Arpan Ashokkumar Jhunjhunwala Vs ITO (ITAT Pune Bench)
Crores Entered the Bank, but Only Commission Stayed With the Assessee: ITAT Taxes 2% of Deposits—Yet Quashes AY 2015-16 Reopening as Time-Barred
Summary: The assessee filed six appeals involving additions arising from cash deposited in accounts maintained with Shri Renuka Mata Multi State Urban Cooperative Credit Society Ltd. and penalties u/s 271B.
There was a delay of 119 days in five appeals and 150 days in one appeal. After considering the condonation applications and affidavits, the Tribunal condoned the delays and admitted all appeals.
For AY 2015-16, information obtained during a search upon Renuka Mata Society indicated credits of ₹2,66,56,731 in the assessee’s account. The AO reopened the assessment and added the entire amount u/s 68 r.w.s. 115BBE.
An old-regime notice u/s 148 had been issued on 13.04.2021 and was subsequently treated as a show-cause notice u/s 148A(b) pursuant to Union of India v. Ashish Agarwal. A fresh notice u/s 148 was thereafter issued on 25.07.2022.
The assessee challenged this notice as time-barred by relying upon the Bombay High Court judgment in Polypeptide Laboratories (P.) Ltd. v. ACIT [188 taxmann.com 315 (Bom.)]. The High Court had noted the Revenue’s concession before the Supreme Court in Union of India v. Rajeev Bansal that, for AY 2015-16, notices issued on or after 01.04.2021 would have to be dropped since they did not fall within the period protected by TOLA.
The Revenue relied upon the contrary Madras High Court judgment in Appnell Holdings Ltd. v. DCIT. The Tribunal, however, held that it was bound by the jurisdictional Bombay High Court.
Accordingly, the notice dated 25.07.2022 for AY 2015-16 was held barred by limitation and the entire reassessment, including the addition of ₹2.66 crore, was quashed. The merits became academic.
For AY 2014-15, the AO had added the entire cash deposit of ₹2,22,32,522 u/s 68 r.w.s. 115BBE. The assessee raised an additional ground that no notice u/s 143(2) had been issued after filing the return in response to notice u/s 148.
The Tribunal admitted the legal ground but rejected it on merits. The return filed by the assessee had been treated as invalid by CPC, and that determination was never challenged. Therefore, the Tribunal held that where no valid return existed, issuance of notice u/s 143(2) was not required.
On the quantum addition, however, the Tribunal found merit in the contention that the entire bank deposits could not represent the assessee’s real income. The deposits formed part of the profit & loss account and the assessee’s case was that he was merely facilitating transactions and earning commission.
Following ITO v. Vimal Jaydev Arya and related cases involving accounts with the same credit society, the Tribunal held that estimating income at 2% of the deposits would meet the ends of justice. The addition for AY 2014-15 was therefore restricted to ₹4,44,650, being 2% of ₹2.22 crore.
The same approach was followed for the remaining quantum appeals. For AY 2016-17, against cash deposits of ₹2,27,58,613, the addition was restricted to ₹4,55,172. For AY 2018-19, against deposits of ₹73,61,640, the addition was restricted to ₹1,47,233.
The Tribunal considered the continuous pattern of deposits and withdrawals. It observed that if the entire deposits represented the assessee’s income, one would ordinarily expect some corresponding asset, investment or lavish expenditure. The Revenue had not identified any such application of the alleged income.
At the same time, the accounts were not disclosed despite the assessee maintaining audited books. Therefore, complete deletion was not considered justified. A reasonable commission or profit element of 2% was adopted instead.
The two remaining appeals concerned penalties u/s 271B for AYs 2014-15 and 2015-16. The tax audit reports had been filed after a delay of approximately eight years. The assessee could not demonstrate any reasonable cause for the extraordinary delay.
The Tribunal therefore upheld penalties of ₹1,11,162 for AY 2014-15 and ₹1,33,284 for AY 2015-16.
Consequently, the AY 2015-16 quantum appeal was allowed, the quantum appeals for AYs 2014-15, 2016-17 and 2018-19 were partly allowed, and both penalty appeals were dismissed.
