IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH `G' : NEW DELHI)
BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER
and
SHRI A.T. VARKEY, JUDICIAL MEMBER
ITA No.142/Del./2012
(ASSESSMENT YEAR : 2008-09)
ITO, Ward 46 (4), vs. Shri Sandeep Sharma,
New Delhi. D-5/105, Ist Floor,
Avadh Complex,
Laxmi Nagar,
New Delhi.
(PAN : AQTPS5071Q)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Adhir Samal, CA
REVENUE BY : Shri T. Vashantan, Senior DR
Date of Hearing : 13.07.2015
Date of Pronouncement : 22.07.2015
ORDER
PER A.T. VARKEY, JUDICIAL MEMBER :
This appeal, at the instance of the revenue, is directed against the
order of the Commissioner of Income-tax (Appeals)-XXX, New Delhi
dated 28.10.2011. The relevant assessment year is 2008-09.
2. The effective grounds of appeal taken by the revenue read as under :
"On the facts and in the circumstances of the case and in law, the Ld
CIT(A) has erred in:-
2 ITA Nos.142/Del./2012
1. Reducing the addition of Rs.4,29,98,561/- to Rs. 4,39,985/-
rightly made by the A.O. on account of unexplained cash credits in
assessee's bank account.
2. Directing the A.O. to compute the income of the assessee as
commission income without any substantiating evidence against the
A.O's finding that the amount under dispute is unexplained income
of the assessee."
3. The assessee filed the return of income on 09.02.2009 declaring an
income of Rs.1,15,000/-. The assessee's case was selected for scrutiny
through CASS and notice u/s 143(2) of the Income-tax Act, 1961
(hereinafter `the Act') was issued on 06.08.2009. Subsequently, a notice
u/s 143(2) of the Act was issued on 19.01.2010, fixing the case for
01.02.2010. In response to the notice, the assessee himself appeared and
was asked to file the details of his income and financial transaction during
the financial year. Subsequenlty, notices u/s 142(1) of the Act along with
the detailed questionnaire were served on the assessee but these notices
were remained uncomplied with. In view of the non-compliance of the
notices, the AO issued show cause notice u/s 271(1)(b) and the assessee
replied the same with partial details as per the questionnaire. Before the
AO, the assessee submitted that he was having only one Bank account with
the Bank of Baroda. The AO informed the assessee that as per AIR
information, the assessee was having an account with Punjab National
Bank, Circle Office, Rajendra Bhawan, Rajendra Place, New Delhi and a
total amount of Rs.2,46,25,891/- was deposited in cash in the said bank
3 ITA Nos.142/Del./2012
account and the copy of the same was given to the assessee. The AO
asked the assessee to explain the nature and source of cash transactions.
However, the assessee did not give any reply to the said question and
sought for time to provide the details about the nature and source of cash
deposits. The AO recorded the statement of the assessee and the matter
was adjourned to 09.11.2010 and later on, adjourned to 22.11.2010 on the
request of the assessee. Meanwhile, the AO verified the cash transactions
from the Punjab National Bank and the Bank informed that the said
account was maintained by Shri Sandeep Sharma in the name of
proprietary concern, M/s. Om Weighing India in another branch i.e. P.N.B,
scope tower, Laxmi Nagar New Delhi and also informed that
Rs.4,29,98,561/- ( which includes cash deposit of Rs. 3,86,62,391/- and
other deposits amounting to Rs.43,36,170/-) was deposited in cash during
the year. The AO has reproduced the bank statement in his order. The
AO observed that from a perusal of the bank statement, it revealed that
nominal balance was being maintained throughout the year and every
deposit entry was followed by withdrawal of identical amounts. On
22.11.2010 when the statement u/s 131 of the assessee was resumed, the
AO again asked the assessee to provide the details of transactions and
source and nature of deposits in the said account maintained with Punjab
National Bank and the assessee accepted that he was proprietor of M/s.
Om Weighting India and Director of two companies i.e. M/s. Prolon
4 ITA Nos.142/Del./2012
Marketing Pvt. Ltd. and M/s. Ja Gang Plastics (India) Private Limited.
However, the assessee stated that no business was being carried out by
M/s. Om Weighing India and the other two companies. But, the AO
observed that when the assessee was asked to provide the nature and
source of huge amounts of cash/fund inflow, the assessee showed
ignorance about the source of the funds and did not provide any
explanation. The assessee's statement was recorded till 22.11.2010 and
the matter was adjourned to 26.11.2010 for further recording the statement.
But, on 26.11.2010, none attended nor any written reply was submitted by
the assessee. The AO observed that assessee was not having any details in
his possession about the huge amounts of deposits totaling to
Rs.4,29,98,561/- and the assessee was also not filing any supportive
evidences or explanations regarding nature and source of deposits
appearing in the bank account of the assessee. The AO, after going
through the banks details and the statement recorded by the assessee,
observed as follows :-
"(i) Sh. Sandeep Sharma (assessee) is proprietor of M/s Om
Weighing India for which no income was returned. The assessee is
also one of the two Directors in M/s Pro Ion Marketing Pvt. Ltd. and
M/s Ja Gang Plastics(India) Private Limited. The assessee in his
answer to Question Nos.13 & 14 denied having known the other
directors of the above companies.
(ii) He has deposited total amount of Rs.4,29,98,561/- 90 % of
which is in cash in the bank account maintained with PNB, Scope
Tower, Laxmi Nagar, New Delhi by him in the name of M/s Om
Weighing India, his proprietary concern. The evidence is obtained
from the bank and is placed on records.
5 ITA Nos.142/Del./2012
(iii) He has transferred almost whole of the amount by cheques to
M/s Prolon Marketing Pvt. Ltd. and M/s Ja Gang Plastics (India)
Private Limited in which he is director.
(iv) Despite providing with more than sufficient opportunities the
assessee didn't reveal the source of funds amounting to
Rs.4,29,98,561/- in his account in the PNB.
(v) He has no explanation to offer about the source of the funds
and the funds are nothing but his unexplained income from the
undisclosed sources which has not been offered to tax.
(vi) The funds have been used for financing his business
transactions of M/s Prolon Marketing Pvt. Ltd. and M/s Ja Gang
Plastics(India) Private Limited.
(vii) The assessee is deriving income from salaries and did not
return any income from his proprietary concern.
(viii) The assessee has shown income from salaries only and the
amount of Rs.4,29,98,561/- found deposited in his account in the
PNB during the F. Y. 2007-08 is unexplained income for A.Y. 2008-
09 and the same has not been offered for tax as per the provisions of
the Income Tax Act 1961."
The AO, in view of the above mentioned facts, observed that the assessee
did not come forward to give any explanation regarding the nature and
source of cash and other deposits to the tune of Rs.4,29,98,561/- in his
bank account with PNB and held that this amount stood unexplained and,
therefore, deemed it as income of the assessee for the year under
consideration as per the provisions of section 68 of the Act. Accordingly,
the AO made the assessment by passing order u/s 144 of the Act by adding
unexplained cash deposits u/s 68 of the Act in Bank of Rs.4,29,98,561/- as
assesse's income.
6 ITA Nos.142/Del./2012
3. Aggrieved, the assessee preferred an appeal before the first
appellate authority. The CIT (A) after going through the written
submissions filed by the assessee, which has been reproduced by the CIT
(A) in his order was pleased to partly allow the appeal of the assessee and
directed the AO to estimate the assessee's income as commission business
for providing entries to parties @ Rs. 1/per Rs. 100/- and thus calculated
assessee's income as Rs. 4,39,985/- in addition to his other income
returned by him. . The relevant finding of the CIT (A) is reproduced as
under :-
"3. I have considered the written submissions of the AR,
assessment order of A.O., grounds of appeals, and discussed the
matter with the AR and appellant very carefully. The AIR data
shows that the assessee had deposited total amount of
Rs.2,46,25,891/- in cash in the bank account with Punjab National
Bank. When he was asked to explain the sources of deposits, he did
not reply anything to the AO. The observation of AO in Para-10 &
11 of his order speaks that Sh. Mukesh Gauam and Sh.Chandra
Prakash Bhardwaj was issuing cheques to two of their own
companies M/s Prolon Marketing Pvt Ltd. and M/s Ja Gang Plastics
(India) Pvt. Ltd. These two companies then give cheques to
beneficiaries, who have given cash to the appellant for getting entry
through banking channel. In the process, the appellant gets
commission @ 0.25% to 0.5% or more in cash, which is his profit or
income from business of providing entry to those people.
The issue involved here is identical with the issue of Shri
Manoj Agrawal & Bemco Jewellers Private Ltd (BJPL) which had
been decided by ITAT Special Bench Delhi, in 2008. Now the
Jurisdictional Delhi H.C. had passed an interim order in the case of
Manoj Agrawal reported in 2011-TIOL-645-HC-DEL-IT vide order
dt. 30.09.2011. The jurisdictional High Court is yet to decide the
case after getting relevant papers books from both the parties i.e.
revenue and the appellant Sh.Manoj Aggarwal & Others. The ITAT
had accepted the commission @ 50 paise to Rs.100 and allowed
further deduction of 15 paisa for expenses on maintenance of staff,
traveling to bank and others place and other office expenses. I have
7 ITA Nos.142/Del./2012
discussed the matter with the appellant and his AR, persuaded them
to estimate the commission income at Re.1 per 100 for estimation of
his income from providing entry operations through banking channel
under the head business income. These operations are bogus and
accommodation entry to give relief to beneficiaries by treating such
entries as loan / gift / investment and reducing tax burden in their
hands.
The AR of the assessee had given a table of calculation of
peak commission / commission @0.25% in P.B. page - 9 to 14 in the
paper book. As per the table, the total commission calculated @
0.25% on amount credited of Rs.4,39,98,561/- is Rs.1,09,996/- only.
The A.O. had taken the amount credited
to the account of appellant at Rs.4,29,98,561 as cash deposit in
appellant's PNB a/c. Since the appellant had disclosed a higher
figure of Rs.4,39,98,561/-, the A.O. is directed to verify the
appellant's figure with that obtained by A.O. from bank and
reconcile the total cash credit in appellant's a/c, on which cheques
have been issued. Since the appellant admits bonafidely to have
given such cheques to parties through two of his companies, I
estimate appellant's income from commission business on providing
entries to parties @ Re.1/- per Rs.100/- and calculate his income at
Rs.4,39,98,561 x 1/100 = Rs.4,39,985/- in addition to his other
incomes returned and assessed by A.O. The A.O. is directed to
recompute his total income and charge interests u/s 234-A, 234-B,
234-C, 234-D accordingly, which are mandatory in law."
4. The revenue, being aggrieved, is in appeal before us.
5. Ld. DR relied on the order of the AO and submitted that the CIT (A)
has wrongly reduced the addition on account of unexplained cash credits in
assessee's bank account and also erred in directing the AO to compute the
income of the assessee as commission income without substantiating
evidences against the findings of the AO that the amount under dispute
was unexplained income of the assessee. He also pointed out that even the
alternate prayer before the Ld CIT(A) was to consider the peak-credit, but
the Ld CIT(A) has gulped whatever the assessee said and treated the
8 ITA Nos.142/Del./2012
income as from commission for providing accommodation entry, which,
according to Ld DR, is erroneous. He pleaded that the order of the CIT
(A) may be set aside and that of the AO upheld.
6. On the other hand, ld. AR for the assessee relied on the order of the
CIT (A).
7. We have heard the rival submissions and perused the material on
record. We find that the Assessing Officer made the addition of
Rs.4,29,98,561/- u/s 68 of the Act, on the ground that the assessee was not
able to furnish the explanation regarding the nature and source of cash and
other deposits and held the amount as unexplained. We find that the ld.
CIT (A) has simply accepted the admission of the assessee that he was
providing accommodation entry for commission @ 0.25% to 0.50% or
more in cash and that being his profit or income should only be taxed and
not the entire amount deposited in his bank account. Ex-consequenti, ld.
CIT (A) estimated the income of the assessee @ Rs.1/- per Rs.100/- and
calculated the income as Rs.4,39,985/- along with other income of assessee
which is reflected in his return. The Revenue is aggrieved by the said
impugned order of the ld. CIT (A). In this case, we find that the AO issued
first notice dated 06.08.2009. Pursuant to it, ld. AR of the assessee, Shri
Pawan Kedia appeared on 24.12.2009 and thereafter, we find that several
notices/ questionnaire were issued to the assessee/AR, who did not bother
to respond. Only after show cause notice u/s 271(1)(b) was issued on
9 ITA Nos.142/Del./2012
01.07.2010, the assessee came up with partial details. We find that
assessee's statement was recorded on 29.10.2010 & 22.11.2010, and
thereafter,when the assessee was asked to come on 26.11.2010 for further
examination, he did not turn up. Thereafter, we find that the AO completed
the assessment on 16.12.2010, u/s 144 of the Act by stating the non-
cooperation conduct of assessee. Later, we find that the assessee contended
before the ld. CIT (A) that he had sent a letter dated 16.12.2010, wherein
he has explained and admitted his business of providing accommodation
entries, which could not have been acted upon by the AO because he
passed the order on 16.12.2010, so the assessee wanted the said letter to be
admitted as evidence as per Rule 46A of the Income-tax Rules, 1962. In
the aforesaid back-ground, we find that the following facts emerge from
the proceedings before the AO :
(a) The assessee had a proprietary concern and was the
Director of two companies. The assessee does not know
who the other Directors in the said companies are,
namely, M/s. Prolon Marketing Pvt. Ltd. and M/s. Ja
Gang Plastics (India) Pvt. Ltd.;
(b) He does not know who deposited the amounts in his
account in Punjab & National Bank; and
(c) He does not divulge anything about providing
accommodation entries etc before the AO till the
assessment order is passed.
So, we find that the AO felt helpless because assessee did not disclose
anything before him, so he resorted to section 144 assessment, without
10 ITA Nos.142/Del./2012
resorting to any investigation as to where the money deposited in assesse's
bank account is being transferred and where the money trail ends.
Whereas, we find that CIT(A) after going through the written submissions
of the assessee, without seeking a remand report from AO, comes to the
conclusion that modus-operandi of the assessee was that first, cash was
deposited in the proprietary concern account of assessee in Punjab
National Bank ; and in the second stage, it was transferred by the assessee
through banking channel to two companies wherein he is the Director ; and
in the third stage, the other two Directors, namely, Shri Mukesh Gauam
and Shri Chandra Prakash Bhardwaj used to issue cheques to the entry
seekers, thus the cash deposited in bank is back in the hands of the
depositors. However, we find this modus operandi does not come out of
the written submission or emerge from the records before us. We are
unable to understand how the CIT (A) accepted the modus simply
accepting the version of the assessee without at least calling for the bank
statement of the two companies wherein he is the Director to verify
whether the contention of the assessee saying that he is only an
accommodation entry provider is correct or not; or by calling for remand
report and find out to whom accommodation entries were given etc. In the
said scenario, we set aside the order of the CIT (A) and remand the matter
back to the file of the AO for de novo assessment. Needless to say,
adequate opportunity may be granted to the assessee to put forth his case
11 ITA Nos.142/Del./2012
before the AO. The AO shall not be influenced by any of the observations
which we have made above and has to pass the assessment order in
accordance to law, untrammeled by any observations by us.
8. In the result, the appeal of the revenue is allowed for statistical
purposes.
Order pronounced in open court on this 22nd day of July, 2015.
SD/- SD/-
(J.S. REDDY) (A.T. VARKEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 22ND day of July, 2015/TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-XXX, New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.
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