Case Law Details

Case Name : ACIT Vs Siddhartha Bhargava (ITAT Kolkata)
Appeal Number : ITA No. 2508/Kol/2017
Date of Judgement/Order : 22/11/2019
Related Assessment Year : 2012-13
Courts : All ITAT (7310) ITAT Kolkata (590)

ACIT Vs Siddhartha Bhargava (ITAT Kolkata)

The issue under consideration is whether Cash deposits in bank account held as unexplained u/s 68 is justified?

During the assessment proceedings, the assessee had produced bank account of the assessee in Punjab National Bank (PNB) and HSBC. On verification of the bank accounts, it was found that there was cash deposit of Rs. 60,18,000 in PNB and Rs. 10,98,000 in HSBC account for the year under consideration. When confronted, the assessee submitted that the assessee was having cash in hand for purchase of a plot of land at New Delhi and he has withdrawn cash from time to time from his own savings bank account and since the purchase of land could not materialize, the amount was deposited back in its bank account.

On examination of cash flow statement for the year under consideration, as also for earlier two years and cross verifying it with entries in bank statements, it was evident that entries were recorded in disclosed bank accounts of assessee which showed that sufficient cash withdrawals were made by assessee from his bank account to cover impugned cash deposit and these deposits were made out of cash balance brought forward from earlier year. Accordingly, addition made by AO could not be sustained.

In the result, the appeal of the revenue is dismissed.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal preferred by the revenue is against the order of the learned Commissioner (Appeals)-19, Kolkata, dated 13-9-2017 for assessment year 2012-13.

2. Ground No. 1 is against the action of the learned Commissioner (Appeals) in deleting the addition of Rs. 71,16,000 which the assessing officer had added since according to him, the assessee failed to furnish material in support of source of income.

3. Brief facts of the case as noted by the assessing officer are that during the assessment proceedings, the assessee had produced bank account of the assessee in Punjab National Bank (PNB) and HSBC. On verification of the bank accounts, it was found that there was cash deposit of Rs. 60,18,000 in PNB and Rs. 10,98,000 in HSBC account for the year under consideration. When confronted, the assessee submitted that the assessee was having cash in hand for purchase of a plot of land at New Delhi and he has withdrawn cash from time to time from his own savings bank account and since the purchase of land could not materialize, the amount was deposited back in its bank account. The assessing officer had reproduced the following explanation submitted by the assessee as under:

“During the captioned Financial Year, the assessee deposited certain amount of money in his Bank account from past savings. The detail of cash withdrawals and deposits for the current financial year and prior two financial years are furnished as Anx. 1. As can be seen from Anx. 1, the cash deposits have been made by the assessee from the cash in hand resulting from past savings and cash withdrawals during the captioned financial year. The cash deposits and withdrawals are duly supported by bank statements for the assessee furnished as Anx. 2.”

4. However, the assessing officer was not satisfied with the explanation given (supra) by the assessee and according to him, the cash deposits remain unsubstantiated by the assessee by filing neither any evidence nor the wealth tax return in respect of the source of cash deposit of Rs. 60,18,000 and Rs. 10,98,000. So, he was pleased to add Rs. 71,16,000 under section 68 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”). Aggrieved, the assessee preferred an appeal before the learned Commissioner (Appeals), who was pleased to delete the same.

5. Having heard both the parties, we note that the learned Commissioner (Appeals) has taken note that the assessee had filed the cash flow statement and copies of the bank statement before the assessing officer and that he (AO) has scrutinized the same and thereafter only has made the addition. The learned Commissioner (Appeals) after having gone through the cash flow statement vis-a-vis the bank statement of the assessee noted from the extract of the cash book that as on 1-4-2011 being the first day of the relevant previous year, the assessee was having cash balance of Rs. 44,99,361. Out of the opening cash balance of Rs. 44,93,361 the assessee deposited Rs. 40 lakh in his PNB account in the month of April and May, 2011. Further, the learned Commissioner (Appeals) records the fact that in order to verify the cash balance brought from the preceding years, he had gone through the extract of the cash book/cash flow statement for the immediate previous two years and on verification of these cash flow statements, the learned Commissioner (Appeals) found that the opening cash in hand as on 1-4-2010 of Rs. 41,31,861 and as on 1-4-2009 it was Rs. 8,19,071. It was also taken note by the learned Commissioner (Appeals) that cash balance accounted in the assessee’s books arose out of the withdrawal made by him from his own account in PNB and HSBC bank. The learned Commissioner (Appeals) noted that these two bank accounts were duly reflected by the assessee in his personal balance sheet which has already been examined by the assessing officer After conducting his own scrutiny, the learned Commissioner (Appeals) has confirmed that out of the total deposit of Rs. 71,16,000 made during the relevant year Rs. 40 lakh were deposited in the month of April and May, 2011 and that these deposits were made out of the cash balance brought forward from the earlier year. It was also noted by the learned Commissioner (Appeals) that in the assessment year under consideration, the assessee had withdrawn Rs. 27,25,000 from his accounts maintained in PNB and HSBC and out of these withdrawals, the remaining cash balance was deposited to the tune of Rs. 31,16,000. Thus, the learned Commissioner (Appeals) has recorded a finding of fact as under:

“On examination of the cash flow statement for the year under consideration, as also for the earlier two years and cross verifying it with the entries in the bank statements, I find that the entries are recorded in the disclosed bank accounts of the assessee which showed that sufficient cash withdrawals were made by the assessee from his bank account to cover the cash deposit.”

This finding of fact made by the assessing officer after examination of the cash flow statement for the year under consideration as also for the earlier two years after cross verifying it with the entries in the bank statement could not be dislodged by the departmental representative before us. In such a scenario, we are inclined to uphold the action of the learned Commissioner (Appeals) and dismiss the ground of appeal of the revenue.

6. Ground no.2 is against the action of the learned Commissioner (Appeals) in deleting the disallowance made by the assessing officer under section 17(3)(ii) of the Act at Rs. 1,65,51,054.

7. Brief facts of the case as noted by the assessing officer are that the assessee had shown outstanding loan balance from three companies which according to assessing officer are from companies in which assessee is an employee i.e. director namely in (i) M/s. Rolls Print Co. Pvt. Ltd. Rs. 62,00,449 (ii) M/s. Rolls Print Graphics Pvt. Ltd. Rs. 2,77,820 and (iii) M/s. XPRT Engineered Packaging Solutions Pvt. Ltd. Rs. 6,75,054 totaling to Rs. 71,53,523. The assessing officer noted that assessee has shown this as interest free loans in his Balance Sheet for the relevant assessment year. The assessing officer noted that the assessee has received payments from these three companies in the F.Y. under consideration. The assessing officer has drawn a chart as under:

Details as per confirmations Rs. (Op. Bal.) Rs. (Received) Rs. (Paid) Rs. (Cl. Bal.)
Rolls print Co. Pvt. Ltd. 332550 7475000 222000 6200449
Rolls Print Graphics Pvt. Ltd. 0 1800000 10000 2777820
XPRT Engineered Packaging solutions Pvt. Ltd. 300000 1050000 74946 675054
Details in Balance Sheet disclosure of lender company
Rolls Print Co. Pvt. Ltd. 7475000 942000
Rolls Print Graphics Pvt. Ltd. (-) 2777820
XPRT Engineered Packaging solutions Pvt. Ltd. No details of Audited bal Sheet submitted
17800000 1248946  

8. According to assessing officer, though he asked for explanation regarding this outstanding loan balances, the assessee did not bother to file any explanations. According to assessing officer, in view of the discrepancy in the audited balance sheet disclosures and written confirmations provided it was noticed by him that these are payments made to the assessee which are not substantiated as ‘loan’. The assessing officer asked the assessee to explain as to why the receipts should not come under the purview of provisions of section 17(3) of the Act. Pursuant to the query of assessing officer, the assessee replied that he is a non-executive director of the three companies namely, M/s. Rolls Print Co. Pvt. Ltd., (ii) M/s. Rolls Print Graphics Pvt. Ltd. and (iii) M/s. XPRT Engineered Packaging Solutions Pvt. Ltd., which fact can be taken note from the ROC filings of the said companies. and it was submitted by the assessee that he is neither a whole time director nor does he draws any salary from the above companies and, therefore, is not an employee of the said companies. It was also argued that the interest free loan or concessional loan given to assessee is not covered under section 17(3) of the Act and, therefore it was contented by the assessee that since he has taken loan from these legal entities, it is a liability and cannot be termed as profits in lieu of salary. It was also brought to the notice of assessing officer that the loans provided to employees are taxable as per Rule 3(7)(i) of the Income Tax Rules, 1962 (hereinafter referred to as the “Rules”) and that in any case under section 17(2)(viii) of the Act, the actual tax on loan provided will depend on the interest rate that the employee pays. In other words, it was also contended that as per the Income Tax Rules, if loans are provided at a rate which is less than the interest rate charged by the SBI, then the employee who receives the loan is deemed to have received the loan at a concessional rate. And, therefore, according to assessee, the extent of “concession” is only the benefit and in any event, the benefit is only taxable and not the entire loan amount which has to be re-paid to the companies. However, the assessing officer did not accept the assessee’s explanation and he reiterated his stand that the so called loans given by the three companies termed as interest free loans is disbursed to assessee since he is not only an employee but also a key personnel of these three companies and accordingly, the amount of Rs. 1,65,51,054 (Rs. 1,78,00,000 — Rs. 12,48,946) was held by assessing officer as profit in lieu of salary under section 17(3)(ii) of the Act. Aggrieved, the assessee preferred an appeal before the learned Commissioner (Appeals) who was pleased to give partial relief to the assessee by holding as under:

“12. Reading provisions of section 17(2)(viii) & 17(3)(ii) harmoniously therefore the only conclusion that one can draw is that in case of interest free loan granted by the employer to the employee; loan amount per se is not assessable as income under the head ‘salary’ but what is chargeable to tax is only the perquisite value computed in the manner prescribed in Rule 3(7)(i) which alone is assessable under the head ‘salary’. From the facts as seen from the assessment order, it is noted that the assessee was whole time Director deriving remuneration only from XPRT Engineered Packaging Solutions Pvt. Ltd. Remuneration so received has been assessed in the impugned order under the head ‘salary’. In the circumstances, the assessing officer is directed to assess the perquisite value in respect of interest-free loan, granted by the said Company to the assessee as income of the appellant. The assessing officer shall accordingly obtain the details of interest free loan received by the assessee during the relevant year and thereafter assess perquisite value in the manner prescribed in Rule 3(7)(i) in relation to loan received from XPRT Engineered Packaging Solutions Pvt. Ltd. As regards the loans received from Rolls Print Co. Pvt. Ltd. and Rolls Print Graphics Pvt. Ltd. no income shall be assessed since the loans received from these two Companies are not chargeable to tax as assessee’s income under any of the taxing provisions of the Act nor perquisite value in terms of Rule 3(7)(i) is assessable in the hands of the assessee. Ground Nos. 3 to 7 are therefore treated as partly allowed.”

9. We note that the learned Commissioner (Appeals) has made a finding of fact that assessee was not an employee of two companies viz., M/s. Rolls Print co. Pvt. Ltd. and M/s. Rolls Print Graphics Pvt. Ltd. and, therefore, section 17(3)(ii) of the Act could not be applicable which finding of fact gets crystallized since Revenue has not assailed this factual finding of the learned Commissioner (Appeals). Section 17(3)(ii) of the Act reads as under:

“(3) “profits in lieu of salary” includes —

(ii) any payment (other than any payment referred to in clause (10) [clause (10A) [clause (10B), clause (11), [clause (12), [clause (13)] or [clause (13A)] of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund [***] to the extent to which it does not consist of contributions by the assessee or [interest on such contributions or any sum received under a keyman insurance policy including the sum allocated by way of bonus on such policy.

Explanation.–for the purposes of this sub-clause, the expression “key Man insurance policy” shall have the meaning assigned to it in clause (10D) of section 10;]”

10. As we noted, the learned Commissioner (Appeals) has made a clear finding of fact that assessee is not an employee of the two companies namely, M/s. Rolls Print Co. Pvt. Ltd. and M/s. Rolls Print Graphics Pvt. Ltd. which finding of fact has not been challenged by the department before us and since the amounts taken has been admitted by the assessee as given by these companies as loan, the question of this amount falling in the ken of section 17(3)(ii) does not arise in the facts as discussed. Moreover, we note that the assessee in subsequent year has repaid the said loan to both these companies. Therefore, the amount which the assessee had taken as loan from these two companies namely, M/s. Rolls Print Co. Pvt. Ltd. and M/s. Rolls Print Graphics Pvt. Ltd. does not attract section 17(3)(ii) of the Act and the learned Commissioner (Appeals)’s action on this score is upheld.

11. Coming to the loan taken from the M/s. XPRT Engineered Packaging Solutions Pvt. Ltd., we note that assessee was a whole time director of the said company and has drawn salary from it. Therefore, once the assessee had drawn interest free loan from the said company where he was employed, what is chargeable to tax is only the perquisite value computed in the manner prescribed in Rule 3(7)(i) of the Rules, which is assessable under the head ‘salary’. We note that in the aforesaid scenario, the learned Commissioner (Appeals) has directed the assessing officer to assess/compute the perquisite value in respect of interest free loan granted by the M/s. XPRT Engineered Packaging solutions Pvt. Ltd. to the assessee in the manner prescribed under Rule 3(7)(i) of the Rules. We find that the action of the learned Commissioner (Appeals) is as per law and need not be interfered with. Therefore, we dismiss this ground of appeal of revenue.

12. Ground Nos. 3, 4 and 5 are against the action of the learned Commissioner (Appeals) in directing the assessing officer to assess the loss of Rs. 81,50,871 as business loss derived from non-speculation transactions.

13. At the time of hearing the learned DR pointed out to us that the aforesaid grounds have been withdrawn by the department, so, we are inclined to dismiss these grounds of appeal raised by the revenue. Nevertheless, on merits, also we do not find any merit in the appeal of the Revenue. We note that the assessing officer on a mistaken belief held that assessee had filed the return of income belatedly, he disallowed the loss claimed by the assessee as well as he was of the view that the loss claimed is from speculative transaction. However, the learned Commissioner (Appeals) has recorded a finding that since tax audit was conducted in the assessee’s case, the date of filing of return of income was 30th September and since the assessee had filed the return of income on 28th September the return of income was not belatedly filed; and he also found that the loss could not be qualified as Speculative, because it was incurred by the assessee in the trading conducted in derivatives and since the derivative trading was carried out through authorized members of the recognized Stock Exchanges, as per clause (d) of the Explanation to section 43(5) of the Act, it did not constitute “Speculative transaction” which findings of the learned Commissioner (Appeals) is valid and, therefore, the action of learned Commissioner (Appeals) in the facts is upheld.

In the result, the appeal of the revenue is dismissed.

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