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M.A. Shahul Hameed New Sansar Restaurant and Stores, Station Road, Kurla (W), Mumbai-400070 Vs. Income Tax Officer-21(3) Room No.507, 5th floor,, C-11,Pratyakshakar Bandra (E), Mumbai-400051.
May, 08th 2014
                      ,                  ""          

          .. ,                                      ,,      

                      (   / Assessment Year: 2008-09)

     M.A. Shahul Hameed                  /         Income Tax Officer-21(3)(3),
     New Sansar Restaurant and           Vs.       Room No.507, 5th floor,,
     Stores,                                       C-11,Pratyakshakar Bhavan,
     Station Road,                                 Bandra-Kurla Complex,
     Kurla (W),                                    Bandra (E),
     Mumbai-400070                                 Mumbai-400051.

          . /   . /PAN/GIR No. : AAJPM6709K
     ( /Appellant)   ..    (  / Respondent)

                / Appellant by              :     S/Shri K Gopal and Jitendra Singh
                  /Assessee by                    Shri Ravi Prakash

                    / Date of Hearing
                                                        : 13.3.2014
                 /Date of Pronouncement : 7. 5.2014

                                        / O R D E R


        This appeal is filed by the assessee against the order of ld. CIT(A)-32, Mumbai

dated        21.12.2011     whereby    he       confirmed   /sustained    the     following

additions/disallowances made by AO:

        A:       Disallowance of interest expenditure                    Rs.37,521/-
        B:       Addition on account of short term capital gain         Rs.1,56,599/-
        C:       Addition on account of unexplained cash deposits
                 under section 69 of the Income Tax Act, 1961 (the Act) Rs.13,40,750/-

2.      We have heard the arguments of both the sides on the issues involved in this

appeal and also perused the relevant material available on record.        As regards, the

issue involved in Ground "A" regarding disallowance of interest, it is observed that the

loan taken by the assessee on interest from the bank was found by the AO to have
                                            2                     I.T.A.No.4132/Mum/2012

been parked in the interest free mutual funds, cash in hand and cash in bank account.

He, therefore, disallowed the interest attributable    to the said loans worked out at

Rs.1,56,582/-. On appeal, the ld. CIT(A) held that the assessee having his own funds

sufficient to make investment in the interest free mutual funds as well as to cover cash

in hand and cash at bank, there was no case of utilization of interest bearing loans by

the assessee for the said purposes. He however found that the assessee had paid

interest at the rate of 14% to the bank on one hand and it had advanced money in the

form of his capital in the partnership firms on the other hand, at interest rate of 12%

only. He held that this excess amount of interest paid by assessee at the rate of 2%

therefore was disallowable and accordingly the disallowance made by AO on account of

interest was sustained by him to the extent of Rs.37,521/-

3.     At the time of hearing before us, the ld. counsel for the assessee has not been

able to bring anything on record to controvert or rebut the findings recorded by ld.

CIT(A) that the loan taken by the assessee from bank at the interest rate of 14% was

utilized to make investment by the assessee as his capital in the partnership firms at the

rate of 12% only and this being so, we find no justifiable reason to interfere with the

impugned order of ld. CIT(A) sustaining the disallowance made on account of interest to

the extent of Rs.37,521/-. Ground "A" of assessee's appeal is accordingly dismissed.

4.     As regards the issue raised in Ground "B", it is observed that the AO during the

assessment proceedings for the year under consideration noticed that the assessee had

received a sum of Rs.2,56,699/- from Life Insurance Corporation against the investment

of Rs.1 lakh made earlier. Although the assessee claimed that this entire amount was

exempt u/s 10(10D) of the Income Tax Act, 1961 (the Act) being maturity value of the

LIC policy, no evidence    could be produced by the assessee to show that the said

amount represented maturity value of any LIC policy taken by him. The AO, therefore,

treated the difference    of   Rs.1,56,599/- as "Short       Term Capital Gain" (STCG)
                                              3                 I.T.A.No.4132/Mum/2012

chargeable to tax in the hands of the assessee and the ld. CIT(A) upheld the action of

the AO on this issue.

5.      At the time of hearing before us, the ld. counsel for the assessee has not been

able to is unable to produce any evidence to show that the amount in question received

by assessee from LIC was on account of maturity proceeds of any policy taken by

assessee. In the absence of such evidence to substantiate the claim of the assessee

for exemption u/s 10(10D) of the Act, we do not find any infirmity in the impugned

order   of ld. CIT(A) confirming the addition made by AO treating the difference of

Rs.1,56,590/- as STCG arisen from sale of units of LIC mutual fund. Ground "B" of the

assessee's appeal is accordingly dismissed.

6.      As regards Ground "C" relating to the issue of addition of Rs.13,40,750/- made

by AO and sustained by ld.      CIT(A) on account of unexplained cash deposits, it is

observed that in the joint account held by assessee with his wife      in Axis Bank at

Trichur, cash deposits of Rs.25,20,000/- were found to be      made on various dates.

Simultaneously, there were cash withdrawals also from the said account to the tune of

Rs.22,05,000/-. In the absence of any explanation offered by assessee, the difference

between the total cash deposits and total cash withdrawals amounting to Rs.3,15,000/-

was added by the AO to the total income of the assessee. The AO also found that there

were cash deposits of Rs.15,99,446/- on various dates in the said account and in the

absence of any explanation forthcoming from the assessee, this amount was also added

by AO to the total income of the assessee.

7.      Before the ld.CIT(A), it was contended on behalf of the assessee that there was

double addition made by AO by adding the difference of Rs.3,15,000/- between total

cash deposits and total cash withdrawals and also Rs.15,99,446/- on account of cash

deposits found to be made in the same bank account. It was also contended that some

of the cash deposits made in the bank accounts were related       to the   wife of the
                                            4                       I.T.A.No.4132/Mum/2012

assessee and the same were made out of loans of Rs.4 lakhs and Rs.6 lakhs taken by

the wife of the assessee from ICICI bank and private party.

8.     After considering the submissions made by the assessee as well as material

available on record, the ld. CIT(A) decided this issue vide para 7.3 of his impugned

order which reads as under :

       "7.3 I have considered the above arguments of the ld.AR. During the
       appellate proceedings the ld. AR was requested to give the date wise details of
       the cash withdrawn and cash deposited in the bank account which is summarized
       as under :-

         Date         Op bal.of cash in Cash             Cash   deposits   in   Closing bal of
                      hand               withdrawals     bank                   cash in hand
         10.4.2007    300000                         0              300000                   0
                      (assuming )
         16.5.2007                     0         50000                                  50000
         24.5.2007                50000         500000                                 550000
         8.6.2007                550000                             200000             530000
         13.06.2007              350000                             300000              50000
         16.8.2007                50000         100000                                 150000
         4.9.2007                150000                              19750             130250
         4.9.2007                130250                              64000              66250
         5.10.2007                66250                               7000              59250
         16.10.2007               59250                             200000            -140750
         18.10.2007             -140750                             200000            -340750
         27.10.2007             -340750          50000                                -290750
         30.10.2007             -290750          35000                                -255750
         6.11.2007              -255750         100000                                -155750
         24.12.2007             -155750          50000                                -105750
         7.1.2008               -105750         500000                                 394250
         14.1.2008               394250         100000                                 494250
         25.1.2008               494250         100000                                 594250
         28.1.2008               594250         200000                                 794250
         6.2.2008                794250                              30000             764250
         22.2.2008               764250                             200000             564250
         26.2.2008               564250                             600000             -35750
         28.2.2008               -35750         500000                                 464250
         13.3.2008               464250                             400000              64250
         Total                                 2285000             2520750

       From the above summary, it is noted that on 3 occasions cash was deposited in
       bank account totaling to Rs.10,00,000/- when the assessee had a negative
       balance of cash in hand which suggest that there was no cash available out of
       the earlier withdrawals made for being deposited on those three occasions.
       The Assessee had negative balance at 7 occasions that too when Rs.3,00,000
       deposited on 10.4.2007 is presumed to be availed as opening balance though
       no evidence has been provided.         Hence the source of      Rs.10,00,000/-
       straightway becomes unexplained. Further from the pattern of withdrawals and
       deposits in the above chart it is also noted that the assessee has made very
                                           5                     I.T.A.No.4132/Mum/2012

       small deposits of cash in bank account though as on said dates he was supposed
       to have huge cash balance with him. Similarly he claims to have withdrawn
       cash though he had enough cash in hand as per earlier withdrawals . Such
       abnormal patterns of withdrawals/deposits of cash suggests that there was not
       enough cash balance lying actually with the assessee out of the earlier
       withdrawals from bank because one would deposits of the cash in bank account
       leaving only small amounts as cash in hand whereas the assessee has on
       several occasions deposited only small amounts when he was showing to have
       huge cash in hand. Further there is no correlation in amounts of deposits with
       any of the withdrawals made. Mere withdrawals made on earlier dates does not
       prove the physical availability of cash in hand unless the assessee is able to
       justify that such cash withdrawn was available with him and not spent any
       where for other purposes. The negative cash balance proves that the cash
       withdrawn on earlier dates was actually never available with assessee for being
       re-deposited. There is no justification of holding such huge cash in hand when
       no expenditure/investment has been claimed to be made out of cash withdrawals
       even though on as many as 12 occasions cash has been withdrawn. Hence the
       source of cash of Rs.22,85,000/- deposited in bank cannot be said to be fully
       explained. Considering the cash of Rs.10,00,000/- deposited on dates when
       assessee had negative cash balances and the assessee has peak negative cash
       balance of Rs.340750/-, the total unexplained cash will be Rs.13,40,750
       (Rs.10,00,000/- + 340750).

The ld. CIT(A), thus, sustained the addition made by AO on account of unexplained

cash deposit found to be made in the bank account of the assessee to the extent o


9.     We have heard the arguments of both the parties on this issue and also perused

the material available on record.   As rightly pointed out by the ld. counsel for the

assessee, when there are cash deposits made in the bank account and also cash

withdrawals made from the same account, the additions on accounts of unexplained

cash deposits made in the said account has to be done on the basis of peak credit

which actually indicates   the unexplained investment made by assessee in his bank

account in the    form of cash deposits.   As per details given by ld.    CIT(A) in his

impugned order,    which are already reproduced hereinabove, such peak credit was

shown at Rs.3,40,750/- as on 18.10.2007. It is further observed that while working

out of the said peak credit, the amount of     Rs.3 lakhs deposited by the assessee as

on 10.4.2007 was not taken into consideration.    Explanation offered by ld. counsel for

the assessee in this regard before us is that the said amount was deposited by the
                                             6                      I.T.A.No.4132/Mum/2012

assessee out of opening cash balance available with him. In this regard, he has invited

our attention to the copy of balance sheet of the assessee as on 31.3.2007 placed at

page 14 of the paper book to show that the cash in hand and at bank as on 31.3.2007

was Rs.65,750/-. The breakup of the said amount, however, is not available in order

to ascertain the exact availability of cash as on 31.3.2007. In our opinion, this matter

therefore requires verification in order to ascertain the exact availability of cash with the

assessee as on 31.3.2007 as well as to find out whether the cash so available was

not utilized by assessee somewhere else and the same was utilized to make deposits of

Rs.3 lakhs in the bank account as on 10.4.2007. We, therefore, restore this issue to the

file of AO with a direction to work out the peak credit of cash of deposits and cash

withdrawals of the bank account of the assessee after ascertaining the availability of

opening cash balance to make deposits of Rs.3 lakhs as on 10.4.2007 and make

addition on this issue u/s 69 of the Act to the extent of peak credit so worked out.

Ground "C" of the assessee's appeal         is accordingly treated as partly allowed for

statistical purpose.

10.    In the result, the appeal of the assessee is treated as partly allowed for

statistical purpose.

       Order pronounced in the open court on 7th May, 2014

                                                  7th May, 2014    

      Sd                                                 sd

(   ,/SANJAY GARG)                                      (.. / P.M.JAGTAP)
     / JUDICIAL MEMBER                                / ACCOUNTANT MEMBER

                       on this 7th day of May, 2014

. ../ SRL , Sr. PS
                               7            I.T.A.No.4132/Mum/2012

        /Copy of the Order forwarded to :
1.  / The Appellant /Applicant
2.  / The Respondent.
3.     () / The CIT(A)-
4.      / CIT
5.      ,     ,         /
     DR, ITAT, Mumbai
6.     / Guard file.
                   True copy                  / BY ORDER,

                                      (Asstt. Registrar)
                              ,  /ITAT, Mumbai
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