to mention over here that code names of individuals appear in front of these cash transactions in Hazir-Johri data. This is not the case in the tally data of JBL. Further, Sh. Parul Ahluwalia stated that these loose sheets which detail the “kachha” as well as “pukka” transactions of JBL were written by Ms. Ekta Soni who worked as Executive Assistant at JBL and that the said sheets had been given to him by Sh. Kusharg Jindal with instructions to destroy them. As per the same statement, the ‘pukka’ transactions in the said sheets were entered into the Tally software of JBL while the ‘kachha’ and ‘pakka’ transactions as detailed in these sheets and represent the true state of affairs of JBL, were entered into the Hazir-Johri software of JBL only. The statement recorded is part of the Assessment Order from page no. 4 to 9 wherein the name of the assessee has been referred at question no. 21 of the statement. Further, Ms. Ekta Soni, the Executive Assistant in JBL stated and her statement that the loose sheets contain details of cash, gold and silver intake and outgo from JBL and she has been witness to such cash transactions.

12. In this background, the pages pertaining to assessee has been examined in the Hazir Johri software. The narration recorded in the software is as under:

13. The AO has totaled up the entire credits in the said account for the year amounting to Rs.1,72,92,950/- and treated the same u/s 69 of the Income Tax Act, 1961. The reasons given by the AO are as under: