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Shri Rajeshkumr T Lulla Prop Mahalaxmi Textiles, 1096, Abhishek Market, Ring Road,Surat, V/s . Income Tax Officer, (OSD-III), Range-2,Surat
June, 09th 2012
            IN THE INCOME TAX APPELLATE TRIBUNAL
               AHMEDABAD BENCH "A" AHMEDABAD

             Before Shri, A.K.Garodia, Accountant Member and
                      Shri Kul Bharat, Judicial Member

                           IT A No.719/ Ahd/2010
                         Assessment Year:2006-07


       Shri Rajeshkumr T Lulla V/s . Income Tax Officer,
       Prop Mahalaxmi                (OSD-III), Range-2,
       Textiles, 1096, Abhishek      Surat
       Market, Ring Road,
       Surat,
       PAN No. AAKPL3924A



                                ORDER

PER Kul Bharat, Judicial Member:-

      This appeal of the assessee is directed against the order of Ld.
Commissioner of Income-tax (Appeals)-II, Surat dated 03-12-2009, for the
assessment year 2006-07. The assessee has raised the following grounds of
appeal:-
      "1. The Hon'ble CIT(A) has erred in law and on facts in confirming the
      addition of Rs.4,20,000/- which was made by the Ld. Assessing Officer
      on account of cash credit us. 68 of the Act and has also erred in law
      and on facts in confirming the disallowance of interest thereon
      amounting to Rs.32,780/-.
ITA No.719/Ahd/2010          A.Y. 2006-07
Sh Rajeshkumar T Lullaa v. ITO (OSD-II) Rng-2 SRT                   Page 2

        2. The Hon'ble CIT(A) has also erred in law and on facts in confirming
        the disallowance of Rs.4,265/- @ 25% of Rs.17,066/- out of telephone,
        mobiles and vehicle expenses.

        3. The Hon'ble CIT(A) has also erred in law and on facts in confirming
        the addition of Rs.72,000/- which was made by the Ld. Assessing
        Officer on account of low household withdrawals."

2.      The facts of the case are that assessee field his return of income
declaring total income at Rs.1,09,510/-. Subsequently, case was selected for
scrutiny and the Assessing Officer made addition of Rs.8,55,411/- on account
of disallowance of rent, unexplained cash credit, interest on unsecured loan,
under-valuation of stock, unverifiable expenses and disallowance on          low
household expenses. Against the order, the assessee preferred appeal before
Ld. CIT(A) who after considering the sub mission of assessee allowed appeal
in part and reduced addition from Rs.8,55,411/- to Rs.5,30,045/-. However,
addition made u/s.68 of the Income-tax Act, 1961 (hereinafter referred to as
`the Act') on account of unexplained cash credit and interest thereon and
addition made on account of unverifiable expenses and low household
withdrawn was confirmed.


3.      Now, assessee came in second appeal before us.


4.      Ground No.1 relates to confirmation of addition of Rs.4.20 lakh was
made by Assessing Officer on account of unexplained cash credit and also
confirming the disallowance of interest thereon amounting to Rs.32,780/-. Ld.
AR for the assessee submitted that the orders passed by authorities below are
erroneous. It is submitted by Ld. AR that all the depositors were regularly
assessed to tax and cash deposit were made out of their regular source of
income or there out of opening cash-in-hand. It is submitted by Ld. AR that
genuineness of transaction and creditworthiness of the depositor proved from
the details submitted before authorities below and he placed reliance on
various decisions in support of his contentions i.e. with regard to proof of
ITA No.719/Ahd/2010          A.Y. 2006-07
Sh Rajeshkumar T Lullaa v. ITO (OSD-II) Rng-2 SRT                        Page 3

identity of the depositors ­ relevance is placed on the case of CIT v. Orissa
Corporation P. Ltd. 159 ITR 78 (SC) and with regard to capacity of creditor ­
the relevance was placed in the case of Oceanic Products Exporting Co. v.
CIT 241 ITR 497 (Kar) and in respect of genuineness of the transaction Ld.
AR relied upon the decision of Dhanlaxmi Steel Re-rolling Mills v. CIT 228 ITR
780 (AP). Ld. AR submitted that all the depositors are related to the assessee
and therefore their proof of identity is well established. Further, it is submitted
that all the depositors are assessed to tax and their details i.e. PAN etc are
with the Department. Further, it is submitted that from the bank account, it is
evident that the depositors have sufficient funds to give loan to the assessee.
Ld. AR has also filed written submissions and they are placed on record.





5.      On the contrary, Ld. SR-DR supported the orders passed by authorities
below.


6.      We have heard the rival submissions, perused the materials available
on record and judgments cited by the parties. It is observed by Ld. CIT(A) that
Assessing Officer has recorded the details of the deposits taken by assessee
in para-6 page-2 of his assessment order. The finding of Ld. CIT(A) is
reproduced hereinbelow:-
        "10. It is seen from the above that the Assessee has placed reliance on
        the decision of the Ahmedabad bench of the ITAT in the Assessee's
        own case for the A.Y. 2005-06. I have gone through this order which is
        dated 27.082008. That Hon'ble ITAT has only observed that the findings
        of the CIT(A) was without any basis and the same was merely on
        suspicion and surmises. With due respect to the Hon'ble Member and
        duly keeping in mind the principles of judicial discipline, I find it
        necessary to reproduce my findings as recorded in para-6.1 in my
        appellate order dtd. 18.3.2008 in CAS/II/176/07-08 for the AY. 2005.06.

                `6.1 However, it is also clear that the Assessee had no
                explanation regarding the transfer entries into some of the
                accounts, or the source of the cash deposited immediately prior to
                the giving of the loans to the Assessee. The claim that such
                deposits represented the business income of the creditors, was
                not substantiated. Even though returns of income have been filed
ITA No.719/Ahd/2010          A.Y. 2006-07
Sh Rajeshkumar T Lullaa v. ITO (OSD-II) Rng-2 SRT                        Page 4

                showing incomes from business yet, there was no evidence of the
                creditors having been engaged in any business whatsoever
                especially the five ladies who were all housewives. Therefore, I
                am not convinced that they had the creditworthiness or the means
                to give substantial loans to the Assessee. Moreover, the purpose
                for which the loans were taken was not established by the
                Assessee. If the loans were not taken for meeting any financial
                obligations or business commitments, it would be obvious that
                they we simply accommodation entries taken for the purpose of
                introducing unaccounted incomes in the books of account. The
                addition of the sum of Rs.2,06,000 under the provisions of sec. 68
                of the IT Act is therefore, confirmed.'

        10.1 In any case, no rule of law can be laid down in respect of cash
        credits u/s.68 of the IT Act. Therefore, the observation of the ITAT in the
        A.Y. 2005-06 cannot be applied in the A.Y. 2006-07. During the year
        under consideration, the AO recorded the statements of two of the
        alleged depositors which was not done in the earlier year. This year, the
        AO issued summons to all the alleged depositors and out of the five
        depositors, only two appeared, the biggest depositor Shri Lekhraj T
        Wadhwa (deposits of Rs.2 lacs) simply failed to appear before the AO
        on some ground or theater. The statements of the two lady depositors
        clearly showed that they simply did not have the requisite
        creditworthiness to give the loans. All these cases were case of capital
        building, which was abated by the assessee himself. It has been a very
        old practice of building capital in the hands of lady members of
        household by showing income from stitching, etc. There was no
        evidence to show that the depositors had actually engaged in such
        activities. The incomes shown were hardly sufficient to meet their own
        requirements not to speak of giving loans of substantial sums. Given
        such facts and circumstances of the case, it is held that the AO was
        fully justified in treating such loans totaling Rs.4,20,000 as unexplained,
        in terms of sec. 68 of the IT Act. Consequently, he was also justified in
        disallowing the interest on such deposits. The additions of Rs.4,20,000
        and of Rs.32,780 are therefore confirmed."

From the above findings of Ld. CIT(A), it appears that Assessing Officer was
not convinced with the statements of the two lady depositors. We do not agree
with the reasoning given by Ld. CIT(A) for rejecting the ground of appeal
simply on the basis that the depositors who are summoned were leady
member and they could not earn the income as claimed by them in the return
of income. The Revenue has not placed anything on record showing that
ITA No.719/Ahd/2010          A.Y. 2006-07
Sh Rajeshkumar T Lullaa v. ITO (OSD-II) Rng-2 SRT                    Page 5

those lady depositors were not having any source of income. We are not
convinced with the reasoning of Ld. CIT(A) that the lady depositors were not
having independent source of income. It is not disputed that the lady
depositors are assessed to tax and income tax return filed by them was duly
accepted by the Department. In this view of the matter, we direct the
Assessing Officer to delete the addition of Rs.4.20 lakh along with interest on
the deposits of Rs.32,780/-. This ground of assessee's appeal is allowed.





7       Next ground is with regard to confirming the disallowance of Rs.4,265/-
@ 25% of Rs.17,066/- out of telephone, mobile and vehicle expenses. It is
submitted by Ld. AR for the assessee that 25% is very excessive.


8.      In view of the fact that personal element of such expenses cannot be
ruled out, however, 25% appears to be excessive, hence, same is restricted to
@ 10%. The Assessing Officer is directed to re-compute the disallowance
accordingly. This ground of assessee's appeal is partly allowed.


9.      Next ground of appeal is with regard to confirming the addition of
Rs.73,000/- which was made by Assessing Officer on account of household
withdrawal. Ld. AR for the assessee submitted that assessee's family consist
of 4 members, however, parents reside at the material point of time. It is
submitted that only one child was going to school having school fee of
Rs.3,000/- per annum. It is submitted by Ld. AR that standard of living can be
adjusted from the school fee paid by the assessee. Further, it was submitted
that in the financial year 2005-06 it was possible to run a family of drawing
Rs.2000/- for the adult member and Rs.1,250 for child totaling to Rs.6,500/-
per month and Rs.78,000 p.a. It is submitted by Ld. AR that authorities below
failed to take note of the fact that parents of assessee were having there own
source of income and they also made withdrawal from their source of income
It is submitted that the addition of Rs.73,000/- was unjustified.
ITA No.719/Ahd/2010          A.Y. 2006-07
Sh Rajeshkumar T Lullaa v. ITO (OSD-II) Rng-2 SRT                        Page 6

10.     On the contrary, Ld. SR-DR supported the orders of authorities below.


11.     We have heard the rival contentions, perused the materials available on
record. We find that Ld. CIT(A) has given a finding in para-21 of his order,
same is reproduced hereinbelow:-
        "21. National surveys have revealed that the highest per capita
        household income is earned by the families of Surat. The average
        annual per capita household income in Surat has been pegged at
        Rs.4.5 lacs approximately. This also means that with higher money
        supply and higher disposable income, there would be a higher demand
        leading to higher prices and consequently, a higher cost of living. If the
        Authorized Representative's contention is to be believed, that the
        Assessee's family comprised only of six members and withdrawals of
        approximately Rs.1,38,000 were sufficient, it would mean an
        expenditure of only Rs.11,500 for the whole family per month and
        Rs.1,916 per individual member. What must not be forgotten is that thee
        are certain unavoidable and inevitable expenses which a family has to
        incur.

        21.1 I am of the view that such withdrawals were grossly insufficient to
        meet all the expenses of the family of six members. Even if the
        Assessee may have been living in a modest locality, and leading a
        simple life; the Assessee would necessarily have had to incur expenses
        on account of municipal taxes on the residential property, on servants,
        on gas, water & electricity, repairs to the flat, daily provisions, medical
        treatment, clothings, laundry, newspapers, on transport, education of
        the children and most importantly, on social and religious occasions
        which are quite numerous. Therefore, to whichever community any
        person may belong or whichever religious tenet he may follow, the
        necessarily has to incur the aforesaid expenses for his very survival and
        also the survival of his family members.

        21.2 The estimate made by the AO was very reasonable. The point that
        every Appellate Authority has to necessarily consider is that Income-tax
        proceedings are not covered or influenced by the strict rule of evidence
        as under the Evidence Act. It is for this reason that there are a lot of
        deeming provisions in the Income-tax Act and consequently, several
        factors are assumed or presumed and on the basis of such
        presumptions and assumptions, conclusions are allowed to be drawn
        regarding the correct and true income of an Assessee. In the case of
        household withdrawals, the assumption regarding inadequacy is drawn
        on the basis of the expenditure that any ordinary middle-class family is
        likely to incur in course of the year. Therefore, simply because the AO
        did not bring any material evidence on record to show that household
ITA No.719/Ahd/2010          A.Y. 2006-07
Sh Rajeshkumar T Lullaa v. ITO (OSD-II) Rng-2 SRT                           Page 7

        expenses had been incurred from out of unaccounted income, the
        addition cannot be deleted. The presumption made by the AO and
        estimation made was very much realistic. In fact, it is a very
        conservative estimate. Given the standard of living of any ordinary
        middle-class family, and the cost of living in Surat, the estimation made
        by the AO was very much on the lower side. I have therefore no
        hesitation in confirming the addition of the sum of Rs.73,000."

From the above finding of Ld. CIT(A) it appears that factum of earning and
withdrawal of money by the parent is not taken into account. Therefore, in our
considered opinion, the addition of Rs.73,000/- appears to be excessive, we
therefore, reduce the addition from Rs.73,000/- to Rs.48,000/-. The Assessing
Officer is directed to re-compute the same accordingly. This ground of
assessee's appeal is partly allowed.


12.     In the result, assessee's appeal is partly allowed as indicated
above.
  Order pronounced in Open Court on the date mentioned
 hereinabove at caption page.

        Sd/-                                                    Sd/-
    (A.K.Garodia)                                          (Kul Bharat)
  (Accountant Member)                                   (Judicial Member)
Ahmedabad,

*Dkp
- 07/06/2012                   
     / Copy of Order Forwarded to:-
1.  / Appellant
2.  / Respondent
3.    / Concerned CIT
4.  -  / CIT (A)
5.  ,   ,  / DR, ITAT, Ahmedabad
6. [  / Guard file.
                                                                      By order/  ,
                                                    /True Copy/
                                                                     / 
                                                                    ,
ITA No.719/Ahd/2010          A.Y. 2006-07
Sh Rajeshkumar T Lullaa v. ITO (OSD-II) Rng-2 SRT                            Page 8

                                                                              


           Strengthen preparation & delivery of orders in the ITAT
1) date of taking dictation                                    30/05
2) direct dictation by Member straight on                      No
computer/laptop/dragon dictate
3) date of typing & draft order place before Member            31/05, 1/06
4) date of correction                                          1/06
5) date of further correction
6) date of initial sign by Members                             05/06
7) order uploaded on                                           07/06
8) original dictation pad-part has been enclosed in the file Yes
9) final order and 2nd copy send to Bench Clerk on             07/06
 
 
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