Section 69 addition not justified if Assessee Explains source of Deposits in Bank based on Cash Book

ACIT Vs Dr. Anil Kumar Verma (ITAT Agra)

The issue under consideration is whether the addition made u/s 69 by AO due to undisclosed sources of cash deposits in bank account is justified in law?

ITAT states that, the Assessing Officer in the remand report had confirmed that the amount deposited in the bank were found duly recorded in the cash book. The Revenue before us during the course of arguments and also in the written submissions have not disputed the correctness of the cashbook. Further, it was also not the case of the Assessing Officer that the cash book maintained by the assessee was incorrect. In view of the above, once the assessee was able to explain the source of deposits in the bank based on the cash book, which were admittedly not disputed and rejected by the AO, therefore, no addition on the basis of the bank deposit can be made out and accordingly, the ground raised by the Revenue is liable to be dismissed.

FULL TEXT OF THE ITAT JUDGEMENT

Present appeal and cross objection are being filed by the Revenue and the assessee, feeling aggrieved by the order of the ld. CIT(A)-II, Agra for the assessment year 2009-10. The following grounds have been raised by the Revenue in ITA No.274/Agr/2013:

“1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.62,13,500/- out of addition of Rs.63,63,500/- made by AO on account of cash Deposit in bank accounts without appreciating the facts of the case that the assessee has introduced cash amounting to Rs.31 lacs in the cash book on different dates from “cash in safe” and the assessee has shown professional receipts of only Rs.1 8,22,680/-and interest income of Rs. 6,06,073/- for the A. Y. 2009-10.

2. The Id. CIT (A) has erred In law and on facts In glossing over the fact that the assessee never produced any sundry creditor before the AO as desired by the latter and never furnished copies of ITR and bank statements of the sundry creditors, thus the addition of Rs.63,63,500/-

3. The Id, CIT(A) has erred in law and on facts in restricting the addition of Rs.5,98,306/- to Rs.46,794/- u/s 36(l) (iii) of the Act without properly appreciating the facts of the case that the assessee has also vested his capital in Sai Om Developers, Bajaj Alianz, FDR, shares in Sahara etc and, therefore, it cannot be concluded that the donation of 93,67,242/- was given out of the assessee’s capital and not from his borrowed funds.

4. The Id. CIT(A) has erred in law and on facts in deleting the addition of 85,000/- on account of unexplained investment made in purchase of car without properly appreciating the facts of case that the assessee did not contradict the statement given by him during the course of the survey conducted when the amount was surrendered and it was only towards the fag end left for completion of the assessment that an affidavit was filed bythe assessee denying investment.

5. The order of Id CIT(A) being erroneous in laws and on facts deserves to be quashed andthat the order of AO to be restored.

6. The appellant craves leave to add or alter any or more ground or grounds of appeal as may be deemed fit at time of hearing of appeal.”

2. The grounds raised by the assessee in the cross objection read as under:

“1) That the learned CIT(A) has erred in law and on facts of the case in affirming addition of Rs.1,50,000/- in respect of cash deposit in the SB account of Mrs. Renu Verma , who is independent Income Tax Assessee.

2) That the learned CIT(A) has erred in law and on facts of the case in affirming addition of Rs.1,50,0007- in the account of Loan received by account payee cheque on 21-04-2008, wrongly entered in the account of Mr. Bharat Bansal.

3) That the learned CIT(A) has erred in law and on facts of the case in affirming addition of Rs.46,794/- U/S 36(l)(iii) in respect interest paid to Syndicate Bank.

4) That the learned C1T(A) has erred in law and on facts of the case in affirming addition of Rs.92,626/- in respect of interest paid to Barklay Finance with out deduction of TDS u/s 40(a) (i a).

5) That the departmental appeal is bad in law as well as on facts and is liable to be dismissed.

6) For the reasons discussed above and to be argued at the time of hearing , respondent pray for relief.

7) The respondent craves leave to add or amend any ground of cross objection.”

Assessee submission

ITA No. 274/Aera/2012

1. First Ground relates to deletion of Rs. 62,13,500.00 out of total addition of Rs. 63,63,500.00 made by the learned AO, the learned AO totaled the cash deposits in various 7 bank accounts at Rs. 63,63,500.00 and added the same in the income of the assessee. The main argument of the AO while adding these amount is that assessee has shown the total medical receipts amounting to Rs. 18,22,680/- and after deducting the expenses according to him the net profit comes to Rs. 6,33,343/- and that these deposits cannot be made out of the income of the year, hence these amounts were deposited was income from undisclosed source.

2. The ld. DR for the Revenue had submitted that the order passed by the ld. CIT is required to be interfered as the source of deposit were not explained by the assessee before the AO/CIT.

3. The ld. DR had filed the written submissions and flow chart in this regard and in the said flow chart it was submitted as under :

4. On the other hand, the ld. AR for the assessee had submitted that the assessee had given reply dtd. 29.11.2013/before the AO in which he explained each deposits of each bank account and explained that he maintain regular books of accounts in the form of cashbook ad ledger since long and these accounts were duly audited and audited balance sheet, profit & loss a/c and other details were filed before the AO and these deposits in bank were by debited in the regularly maintained cashbook or were bank transfers from another bank account or out of loan taken during the year which were deposited in the cashbook and deposited in the bank. Thus each deposit entry in the bank was fully explained from the cashbook maintained by the assessee.

4.1 Further, the ld. AR had submitted that, a detailed reply was filed before the CIT Appeal getting enclosed in the paperbook and discussed at page 11 to page 16 para 4.1 to 4.3 of the CIT Appeals order and assessee reply was sent for comments to the AO. The AO in this remand report dtd. 17.05.2013 referred to para 4.4 of CIT Appeal order and page 18 of the CIT Appeals order and the AO concluded as under :-

“It is noted that amount deposited in the bank account mentioned at 1,2,3,56 were fully recorded in cash book. As regard bank a/c no. 4047 in the name of Renu Verma mentioned at SI. No. 4, it is submitted that the account was opened on 21.1 0.2008 by deposit Rs. 1.59 lacs on 23.1 0.2008 and loan of Rs. 1.5 lakhs was given to the assessee. Thus, it is assumed that the assessee first deposited his money in the account of Renu Verma, sister in law of the assessee and thereafter loan taken from Renu Verma.” CIT Appeal thereafter in para 4.5 considered this remand report and deleted the additions.

5. In respect to amount withdrawn cash from safe, the assessee has filed the copy of audited balance sheet for the period ending 3 1.03.09 at page 47 and audit report ending 3 1.03.09 at page 74 of the Paper Book which will show that assessee has filed the copy of audited balance sheet for the period ending 3 1.03.2008 at page 47 – 73 and for the period ending 3 1.03.2009 page 74 – 104 at page 69 Paper Book, there is a capital a/c for the period ending 31.03.08 on 30.03.08, there is a debit of Rs. 20 lakhs cash in safe in the capital a/c of the assessee and thereafter at page 101 this Rs. 20 lakhs drawn on 30.03.08 has been credited in the capital account on 1st April,08 has brought in the capital a/c. Thus the credit of Rs. 20 lakhs on 01.04.2008 is out of withdrawal of Rs. 20 lakhs on 30.03.2008. This is a regular feature of assessee whenever cash is excess in cash in hand, it is kept in the safe on the last day accounting year and deposited in the 1st day of next year again.

6. We have heard the rival contentions of the parties and perused the record. Admittedly, the Assessing Officer in the remand report had confirmed that the amount deposited in the bank mentioned at Sl. No. 1, 2, 3, 5 & 6 (paragraph 4.4 of CIT order) were found duly recorded in the cash book. The Revenue before us during the course of arguments and also in the written submissions have not disputed the correctness of the cashbook. Further, it was also not the case of the Assessing Officer that the cash book maintained by the assessee was incorrect. In view of the above, once the assessee was able to explain the source of deposits in the bank based on the cash book, which were admittedly not disputed and rejected by the AO, therefore, no addition on the basis of the bank deposit can be made out and accordingly, the ground raised by the Revenue is liable to be dismissed.

7. With respect to CO filed by the assessee, ground No. 1, none of the parties before us have made any arguments. The assessee during the course of proceedings had filed the return of income for the assessment year 2011-12 for Smt. Renu Verma, wherein the deposit in the bank have been duly explained. In view of the above, the assessee was able to satisfactorily explain the deposit in the bank of Renu Verma. Further, we are of the opinion that merely possession of passbook of Renue Verma with assessee would not give rise to any suspicion, more particularly, when Smt. Renu Verma happens to be the wife of assessee, which is contrary to normal practice.

8. In view of the above, ground No. 1 of the Cross objection is allowed.

9. Ground No. 2 of the Revenue Appeal pertains to Credit in the account of creditors, addition in the account of creditors.

10. The learned AO added Rs. 56.00 lakhs in respect of cash deposits in the account of various creditors. According to AO, the confirmations were filed, but no copy of IT returns and computation and bank statement not filed. Assessee has not proved the deposit, as he added the same in the income. (para-4 of assessment order)

11. Feeling aggrieved by the order passed by the Assessing Officer, the assessee preferred an appeal before the CIT(A) and before the CIT(A), the assessee have filed the submissions and explained each and every loan transactions. The submissions of the assessee were sent back to the AO for sending the remand report. The Assessing Officer in remand report has examined the submissions and the documents furnished thereto. In the remand report, in para-3 at page 32 & 33 of the paper book, it was mentioned as under :

“3. Unsecured Loans-

On perusal of balance sheet, it was noticed that assesses has shown unsecured loans from the following persons namely Shri Arun Chadda, Bharat Bansal, Surendra Poddar, Nisha Agrawal, Renu Verma, sachidanand Nayak, Sudha bansal & Friends, relatives & others amounting to Rs 5 1,88,2377-. The assessee was required to produce all the above persons along with their copy of income tax return, computation of income and bank pass book. The assessee has submitted only their confirmation but not furnished copy of ITR, Computation of income and bank statements. Hence the amount of Rs 56,00,000/- was treated as income of the assessee from income from other sources and added to his income. As per the details furnished before your goodself, the opening balance as on 1.4.2008 Rs 32,53,2507-, credit during the year Rs 26,74,559/- and closing balance Rs 51,88,2377-. In this regard it is submitted that-

A. On perusal of balance sheet as on 3 1.3.2008 reveals that the closing balance as on 3 1.3.2008 of unsecured-loan is Rs 2 1,64,250/-. The same would be the opening balance as on 0 1.04.2008 while the opening balance shown Rs 32,53,250/- which includes ICICI p/loan amounting to Rs 10,89,000/-.

B. Some confirmations out of the confirmations filed during the assessment proceedings are only signed by the assessee not signed by the concerned party such as Bharat Bansal, Nisha Agrawal, Sachidanand Nayak.

C. In the case of Renu Verma, it is mentioned that the bank account was opened on 2 1.10.2008 by depositing cash of Rs 1,50,0007- and Rs l,000/~ and the loan was given on 23.10.2008. Thereafter no transaction was made in this account during the year.

D. The out standing balance or transactions in some cases in the confirmation filed during the assessment proceedings and filed before your goodself differs. As per the confirmations filed by the assessee before the AO and before your honour, it is noticed that the transactions in the case of Shri Bharat Bansal and Nisha Agrawal are as under:-

From the above, it is clear that-

1. In the case of Bharat Bansal, the assessee has shown fresh unsecured loan of Rs 3 lacs while the loan of Rs 1.50 lacs was confirmed by the party. The closing balances of unsecured loans is Rs 3,00,000/- while the assessee in his books of account shown the same at Rs 4,57,875/-.”

12. The CIT after considering the remand report have tabulated the same in the order in pargraph 5.3 to the following effect :

13. The CIT(A), after considering the remand report had deleted the addition of Rs.51,88,237/- and had confirmed the addition of Rs.1,50,000/- on account of unexplained loan from Mr. Bharat Bansal.

14. The Revenue is in appeal on account of the relief granted by the CIT(A).

15. In this regard the ld. DR had drawn our attention to the written submissions which were to the following effect :

AS REGARD CREDITORS

ARUN CHADDHA

BHARAT BANSAL

SURENDRA POADAR

NISHA AGGARWAL

RENUE VERMA

SACCHINAND NAYAR

SUVIDHA BANSAL & SONS

16. The ld. AR for the assessee had submitted that the assessee in his reply dtd. 26.02.2013 before the CIT(A) had submitted that total credit in the Balance Sheet were only of Rs. 51,88,237/- and not Rs. 56 lakhs and further out of this Rs. 32,53,250/- was the old opening balance in loan account coming over since last year which were opening balance during this year. Hence, fresh loan during the year amounting to Rs. 26,74,559/- and assessee filed the ITR and computation and bank statement of all these persons before the CIT Appeal and CIT Appeal discussed this matter at page 19 para 5 of the appellant order and forwarded the assessee reply to the AO for comments.

17. The ld. AR had also drawn our attention to letter dtd. 12.2011, whereby assessee had requested AO to summon these creditors for examination which the ITO did not summon them and he was duty bound to enforce the attendance of these persons witness as per decision of Allahabad High Court in the case of Nathu Ram V/s CIT 1963 49 ITR page 561. The learned AO in his remand report accepted the contention of the assessee in his remand report furnished by him as per page 31 – 34 of the Paper Book. At page 32, he conceded that creditors account were of Rs. 51,88,237/- and not Rs. 56.00 lakhs and that opening credit balance was Rs. 32,53,350/- including ICICI loan of Rs 10.89 lakhs, but he objected to only 2 cash credits in the account of Renu Verma and cash of Rs. 1.5 lakhs was deposited in the bank first and then cheque was issued to assessee which according to him cash was given by the assessee. In the account of Bharat Bansal, he pointed out that out of credit of Rs. 3.00 lakhs i.e. 1.5 lakhs + 1.5 lakhs, he has confirmed only credit of Rs. 1.5 lakhs, hence Rs. 1.5 lakhs remained unexplained.

18. We have heard the rival contentions of the parties and perused the record. The Assessing Officer in the remand report had confirmed the opening balance as on 01.04.2008 pertaining to these creditors were Rs.32,53,250/- and the creditor during the year were Rs.26,74,559/-. The creditors during the year were as under :

19. As is clear from the tabulation hereinabove that the Assessing Officer had made the addition even in respect of Axis Bank and Barclay Finance. This shows the total non-application of mind by the Assessing officer. In respect of these two creditors, we have no doubts that these are duly explained creditors being the financial Institution/bank, hence, the addition of Rs.4,81,933/- and Rs.9,42,626/- are deleted.

20. With respect to Renu Verma, we had already mentioned that the deposit in the bank account of Renu Verma was duly explained by her in the return of income filed by her. Further, she had also explained that the said amount was duly given by her to her husband. In our view, the assessee had discharged his onus and therefore, the addition made by the AO qua Renu Verma was uncalled for. Further, the AO was asked by the assessee during the assessment proceedings to summon all these creditors including Renu Verma, but theAO failed to exercise his powers under the Act. Hence, for this reason also, this addition is deleted.

21. In respect to the creditor Arun Chaddha, the confirmation of account was placed by the assessee in the paper book at page 129 and 130. The amount of Rs.5 lacs was paid by Shri Arun Chaddha through cheque drawn on Shreyas Gramin Bank, SB The above said fact was not disputed by the Assessing Officer in the remand report at page 32 & 33 of the paper book. In view of the above, the addition made by the assessing officer on account of creditor Arun Chadda is deleted.

22. In respect of Nisha Agarwal, at page 33 of the paper book, as per confirmation before AO, a closing balance of Rs.468375/- was mentioned whereas as per confirmation before CIT(A), it was mentioned as Rs.4,50,000/-. In our view, the difference between the two is a very small amount and moreover, the creditor in the books of account of the assessee are required to be seen and in the present case, the amount shown in the assessee’s account was less as compared to the confirmation before the AO. In view of the above, we do not find any reason to uphold the action of AO and accordingly, the amount of 468375/- is deleted.

23. In respect of Shree Timber, the assessee has placed at page 146 to 188 the confirmation from shree Timber through its proprietor sh. Akhil Bansal for an amount of Rs.2,00,000/-. Even the return of income was placed on record for the relevant assessment year. Since the identity, capacity and creditworthiness of the creditor are beyond the shade of doubt, therefore, the deletion made by the CIT(A) is required to be upheld.

Ground No. 2 of the Revenue appeal and ground -2 of C.O.

24. In respect to Bharat Bansal, the ld. DR has brought to our notice the copy of the confirmation filed by the assessee before the Assessing Officer and it was submitted that in the confirmation filed by the assessee, only an amount of 1,50,000 was shown as credit in the books of account of Shri Bharat Bansal and the amount of Rs.1,50,000/- was received on 1st December, 2008.

25. In rebuttal, the ld. AR had submitted that the Bharat Bansal is a regular income-tax assessee and is maintaining mercantile method of accounting and therefore, there is difference in the books of assessee and that of Bharat Bansal.

26. We have heard the rival contention and perused material available on record. The confirmation of account clearly shows the receipt of Rs.1,50,000/- through the banking channel and therefore, the amount remained to be unpaid by the assessee was only Rs.1,50,000/-. The said amount was not reflected in the books of account of the assessee. In view of the above, the assessee failed to give any explanation for the credit of Rs.1,50,000/-. In view of the above, the appeal of the Revenue is dismissed as the assessee’s explanation in respect of Rs.1,50,000/- is accepted on the basis of the books of account of the Bharat Bansal. However, the C.O. of the assessee in respect of remaining Rs.1,50,000/- which was sustained by the ld. CIT(A), we are of the opinion that the assessee’s explanation is without any merit and accordingly, the same is dismissed.

27. In the result, ground No. 2 of the Revenue appeal is dismissed and ground No. 2 of the assessee’s Cross-objection is also dismissed.

28. Ground No. 3 relates to disallowance of Rs. 5,98,306/- made by the AO while Rs. 49,794/- confirmed by the CIT Appeal. The learned AO discussed this matter at para 3 at page 7-8. According to him, donation of Rs. 93,67,242/- made by the assessee to Shri Sai Ram Charitable Trust is not for business purpose and is out of the transfer of borrowed funds. Assessee submitted that assessee has own capital of Rs. 61,94,824/- and also interest free loan and no interest can be disallowed. However, the CIT Appeal found at para 6.6 page 32 that assessee capital is Rs. 61,94,824/- and interest fee loan of Rs. 17,83,000/- aggregating about Rs. 80 lakhs and donation has been made from Syndicate Bank a/c to Sai Charitable Trust who has charged interest of Rs. 46,794/- who has direct nexus with the donation given and he confirmed the disallowance to the extent of Rs. 46,794/-.

29. Feeling aggrieved by the order, the Revenue is in appeal before The ld. DR had submitted that in para 5, the assessing Officer had mentioned that the interest bearing funds were transferred to M/s. Sai Ram Charitable Trust on 06.01.2009, 27.01.2009 and 10.03.2009. Further, it was submitted that the assessee has invested from its capital to M/s. Ganesh Oxygen, Sai Om Developers, Bajaj Alliance, FDR, shares in Sahara and thus, the own funds were not available for transferring the amount to M/s. Sai Ram CharitableTrust.

30. Per contra, the ld. AR has submitted that the assessee’s own capital was Rs. 6 1,94,824/- and unsecured interest free loans of 17,83,000/- were also available. The said amount was utilized by the assessee for making the investment in Sai Charitable Trust. The ld. AR had also relied on the decision of Hon’ble Supreme Court in the matter of Hero Cycles Pvt. Ltd. vs. CIT, 379 ITR 347 and Ors.

31. We have heard the rival contentions and perused the record. In our view this ground and the other grounds adjudicated by us hereinabove in the appeal of the Revenue were not required to be decided on merit, as by the Circular dated 08.08.2019, the Board has instructed to withdraw all the appeals having tax effect of less than Rs.50 lacs before the Tribunal. In view of the above, we are leaving this issue open and we are not deciding this issue in the present appeal. Accordingly, this ground of the Revenue appeal is also dismissed.

32. The assessee in the C.O. had challenged the additions sustained by the CIT(A). In view of our finding recorded in paragraph 31, we do not wish to adjudicate this ground of the C.O. Further, we are also of the opinion that the assessee was only above to show the availability of Rs.80 lacs in the form of own capital and unsecured interest free loans. The remaining amount, have not been explained by the assessee. In view of the above, ground No. 3 of the C.O. is dismissed.

33. Ground No. 4 of the Revenue appeal is also dismissed in view of our finding recorded in para 31 herein above.

Ground No. 4 of the C.O.

34. Ground No. 4 of the CO relates to disallowance of Rs. 92,626/- u/s 40 (a) (ia)of the Income tax. Act in respect of interest paid to Barklay Finance Co. without deduction of IDS.

35. We have heard the rival contentions and perused the record. The payment was made to BarklayFinance Co. which is a bankand is assessed to Income-tax. In our considered opinion, the assessee was not required to deduct the TDS while making the payment of interest and principal to Barklay Finance CO. The bank is liable to be taxed on the interest income and it is not the case of the AO that the bank has not declared the interest income in its return of income and has not paid the taxes. In our view this issue is of applicability to proviso to section 40(a)(ia) is covered in favour of the assessee by the decision of Hon’ble High Court in the matter of Ansal Land Mark, [2015] 61 taxmann.com 45 (Delhi)wherein Delhi High Court has followed the decision of Agra Tribunal in the matter of Rajeev Agarwal.In Rajiv Agarwal v/s Additional CIT in ITA No. 337/Agra/2013 for A.Y. 2006-07 have taken a view that if payee has paid tax on the income received by him as per amendment u/s 201(1) w.e.f. 01.04.13 which is applicable for retrospective effect from 2005- 06.

36. Respectfully following the decision of Delhi High court in the matter of Ansal Land Mark(supra) we allow ground No. 4 of the O. of the assessee.

37. In the result, the appeal of the Revenue is dismissed and the O. of the assessee is partly allowed.

(Order pronounced in the open Court on 04.09.2019)