Case Law Details
Smt. Dyapa Rajini Vs ITO (ITAT Hyderabad)
The Assessing Officer made an addition u/s 69 of the Act referable to peak credit closing balance found in the Savings Bank Account. The case of the assessee on the other hand was that temporary advances were taken from the customers and the same was utilised for depositing in the bank account but it was immediately withdrawn. It is not in dispute that on account of non-compliance to the notices issued by the Assessing Officer, A.O. made best judgment assessment and at that stage of the proceedings the assessee has not come forward with regard to source of funds. For the first time, the assessee claimed before the Ld. CIT(A) that the deposits were pooled amounts from advances received from customers and sales effected in her business. Ld. CIT(A) called for the remand report and on two occasions the Assessing Officer categorically stated that there are gaps in the explanation given by the assessee and the assessee would not have maintained cash book and ledger since the return of income was filed as a ‘no-accounts case’. It was also stated that even the claims made with regard to the sales are not supported by any evidence. Despite detailed objections by the Assessing Officer, the Ld. CIT(A) proceeded to consider the explanation of the assessee and accepted that the advances were received by the assessee from the customers.
Consequent thereto the Ld. CIT(A) directed the A.O. to treat the entire deposits as her business turnover and directed the A.O. to estimate the profit @ 8% on the deposits. If the conclusion of the Ld. CIT(A) with regard to the acceptance of the source of funds is wrong, it is the duty of the Assessing Officer to either file an appeal or to file cross-objection or appeal by way of a petition under Rule 27 of the ITAT Rules. But in the instant case, no such action was taken at any stage of the proceedings which implies that the Revenue has accepted the conclusion of the Ld. CIT(A) i.e., the source of funds was referable to the monies pooled from the customers in the form of advances received and sales effected in the business. In such event, the addition cannot be made u/s 69 of the Act.
FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:
This appeal by the assessee is directed against the order passed by Ld. CIT(A)-11, Hyderabad and it pertains to assessment year 2008-09.
2. The assessee is engaged in the business of purchase and sale of matching material for women clothing and she was also running a tailoring centre. For the year under consideration she declared total income of Rs. 1,33,900/- and net agricultural income of Rs. 52,450/-. Though the return was processed u/s 143(1) of the Act it was later on taken up for scrutiny under CASS and the assessee was called upon to explain the source for frequent deposits and withdrawals in the bank account since the assessee could not furnish sufficient evidence in that regard, the A.O. proceeded to complete the assessment to the best of his judgement, u/s 144 of the Act, wherein he observed that the assessee has furnished inaccurate particulars and concealed the bank transactions and in fact there was no documentary proof for the source of the deposits. He accordingly proceeded to make addition of Rs. 17,20,722/- referrable to unexplained peak credit, by treating it as ‘unexplained investment’; u/s 69 of the Act.
3. During the first appellate proceedings the assessee filed additional evidence under Rule 46A wherein it was submitted that most of the deposits in the bank account were made in October 2007 in connection with obtaining Visa for her son for seeking higher studies. These deposits are pooled up in the form of receiving advances from customers and sales effected in her business.
4. Since this information was furnished for the first time, the Ld. CIT(A) called for remand report from the Assessing Officer who in turn stated that the assessee did not maintain books of account and return was filed as “No Account Case”. In other words, income was declared on estimate basis as per section 44AA of the Act. It was also stated that the cash book was prepared at a later stage, on the strength of the Savings Bank Account held by the assessee with APCOB. If cash book is really maintained there is no reason as to why the assessee could not furnish the cash book and the ledger, along with the necessary evidences for the expenses claimed, before the Assessing Officer at the time of completion of scrutiny assessment. He also objected to the admission of the additional evidence on the ground that nothing prevented assessee from furnishing proper details before the Assessing Officer. Thus it is not a fit case for admission of additional evidence.
5. A copy of the remand report was forwarded to the assessee on 15.02.2017. The assessee, vide written submissions dated 20.03.2017 (copy not placed on record before the Tribunal), submitted that her case is squarely covered under sub-clauses (b) and (c)of Rule 46A(1) of the Income Tax Rules and requested for admission of additional evidence. It was further submitted that the documents filed as additional evidence merely furnish the basis for the gross receipts, profit, expenses and net profit disclosed by her. In this connection, the Authorised Representative of the assessee invited the attention of the Ld. CIT(A) to a decision of the ITAT Hyderabad “A” Bench in the case of Vasepally Subba Reddy (ITA No.179/Hyd/2015) dated 27.05.2015.
6. The Assessing Officer has filed a rejoinder to the statement made in the written submission, by filing a further report on 20.04.2017 wherein it was stated that the assessee herself opted to file the return on the ground that she is not liable to maintain accounts as per section 44AA of the Act whereas now she claims that she pooled up the monies and deposited in her bank account in the month of October 2007. An affidavit appears to have been filed before the Assessing Officer (copy was not placed on record) to state that after fulfilling the formalities of obtaining necessary documents, the money deposited was withdrawn. The amounts deposited were immediately withdawn in cash by 26thOctober, 2007 whereas the son of the assessee left abroad in the month of April 2008. Had the deposits been made by the assessee in connection with the foreign travel of her son by pooling up of funds for this purpose, the money should have been kept till her son leaves India upto 31.03.2018.
7. He further stated that when the assessee’s gross receipts during the year were declared as 19,86,222/-, receiving deposits of huge amount of Rs. 46,32,200/- is not possible hence peak of such credits was treated as unexplained money and the assessment was made accordingly. In fact the assessee has declared sales only to the tune of Rs. 17,13,202/- which proves that the assessee is fabricating the material according to her convenience for filing affidavits at a later stage and the authenticity of such affidavit is not proved.
8. As per the AIR data, there are transactions to the tune of Rs.45,91,700/- in APCOB account which are not limited to the extent of transactions appearing in the month of October 2007 as explained by the assessee in her affidavit. Since the assessee has not complied with the notices, there is no other alternative but to complete the assessment ex-parte. If the assessee has a genuine case she should have explained the sources for the entire deposits in her bank account, at the assessment stage. Had the assessee repaid the amounts in cash, it would amount to payment exceeding the prescribed limits.
9. A.O further maintained that for a person who is carrying on business of running tailoring shop and selling of matching dress material, it is not possible to receive such huge deposits in cash amounting to Rs. 46.32 lakhs and especially a sum of Rs. 14.74 lakhs in the month of October 2007 itself. It was thus submitted that the account copy should be considered as a fabricated material.
10. It was also submitted that the case law relied upon by the assessee is not applicable to the case of the assessee and furnishing a copy of the Passport is not at all sufficient to prove the funds deposited in bank. In sum and substance it was contended that at the time of appellate proceedings the assessee fabricated the issues and furnished vague evidences like recently prepared books of account, affidavit, copy of passport etc., and mere narration cannot be considered as evidence covered under Rule 46A of IT Rules.
11. Ld. CIT(A) however admitted the additional evidence and proceeded to decide the appeal by taking cognisance of the additional evidence. He observed that huge amounts in cash were deposited in the bank account between the period June to October 2007 and hence it cannot be said that only in one month the deposits were made. He also noticed that some amounts were immediately withdrawn and therefore, the claim of the assessee that deposits are pooled amounts from advances received from customers and sales effected in her business appears to be plausible.
12. However, he was of the opinion that the deposits having been considered as pooled monies from advances received from customers against which sales were effected, the entire deposits should be treated as her business turnover and accordingly directed the A.O to estimate the profit @ 8% on the profits which works out to Rs. 5,12,184/-. Thus the income of the assessee was directed to be adopted at Rs.5,12,184/-, apart from the agricultural income.
13. Aggrieved by the order of the Ld. CIT(A), assessee challenged before the Tribunal on the preliminary ground that the Ld. CIT(A) erred in directing the A.O. to add a sum of Rs. 5,12,184/- without affording an opportunity of being heard to the assessee. She further submitted that while considering the assessment order the Commissioner can enhance the assessment, if necessary, only with regard to items which were already considered by the Assessing Officer whereas in the instant case, the A.O. estimated the income under the head ‘other sources’ whereas the Ld. CIT(A) directed the A.O. to consider a sum of Rs. 5,12,184/- as business income which is contrary to law.
14. At the time hearing Learned Counsel for the Assessee placed before us the following decisions in support of his contention that it is not open to the first appellate authority to introduce into assessment new sources.
(i) CIT vs. Shapoorji Pallonji Mistry (44 ITR 891) (SC);
(ii) CIT vs. Sardari Lal & Co., (120 Taxman 595) (Delhi)
(iii) Bikram Singh vs. DCIT (48 ITR(T) 589) (Delhi-Trib.)
15. In the aforesaid decisions, the Courts have categorically observed that the taxability of income from a new source of income is within the jurisdiction of the Assessing Officer in a proceedings u/s 147 / 149 or of a Revision Authority u/s 263, if requisite conditions are fulfilled but such power cannot be exercised by a first appellate authority.
16. Learned Counsel for the Assessee strongly submitted that the assessee filed her return of income and accepted the assessment u/s 144 of the Act which speaks of turnover whereas in the instant case, the assessee has never stated that the amount received was part of the turnover. In fact there is nothing to indicate that the amount received as advances were part of the turnover or business receipts since it was stated before the Ld. CIT(A) that part of the amount was received as advances but later on either readjusted or returned. The main issue is with regard to the applicability of section 69 of the Act wherein the Ld. CIT(A) having already taken a decision in favour of the assessee he could not have made an addition creating a new source of income which was not the case of either the A.O. or the assessee more particularly when no proper opportunity was given to the assessee. He also submitted that he had appeared before the Ld. CIT(A) who did not discuss the matter during the course of hearing of the appeal, with regard to addition sought to be made under the head ‘business income’. Learned Counsel for the Assessee did not file any material whatsoever such as affidavit / written submission filed before the Ld. CIT(A) which were filed as additional evidence or compilation of cash book etc., which were filed as additional evidence.
17. In the same vein, Learned Departmental Representative submitted that Ld. CIT(A) has considered the issue after discussing with the assessee and more particularly after obtaining the remand report which was also put up to the assessee and hence it cannot be said that the assessee was not given a proper opportunity of being heard. He further submitted that assessee having admitted that the amounts were received as business advances it should be treated as turnover and thus supported the order of the Ld. CIT(A). However, the copies of the cash book, placed before the Ld. CIT(A), etc., could not be placed before the Tribunal so as to enable us to consider as to what was the case made out by the Tax Authorities. In fact though the assessee’s Counsel contends, vide Ground no.2, that the assessee was not given a proper opportunity of being heard, vis-à-vis an addition of Rs. 5,12,184/- by the Ld. CIT(A), neither the Ld. CIT’s order nor the assessment order were called for by the Learned Departmental Representative to bring to our notice as to what were the reasons for the Ld. CIT(A) to come to such conclusion. He further submitted that the decisions cited by the Ld. CIT(A) are distinguishable.
18. It is pertinent to notice that the A.O. neither filed a cross appeal nor a cross objection to contend that the Ld. CIT(A) has wrongly admitted the additional evidence or erred in deleting the addition of Rs. 17,20,222/- towards unexplained investment. In other words, the deletion of addition, based upon the order of the ITAT Hyderabad “A” Bench in the case of Vasepally Subbareddy, was not doubted or challenged before the Tribunal either by filing a cross appeal, cross objection or even in the form of petition under Rule 27 of the IT Rules.
19. I have carefully considered the rival submissions and perused the record. The Assessing Officer made an addition u/s 69 of the Act referable to peak credit closing balance found in the Savings Bank Account. The case of the assessee on the other hand was that temporary advances were taken from the customers and the same was utilised for depositing in the bank account but it was immediately withdrawn. It is not in dispute that on account of non-compliance to the notices issued by the Assessing Officer, A.O. made best judgment assessment and at that stage of the proceedings the assessee has not come forward with regard to source of funds. For the first time, the assessee claimed before the Ld. CIT(A) that the deposits were pooled amounts from advances received from customers and sales effected in her business. Ld. CIT(A) called for the remand report and on two occasions the Assessing Officer categorically stated that there are gaps in the explanation given by the assessee and the assessee would not have maintained cash book and ledger since the return of income was filed as a ‘no-accounts case’. It was also stated that even the claims made with regard to the sales are not supported by any evidence. Despite detailed objections by the Assessing Officer, the Ld. CIT(A) proceeded to consider the explanation of the assessee and accepted that the advances were received by the assessee from the customers. Consequent thereto the Ld. CIT(A) directed the A.O. to treat the entire deposits as her business turnover and directed the A.O. to estimate the profit @ 8% on the deposits. If the conclusion of the Ld. CIT(A) with regard to the acceptance of the source of funds is wrong, it is the duty of the Assessing Officer to either file an appeal or to file cross-objection or appeal by way of a petition under Rule 27 of the ITAT Rules. But in the instant case, no such action was taken at any stage of the proceedings which implies that the Revenue has accepted the conclusion of the Ld. CIT(A) i.e., the source of funds was referable to the monies pooled from the customers in the form of advances received and sales effected in the business. In such event, the addition cannot be made u/s 69 of the Act.
20. The next issue that requires to be adjudicated is with regard to the powers of the Ld. CIT(A) in disposing of the first appeal. Learned Counsel for the Assessee relied upon the decision of the Hon’ble Delhi High Court in the case of CIT vs. Sardari Lal & Co(120 Taxman 595) wherein the Court observed that the taxability of income from a new source cannot be considered by the first appellate authority though he has a power of enhancement. While computing the total business income of the assessee, the Assessing Officer estimated the sales at an enhanced figure and applied a higher rate of Gross Profit. According to Hon’ble High Court the only matter dealt with by the Assessing Officer, in the assessment order, was the estimation of profits of the assessee whereas the AAC expressed doubts about the capacity of the assessee to raise finances for the purchase of goods and to show a huge turnover in the very first year of his business and thus, the enquiry was altogether on a new source of income which, according to the Court, is not permissible under law.
21. However, the fact remains that the assessee for the first time before the Ld. CIT(A) contended that it is the part of the turnover since she had taken advances from the customers in connection with business which indicates that it is a part of the turnover of the assessee. Thus it is an offshoot of the decision taken by the Ld. CIT(A). Having accepted that the source of receipt of money is advances received from the customers it implies that the same has to be taken as the turnover of the assessee. The power of the first appellate authority is coterminous with that of the Assessing Officer and he has got the power of enhancement. In fact while discharging the function as an Officer empowered to calculate the correct tax payable by the assessee, a specific deduction, which was not otherwise claimed from a different source, can also be taken into consideration. The assessee was given sufficient opportunity by the first appellate authority by forwarding the remand report of the Assessing Officer and it is the consistent plea of the assessee that the amounts were taken from customers and sales effected in her business. It is not in dispute that this information was furnished for the first time and never produced before the Assessing Officer. There is a live link between the statement of the assessee and the turnover declared by the assessee since the turnover of the assessee otherwise was much less which was in fact commented upon by the Assessing Officer in his remand report by stating that sales were shown only to the tune of Rs. 17,13,202/- and it is not possible to claim that she has received advances of huge amounts of cash during the Financial Year 2007-2008 to the tune of Rs. 46,32,200/-. The assessee’s reply on the other hand was that it was only advances received from the parties and sales were made against such advances. Under these circumstances, I am of the opinion that the decision of the Hon’ble High Court (supra) is distinguishable since the view taken by the Ld. CIT(A) is in consonance with the claim of the assessee that she has received business advances and therefore, it cannot be said that there is a new source of income but only the source which was contended by the assessee since it was claimed as advances received in the course of her business and sales made therein. Under these circumstances, I do not find any infirmity in the order passed by the Ld. CIT(A).
22. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 27th April, 2018.
