Jai Singh Vs ITO (ITAT Lucknow)

ITAT Lucknow held that cash deposits out of the past savings during demonetization being reasonable and as per social standing of the assessee is justifiable. Accordingly, appeal of the assessee allowed and addition is directed to be deleted.

Facts- Matter involved herein is with regard to addition of Rs. 1,41,78,000/- towards unexplained income under section 69A of the Income Tax Act. Notably, out of the said amount, an amount of Rs.1,36,00,000/- was deposited in the assessee’s bank account pertaining to proprietary business of travel agent. The remaining amount of Rs.5,78,000/- was deposited by the assessee din the assessee’s savings bank account.

CIT(A) deleted addition amounting to Rs.1,36,00,000/- and sustained addition of Rs.5,78,000/-. The present two cross appeal, before us, have been filed by the assessee and by Revenue against the aforesaid impugned appellate order of CIT(A).

Conclusion- Held that the addition made by the Assessing Officer was coloured by mere fact that the deposits were made in SBNs. No material has been brought for our consideration by Revenue to persuade us to take a view different from the view taken by the learned CIT(A) regarding the aforesaid amount of Rs.1,36,00,000/-. The Assessing Officer has made the addition merely on the basis of doubts, surmises and suspicions; without giving careful consideration to the submissions made by the assessee, the information collected by the Assessing Officer himself u/s 133(6) of the I. T. Act, and the relevant facts and circumstances. Accordingly, we decline to interfere with the order of CIT(A) on the issue of addition amounting to Rs.1,36,00,000/- deleted by CIT(A) in the impugned appellate order. The appeal filed by Revenue is dismissed.

Held that amount of Rs.5,78,000/-, claimed to be out of past saving, is not an excessive or unreasonable amount having regard to nature and scale of assessee’s business, financial and social standing of the assessee and the common social practice in households to save some amount in cash from time to time. The explanation tendered by the assessee regarding this issue and the submissions made by the learned A.R. for assessee are, therefore, found to be reasonable and acceptable in the specific facts and circumstances of the present case. Accordingly, we direct AO to delete the aforesaid addition of Rs.5,78,000/-. Thus, the appeal filed by the assessee is allowed.

FULL TEXT OF THE ORDER OF ITAT LUCKNOW

(A) These cross appeals have been filed by assessee and by Revenue against common impugned appellate order dated 22/09/2020 passed by learned Commissioner of Income Tax [“CIT(A)” for short]. The grounds of appeal taken by the assessee and by Revenue are as under:

I.T.A. No.368/Lkw/2020 (Assessee’s Appeal)

“1. The learned CIT(A) has erred in law and on facts in passing the order, which is unlawful, unjustified and against the principles of natural justice.

2. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order without giving adequate opportunity of being heard.

3. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in sustaining the addition of Rs.5,78,000/- (being part of cash deposited during demonetization period out of cash realized from debtors),only on the basis suspicion, conjecture and surmise which deserves to be deleted.

4. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing assessment order which is contrary to the facts and law. ”

I.T.A. No.443/Lkw/2020 (Revenue’s appeal)

“1. The learned CIT(A) has erred in law and on facts by deleting the addition of Rs.1,36,00,000/- made by the Assessing Officer on account of unexplained cash credit u/s 69A of the I. T. Act. ”

(B) In this case assessment order dated 30/12/2019 was passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (“I. T. Act” for short) whereby the assessee’s total income was assessed at Rs.1,55,70,340/-. In the aforesaid assessment order, total addition of Rs.1,41,78,000/- was made, treating specified bank notes (“SBNs” for short), deposited by the assessee, as assessee’s unexplained income u/s 69A of the I. T. Act. Out of the aforesaid amount of Rs.1,41,70,000/-, an amount of Rs.1,36,00,000/- was deposited in the assessee’s bank account pertaining to proprietary business of travel agent. The remaining amount of Rs.5,78,000/- was deposited by the assessee din the assessee’s savings bank account. The assessee’s appeal against the aforesaid assessment order was dismissed by aforesaid impugned appellate order of learned CIT(A) wherein the aforesaid addition amounting to Rs.1,36,00,000/- was deleted and the aforesaid remaining addition of Rs.5,78,000/- was sustained. Thus, the assessee’s appeal was partly allowed by the learned CIT(A). The present two cross appeal, before us, have been filed by the assessee and by Revenue against the aforesaid impugned appellate order of the learned CIT(A). In the course of appellate proceedings in Income Tax Appellate Tribunal, a paper book containing the following particulars was filed from the assessee’s side:

(C) The aforesaid appeal filed by Revenue vide I.T.A. No.443/Lkw/2020 has been filed beyond the time limit prescribed under section 253(3) of the I. T. Act. An application seeking condonation of delay was filed by Revenue stating the following reasons:

“Due to nationwide situation arising out of Covid-19 pandemic and further in view of the decision of Hon’ble Supreme Court vide order dated 23.03.2020 by taking cognizance for extension of limitation in Suo Moto Writ Petition (Civil) No(s.) 03/2020 in the situation arising out of the challenge faced by the country on account of Covid-19 pandemic. ”

(C.1) The learned A.R. for the assessee did not express any objection to condonation of delay. In view of the foregoing and considering the reasons stated by Revenue, in the specific facts and circumstances of the present case, the appeal filed by the Revenue is admitted for hearing on merits.

(C.1.1) On merits, the learned Sr. D.R. for Revenue strongly relied on the assessment order passed by the Assessing Officer. The learned A.R. for the assessee vehemently supported the order of the learned CIT(A) as regards the deletion of aforesaid amount of Rs.1,36,00,000/-. She further submitted that the Assessing Officer made the addition in a pre-meditated manner, and further that his opinion was coloured by the mere fact that the deposits in bank accounts were made in SBNs. She contended that on proper consideration of nature and scale of the assessee’s business, common practices in the assessee’s line of business (travel agency), past record of the assessee and continuing practice after end of the previous year, relevant to assessment year 2017-18 (to which the appeal pertains), there was no case for any addition in the case of the assessee. She submitted that it was common in assessee’s line of business for customers/clients to make payment in cash, and to periodically deposit the same in bank accounts. The learned A.R. for the assessee further submitted that as a result of which there was substantial amount of cash balance. She submitted that it was common practice to deposit accumulated cash in the bank in smaller parts and not larger bulks. She also submitted that the assessee provided the list of customers from whom cash was received as payment against airline tickets. She further submitted that the Assessing Officer had made inquiries u/s 133(6) of the I. T. Act from selected customers from the aforesaid list; and most of such persons had confirmed that payments were made by them in cash. Despite all these facts and circumstances, she lamented the Assessing Officer made a high pitched assessment, making the addition in the assessment order, causing agony and avoidable litigation for the assessee.

(C.2) We have heard both sides. We have perused the materials on record. The relevant portion of the order of learned CIT(A), as regards the aforesaid amount of Rs.1,36,00,000/-, which is the subject matter of appeal filed by the Revenue, is reproduced as under for the ease of reference:

capacity on 08.11.2016 and Rs. 5,78,000/- in saving bank account out of prior years’ savings) in SBN during demonetization period i.e. 09.11.20115 to 30.12.2016, the appellant’s case was selected for scrutiny. During the assessment proceeding the appellant explained his modus operandi and submitted the details of cash received from customers during 01.10.2016 to 08.11.2016. Since the appellant_. held cash in fiduciary capacity of his principal or the airlines company whose tickets were booked by the appellant, cash deposited in bank cannot be equated to income of the appellant. Further, from the deposit pattern of the cash in bank account by the appellant it is clear that the cash collected on ticket booking was not deposited by the appellant in his own bank account but in the bank account of the principal / airlines company. The same is evident from the following table:

The copy of cash book from 01.10.2016 to 31.12.2016 is enclosed. The above {nfoXm_arwn s submitted by the appellant to the Ld. ‘Assessing Officer in response to notice u/s 142(1) of Income-tax Act dated 04.10.2019. Therefore, during the year the appellant had to deposit the cash in his current bank account that he held in fiduciary capacity only because it had lost its legal tender on 08⁶ November 2016 and the principal/ airlines refused to accept the same in cash. Since the appellant was habitual of depositing cash in the bank account of principal/ airlines in small denominations, the appellant deposited the SBN post demonetization in several tranches. Each tranche was kept below five lakhs to minimize the risk of theft while waiting in long queues in front of the bank. Due to said reason the cash was deposited in bits and pieces by the appellant during demonetization period in his current accounts maintained with Kotak Mahindra Bank and ICICI Bank out of cash of Rs. 1,36,01,372/- held by him in fiduciary capacity on Mid Night of 08.11.2016. The detail is as under:

a. Rs. 78,32,000 in Current Account No. 555011015531 maintained with Kotak Mahindra Bank

b. Rs. 57,8,000/- in Current Account No. 628105029630 maintained with ICICI Bank

The date wise detail of cash deposited in current bank accounts during demonetization is duly reflecting in the cash book submitted above. Further, in this regard it is also submitted that the Government of India had given the period of depositing cash available with its citizen in SBN during the period 09.11.2016 to 30.12.2016. In none of the notifications/ press release it was directed to deposit all the cash available in SBN in one single tranche. Further, the appellant deposited SBN in following saving bank accounts out of his personal savings of earlier years:

a. Rs. 4,50,000/- in Saving Account No. 015104000071053 maintained with IDBI Bank

b. Rs. 1,28,000 in Saving Account No. 33309920399 maintained with State Bank of India

The Ld. Assessing Officer disbelieved the contention of the appellant only on the basis of suspicion, conjecture and surmise. He has not come up with an evidence to support his doubts on appellant’s version of the facts. The details of persons/ debtors from whom cash was received for ticket booking was provided to the Ld. Assessing Officer during assessment proceeding. The detail so submitted with the Ld. Assessing Officer during the assessment proceeding is enclosed. The Ld. Assessing Officer on test basis asked the appellant to provide complete address of 9 such customers to whom notice u/s 133(6) of Income-tax Act were issued. All the aforementioned persons/ debtors responded to the notice and confirmed to give cash to the appellant for ticket booking. They also provided the details of tickets booked by the appellant alongwith the copies of the said booked tickets. The certified copies of the order sheet alongwith notices issued, and response received by the Ld. Assessing Officer from aforementioned 9 persons during the assessment proceeding are enclosed. However, no reference of issuance of notice u/s 133(6) of Income-tax Act to the customers/ debtors of the appellant and receiving their confirmations with details of tickets booked against the cash provided by them was made by the Ld. Assessing Officer in the assessment order. This act of Ld. Assessing Officer goes to show that he had a very sceptic view against the appellant version of facts and he had made up his mind to make the addition with or without the response of the notices send by him to the customers/ debtors of the appellant.

1. MONEY HELD IN FIDUCIARY CAPACITY CANNOT BE CONSIDERED AS ACTUAL INCOME ACCRUED TO THE ASSESSEE It is a well-known fact that the money held in fiduciary capacity cannot be treafe4WrireNe by no stretch of imagination. In this regard reliance is placed otOhe f wing( gements:

1. Judgement of the Hon’ble Apex Court in cast. of DCIT vs. T.  ,Jayachandran reported in (2018) 406 ITR 1:

Headnote

S.4: Income chargeable to tax — Diversion of income by overriding title-Acted only broker -For determination of taxable income , written agreement is not relevant, conduct of parties can be considered accordingly only income that has actually accrued to the assessee is taxable. [S. 5, 145]

Dismissing the appeal of the revenue the Court held that; The income that has actually accrued to the Respondent is taxable. What income has really occurred to be decided, not by reference to physical receipt of income, but by the receipt of income in reality. Given the fact that the Respondent had acted only as a broker and could not claim any ownership on the sum of Rs. 14,73,91,000/- and that the receipt of money was only for the purpose of taking demand drafts for the payment of the differential interest payable by Indian Bank and that the Respondent had actually handed over the said money to the Bank itself we have no hesitation in holding that the Respondent held the said amount in trust to be paid to the public sector units on behalf of the Indian Bank based on prior understanding reached with the hank at the time of sale of securities and, hence, the said sum of Rs. 14,73,91,000/-cannot be termed as the income of the Respondent. In view of the above discussion, the decision rendered by the High Court requires no interference.”

2.Hon’ble Punjab & Haryana High Court in the case of PCIT vs. Punjab Police Housing Corporation reported in 120201 116 taxtnann.com 400 Headnote

Section 4 of the Income-tax Act, 1961 – Income – Chargeable as (Interest) – Assessee was regularly given grants by State Govt. for various purposes including construction of houses for police officials – During relevant year, grant remained un-utilized and money which was parked in hank earned interest – As per Assessing Officer, interest was exigible to tax – Tribunal held that amount of interest which accrued on any money parked in bank would be deemed to be a further grant for that particular purpose as same can be used only for that purpose’ and in event cannot be used for that purpose, same has to be refunded back to Government, thus, assessee was not recipient of income arising on account of interest earned on deposits with banks and interest income was not exigible to tax – Whether Tribunal was justified in its decision – Held, yes [Paras 3-101 [In favour of assessed

II. IF THE ASSESSEE’S EXPLANATION IS PROBABLE, THE ONUS WILL SHIFT TO THE REVENUE.

Further, it is submitted that the appellant provided details of persons/ debtors from whom cash was received and was held by him in fiduciary capacity. The notices were served on 9 such persons for confirmation u/s 133(6) of Income-tax Act. In response to the said notices the said persons confirmed to have provided the appellant cash for ticket booking alongwith the details of tickets booked and their copies. Therefore, the appellant. discharged the onus cast upon him to prove that the money depositor mg demonetization was held by him in fiduciary capacity and it 19sOts legal tender, the appellant had no other option but to depdtIhd same in his person bank account and not in the bank account of his pre’) pal/airlines agencies. Further, the- Ld. Assessing Officer if still doubted the facts narrated by the appellant and confirmations provided by the debtors against the notice u/s 133(6) of Income-tax Act, he could have issued summon u/s 131 of Income-tax Act upon such persons to probe the matter further in depth. He, however, on receiving the response of notices Ws 133(6) of Income-tax Act did not take any further action and as now the onus had shifted upon him to prove that the contention made by the appellant is incorrect, he did not refer the notices issued u/s 133(6) of Income-tax Act and responses received.

Although satisfaction of the Assessing Officer is the basis of invocation of provisions of Section 69A of IT Act, but such satisfaction must not be based on illusory or imaginary or hypothetical situations. Such satisfaction must have been derived from relevant facts and evidences, and on the basis of enquiry and all material before him. The Law on the – subject has been illustrated in a number of decisions. Hon ble Supreme Court in Kale Khan Mohammad Hanif vs. CIT pointed out that the onus on the assessee has to be understood with reference to the facts of each case and proper inference drawn from the facts. The law for Section 68 is not different. If the prima facie inference on the fact is that the assessee’s explanation is probable, the onus will shift to the Revenue.

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(C.2.1) The relevant facts are not in dispute. The business of the assessee is in the nature of commission agents of various business houses dealing in travel & tours, mainly commercial airlines. The assessee books tickets on behalf of the assessee’s principal, various commercial airlines and sells travelling tickets on behalf of the assessee’s principals to customers. The assessee collects money from the customers and subsequently remits the money to the principals. The assessee gets brokerage/commission from the principals. The payments received by the assessee are partly in cash. The payments received from the customers, by the assessee are deposited by the assessee directly in the airlines’ bank accounts. It is regular practice in the business of the assessee to receive payment in cash from the assessee’s customers who booked the ticket through the assessee. The Assessing Officer had made verification from some of the selected customers who made payments in cash against purchase of airline tickets, by issuing notice u/s 133(6) directly and such customers were asked to provide information regarding services provided by the assessee, payments made by them to the assessee and some other related details. Almost all the customers, to whom notices were issued u/s 133(6) of the I. T. Act by Revenue, submitted their response and accepted the fact regarding payments made by them to the assessee in cash. The cash so received by the assessee against sale of tickets is not the assessee’s own money but the assessee holds in fiduciary capacity, to be transferred to the respective airlines on whose behaves the assessee acts in fiduciary capacity. The Assessing Officer, however, omitted to mention in the assessment order that inquiries were made u/s 133(6) of the I. T. Act, and that almost all the persons, to whom notices were issued, submitted their responses and accepted that the payments were indeed made to the assessee in cash. Further, the cash book and ledgers of the customers, from whom the assessee received cash payments, were part of the books of account of the assessee, which the Assessing Officer did not doubt. The accounts of the assessee were not rejected u/s 145 of the I. T. Act. The Assessing Officer also completely ignored the fact that the assessee had made payments in the bank accounts of the airlines through banking channel, which was evident from the bank statement of the appellant. In view of the foregoing facts; the submissions made by the learned A.R. for the assessee at the time of hearing before us, and after due consideration of the order of the learned CIT(A), the deletion of addition of Rs.1,36,00,000/- done by learned CIT(A) in impugned order is held to be just and reasonable in the specific facts and circumstances of the present case. It is evident that the addition made by the Assessing Officer was coloured by mere fact that the deposits were made in SBNs. No material has been brought for our consideration by Revenue to persuade us to take a view different from the view taken by the learned CIT(A) regarding the aforesaid amount of Rs.1,36,00,000/-. The Assessing Officer has made the addition merely on the basis of doubts, surmises and suspicions; without giving careful consideration to the submissions made by the assessee, the information collected by the Assessing Officer himself u/s 133(6) of the I. T. Act, and the relevant facts and circumstances. Accordingly, we decline to interfere with the order of learned CIT(A) on the issue of addition amounting to Rs.1,36,00,000/- deleted by the learned CIT(A) in the impugned appellate order. The appeal filed by Revenue vide I.T.A. No.443/Lkw/2020 is dismissed.

(E) The appeal filed by the assessee (I.T.A. No.368/Lkw/2020) is regarding the aforesaid addition amounting to Rs.5,78,000/-, which was sustained by learned CIT(A). The relevant portion of the order of learned CIT(A) is reproduced below:

(E.1) The learned A.R. for the assessee submitted before us that the assessee’s explanation that this amount represented past savings should be accepted having regard to nature and scale of assessee’s business, financial and social standing of the assessee and the common social practice in Indian households to save some amount in cash every month from out of funds meant for house hold expenses.

(E.2) The learned D.R. for Revenue supported the orders of the Assessing Officer and the learned CIT(A) on this issue.

(E.2.1) We have given our thoughtful consideration to the materials on record and the submissions made by learned A.R. for the assessee. The amount of Rs.5,78,000/-, claimed to be out of past saving, is not an excessive or unreasonable amount having regard to nature and scale of assessee’s business, financial and social standing of the assessee and the common social practice in households to save some amount in cash from time to time. The explanation tendered by the assessee regarding this issue and the submissions made by the learned A.R. for assessee are, therefore, found to be reasonable and acceptable in the specific facts and circumstances of the present case. Accordingly, we direct the Assessing Officer to delete the aforesaid addition of Rs.5,78,000/-. Thus, the appeal filed by the assessee vide I.T.A. No.368/Lkw/2020 is allowed.

(G) In the result, the appeal of Revenue is dismissed and the appeal of the assessee is allowed.

(Order pronounced in the open court on 30/12/2024)