DCIT Vs Rakesh Kumar Agrawal (ITAT Indore)
The appellant also agitated the making of the addition on the legal ground that since as per the AO’s own version, during the course of the assessment proceedings, the appellant had not produced any books of account and therefore, the question of finding any credit entry as regard to the sundry creditors and consequently, the question of invoking the provisions of section 68 does not arise. According to the appellant, finding of some entries in the books of account are sine-qua-non for invoking the provisions of section 68 of the Act.
FULL TEXT OF THE ORDER OF ITAT INDORE
The above captioned cross appeals are directed against three separate Orders of the Ld. Commissioner of Income Tax (Appeals)-III, Indore (in short ‘CIT(A)’), all dated 10.09.2020, which are arising out of the separate Orders u/s. 144 of the Income-Tax Act, 1961 (in short, ‘the Act’) viz. for A.Y. 2011-12 dated 18.03.2016 by ACIT (Central) -2, Indore, for A.Y. 2012-13 dated 18.03.2015 by DCIT (Central) -1, Indore and for A.Y. 2013-14 dated 18.03.2016 by ACIT (Central) -2, Indore.
2. The delay in filing the appeals is condoned in view of Covid-19 restrictions. As submitted by the Ld. Counsel for the assessee and as also concurred with by the Ld. Departmental Representative that the issues raised in all these appeals are common and inter-linked and as also, are arising out of the similar facts, for the sake of convenience and brevity, all these appeals were heard together on the request of both the parties and are being disposed off by this common order.
2.1 Grounds of appeal raised by the Revenue for AY 2011-12 in IT(SS)A No.64/Ind/2021:
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.2,85,38,400/-made by the Assessing officer on account of undisclosed cash credit.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.30,00,000/-made by the Assessing officer on account of additional surrendered income not shown by the assessee in ITR.”
2.2 Grounds of appeal raised by the Revenue for AY 2012-13 in IT(SS)A No.65/Ind/2021:
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.50,00,000/- made by the Assessing officer on account of surrendered income which was not shown by the assessee in ITR.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.20,18,30,178/- made by the Assessing officer on account of excess expenditure over income.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.1,25,79,722/-made by the Assessing officer on account of disallowance out of various expenses claimed by the assessee.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.9,10,11,278/-made by the Assessing officer on account of bogus sundry creditors and advances against properties.”
2.3 Grounds of appeal raised by the Revenue for AY 2013-14 in IT(SS)A No.66/Ind/2021:
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.1,40,04,961/-made by the Assessing officer on account of surrendered income which was not shown by the assessee in ITR.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.1,08,26,047/-made by the Assessing officer on account of disallowance out of various expenses claimed by the assessee.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.4,96,06,927/-made by the Assessing officer on account of bogus sundry creditors.”
2.4 Grounds of appeal raised by the Assessee for AY 2011-12 in IT(SS)A No.328/Ind/2020:
“1. That, on the facts and in the circumstances of the case, the learned CIT(A) grossly erred, both on facts and in law, in confirming the action of the AO in framing the assessment and issuing the notice under s. 148 of the Act without having! recording any reason to believe that any chargeable income of the appellant for the assessment year under consideration had escaped to assessment.
2. That, without prejudice to the above, the learned CIT(A) grossly erred in upholding the impugned Assessment Order passed by the AO without first issuing and servicing a notice under subsection (2) of section 143 of the Income-Tax Act, 1961 which has rendered the entire assessment proceeding as invalid and nullity.
3. That, the appellant further craves leave to add, alter or amend the foregoing ground of appeal as and when considered necessary.”
2.5 Grounds of appeal raised by the Assessee for AY 2012-13 in IT(SS)A No.329/Ind/2020:
“1a). That, on the facts and in the circumstances of the case, the learned CIT(A) grossly erred in making an enhancement of Rs.25,88,306!- in the appellant’s income by invoking the provisions of section 251(2) of the Act on account of estimation of net profit at 15% by estimating the turnover of the appellant at Rs.6,00,00,000!- as against the same shown by the appellant at Rs.4,66,88,800!- in his audited financial statements for the relevant assessment year.
1b). That, the learned CIT(A) grossly erred in making the impugned enhancement in the appellant’s income without first rejecting the books of account under the provisions of sub-section (3) of section 145 of the Income-Tax Act, 1961.
1c). That, the learned CIT(A) grossly erred in making the impugned enhancement of Rs.25,88,306!- in the appellant’s income by estimating the net profit of the appellant at 15% and estimating the turnover at Rs.6,00,00,000!- merely on guess work, surmises and conjectures, without giving any specific finding as regard to any defect or discrepancy in the regular books of account maintained by the appellant and without considering the material fact that neither during the course of the survey under s.133A nor during the course of assessment proceedings, any evidence as regard to suppression of any sales effected by the appellant was found.
1d). That, without prejudice to the above, the estimation of net profit at the flat rate of 15% by the learned CIT(A) is quite excessive and arbitrary considering the nature of trade and net profit already shown and accepted by the Revenue in the appellant’s own case for earlier assessment years.
2. That, the appellant further craves leave to add, alter or amend the foregoing ground of appeal as and when considered necessary.”
2.6 Grounds of appeal raised by the Assessee for AY 2013-14 in IT(SS)A No.330/Ind/2020:
“1. That, on the facts and in the circumstances of the case, the learned CIT(A) grossly erred in upholding the impugned Assessment Order passed by the AO under s. 144 of the Act without servicing any valid notice under s. 143(2) of the Act to the appellant.
2a). That, on the facts and in the circumstances of the case, the learned CIT(A) grossly erred in making an enhancement of Rs.11,96,353/- in the appellant’s income by invoking the provisions of section 251(2) of the Act on account of estimation of net profit at 15% by estimating the turnover of the appellant at Rs.16,00,00,000/- as against the same shown by the appellant at Rs.10,16,39,194/- in his audited financial statements for the relevant assessment year.
2b). That, the learned CIT(A) grossly erred in making the impugned enhancement in the appellant’s income without first rejecting the books of account under the provisions of sub-section (3) of section 145 of the Income-Tax Act, 1961.
2c). That, the learned CIT(A) grossly erred in making the impugned enhancement of Rs.11,96,353/- in the appellant’s income by estimating the net profit of the appellant at 15% and estimating the turnover at Rs.16,00,00,000/- merely on guess work, surmises and conjectures, without giving any specific finding as regard to any defect or discrepancy in the regular books of account maintained by the appellant and without considering the material fact that neither during the course of the survey under s.133A nor during the course of assessment proceedings, any evidence as regard to suppression of any sales effected by the appellant was found.
2d). That, without prejudice to the above, the estimation of net profit at the flat rate of 15% by the learned CIT(A) is quite excessive and arbitrary considering the nature of trade and net profit already shown and accepted by the Revenue in the appellant’s own case for earlier assessment years.
3. That, the appellant further craves leave to add, alter or amend the foregoing ground of appeal as and when considered necessary.”
3. The brief facts of the case as culled out from the records are that the assessee, an individual carrying on the business of real estate developers, under a sole proprietorship, in the name and style of ‘M/s. Royal Colonizers, Builders and Developers’. A Survey u/s.133A of the Act was carried out at the premises of the assessee on 21-09-2012. During the course of the Survey proceedings, the assessee admitted certain additional income for all the assessment years under consideration. The assessee furnished his returns of income u/s. 139(1)/139(4) of the Act for the assessment years under consideration. The assessee also claimed to have furnished copies of his audited financial statements along with the returns of income filed for A.Ys. 2012-13 & 2013-14. Subsequently, for the A.Y. 2011-12, notice u/s. 148 of the Act on 15-12-2014 and for the A.Ys. 2012-13 & 2013-14, notices u/s. 143(2) of the Act on 05-09-2014 were issued and served upon the assessee. In response to the notice u/s. 148 for A.Y. 2011-12, the assessee instead of filing the fresh return, filed a letter before the AO requesting to consider the original return as the return furnished in compliance to the notice issued u/s.148 of the Act. According to the Learned Assessing Officer (in short Ld.AO) notices under s.142(1) were issued to the assessee for the assessment years under consideration and in response to such notices, the assessee failed to make any compliance. Finally, the Assessing Officer framed the assessments for the relevant assessment years u/s. 144 of the Act by passing three separate Orders dated 18.03.2016, 18.03.2015 & 18.03.2016 respectively for A.Ys. 2011-12, 2012-13 and 2013-14 making certain additions to the returned income shown by the assessee.
4. Aggrieved assessee preferred separate appeals for all the assessment years under consideration before Ld. CIT(A). Since the subject assessments for all the three assessment years were framed u/s. 144 of the Act, the entire documentary evidences along with written submissions, furnished by the assessee as additional evidences under Rule 46A, were forwarded to the Assessing Officer for comments. The Ld.AO submitted his remand reports before the ld. CIT(A) on two occasions i.e. on 07-03-2019 and on 28-07-2020. In response to the Remand Reports, the assessee filed his rejoinders vide his two letters dated 17-04-2019 and 20-082020. Both the Remand Reports and the Assessee’s Rejoinders thereto have been reproduced by the ld. CIT(A) at page nos. 28 to 52 of his Order for A.Y. 2011-12 itself. The ld. CIT(A), vide his three separate Orders, all dated 10.09.2020, adjudicated the appeals of the assessee for the assessment years under consideration. The ld. CIT(A), after issuing the notices u/s. 251 for enhancement of income, rejected the books of account of the assessee for the A.Ys. 2012-13 & 2013-14 and estimated the net profit of the assessee for such years.
5. Now, aggrieved by the relief granted by the ld. CIT(A) to the assessee, the revenue is in appeal before this Tribunal for the assessment years under consideration.
6. Against the legal ground dismissed by the ld. CIT(A) and as also against the action of the ld. CIT(A) for enhancement of income, the assessee has preferred cross appeals before us.
7. Ground No. 1 of the Revenue’s Appeal for A.Y. 2011-12
7.1 Through this ground of appeal, the revenue has challenged the action of the ld. CIT(A) deleting the addition of Rs.2,85,38,400/- made by the Ld.AO on account of unexplained cash deposits made in his various bank accounts during the previous year relevant to A.Y. 2011-12.
7.2 Briefly stated facts are that during the course of the assessment proceedings, Ld. AO, from the Individual Transaction Statement (ITS) generated from the System of the Department, noted that during the relevant previous year, the assessee had made total deposits of Rs.2,85,38,400/- in cash in his various bank accounts whereas he had not shown any sales or advance received in his return of income and therefore, the entire deposit amount of Rs.2,85,38,400/- was added to the total income of the assessee u/s. 68 of the Act.
7.3 Aggrieved assessee preferred an appeal for the assessment year under consideration before the ld. CIT(A) making detailed submissions along with the documentary evidences. The ld. CIT(A) after considering the Ld.AO’s remand reports submitted by the AO as well as the rejoinders of the assessee thereon, documentary evidences and other materials placed on record, arrived at a conclusion that the assessee had duly explained source of each and every cash deposit made by him in his bank accounts through various statements and documentary evidences and during the remand proceedings, the AO could not find any specific defect or discrepancy in the explanation of the assessee or any of the documentary evidences so furnished by him. Accordingly, the ld. CIT(A) deleted the entire addition of Rs.2,85,38,400/-made by the AO on account of unexplained cash deposits. The ld. CIT(A) has given his findings on the issue from para (7.3) at page no. 56 to para (7.15) at page no. 64 of his Order.
7.4 Aggrieved with the Order of the ld. CIT(A), the revenue is in appeal before us.
7.5 Before us, learned CIT(DR) vehemently argued supporting the observations of the AO on this issue.
7.6 Per Contra, Learned Counsel for the assessee has filed written synopsis. The relevant portion of such synopsis is being reproduced as under:
“D. Key Points of Assessee’s Submission and Relevant Pages of the Paper Book:
In this context it is submitted as under :
1.00 That, the learned AO has made an addition of Rs.2,85,38,400/- in the assessee’s income, by invoking the provisions of s.68 of the Act, on account of alleged cash deposits made in the bank account. It is submitted that in the body of the assessment order, the learned AO has nowhere given any finding to the effect that during the course of the assessment proceedings, any credit entry in any books of account maintained by the assessee was found by him so as to enable him to invoke the provisions of s.68 of the Act.
2.00 That, the learned AO has made an addition of Rs.2,85,38,400/- in the assessee’s income, by invoking the provisions of s.68 of the Act, on account of alleged cash deposits made in the bank account. It is submitted that in the body of the assessment order, the learned AO has nowhere given any finding to the effect that during the course of the assessment proceedings, any credit entry in any books of account maintained by the assessee was found by him so as to enable him to invoke the provisions of s.68 of the Act.
2.01 That, the relevant provisions of s.68 of the Act are being extracted for a ready reference as under :
“Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:”
2.02 That, on a plain reading of the provisions of s.68 of the Act, it would be observed by Your Honour that the section comes into motion only in a case where any sum is found credited in the books of an assessee maintained for any previous year.
2.03 Thus, perusal of the books of account maintained by the assessee is an essential condition for the purpose of invoking the provisions of s.68 of the Act. In other words, a finding to the effect that any sum is credited in the books of account is sine-qua-non for triggering the provisions of s.68 of the Act.
2.04 In the instant case, it is an established fact that the learned AO has not perused the books of account of the assessee. In such eventuality, any addition made by the learned AO by invoking the provisions of s.68 of the Act in the assessee’s income cannot be sustained on this legal count alone. For such proposition, reliance is placed on the following judicial pronouncements:
i) Ms. Mayawati vs. DCIT (2008) 113 TTJ (Del.) 178
ii) Anand Ram Ratiani vs. CIT [1997] 223 ITR 544 (Gau.)
iii) CIT vs. Bhaichand N. Gandhi [1982] 11 Taxman 59 (Bom.)
3.01 That, during the relevant previous year, the assessee was engaged in the business of real estate developers under the proprietorship concern named and styled as ‘M/s. Royal Colonizers, Builders & Developers’.
3.02 That, the impugned addition of Rs.2,85,38,400/- so made by the learned AO in the assessee’s income on account of unexplained cash credit is not maintainable for the reason that the said addition is made by the learned AO merely on the basis of the ITS generated from the system of department without examining the books of accounts of the assessee.
4.01 That, to the best of the knowledge and belief of the assessee, he had made cash deposits aggregating to a sum of Rs.2,72,14,700/- only in the bank accounts so maintained by him as against the alleged cash deposits of Rs.2,85,38,400/- as noted by the learned AO. The break up of the aforesaid cash deposits of Rs.2,72,14,700/-, as made by the assessee in his bank accounts, is given in a tabular form as under:
