Beware : Once the cash was deposited into bank account of assessee, primary onus was on assessee to prove how the said cash was sourced to avoid as unexplained amount

Short Overview:

Once the cash was deposited into bank account of assessee, onus was primary on assessee to prove that the said cash was sourced by realization from debtors, which was not proved by assessee, except making an oral statement and taking credence from entries passed by him in the books of account of the said proprietary concern. Therefore, addition under section 68 was justified.

Assessee was engaged in business of trading of Swan Timbers in the name of a proprietary concern and also derived income from commission, salary and profit from trading of shares. From the details filed during the course of assessment proceedings, AO sought to verify the sundry debtors balance as appearing in books of proprietary concern and issued notices under section 133(6) to seven parties. Since notices got returned unserved, AO came to conclusion that entire credits shown by assessee in form of realization from debtors during the year as not proved within meaning of section 68 and added the same by treating as unexplained cash credit.

Decision: Against the assessee.

Relied: CIT v. Ralsons Industries Limited (2007) 288 ITR 322 (SC) : 2007 TaxPub(DT) 875 (SC), Voest-alpin Ind. Gmbh. v. ITO & Ors. (2000) 246 ITR 745 (Cal-HC) : 2000 TaxPub(DT) 1516 (Cal-HC).

IN THE ITAT, ITAT KOLKATA BENCH

A.T. VARKEY, J.M., & M. BALAGANESH, A.M.

ITO v. Sanjeev Kejriwal

ITA No. 2190/Kol/2013

12 December, 2018

Appellant by: Saurabh Kumar, Addl. Commissioner Sr. Departmental Representative

Respondent by: A.K. Tibrewal, FCA

M. Balaganesh, A.M.

This appeal by the Revenue arises out of the order of the learned Commissioner (Appeals)-XIV, Kolkata, (in short the learned Commissioner (Appeals)) in Appeal No. 308/Commissioner (Appeals)-XIV/Kol/10-11, dt. 15-5-2013 against the order passed by the ITO, Ward-30(3), Kolkata (in short the learned AO) under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 29-12-2010 for the assessment year 2008-09.

2. The only issue to be decided in this appeal is as to whether the learned Commissioner (Appeals) was justified in deleting the addition of Rs. 1,89,34,232 on account of unexplained cash credit in the facts and circumstances of the case. The interconnected issue is the revenue had also raised a ground with regard to violation of provision of rule 46A of the Income Tax Rules.

3. The brief facts of this issue are that the assessee is an individual engaged in the business of trading of Swan Timbers in the name of ‘Rajeev Trading Co.’ and also derived income from commission, salary and profit from trading of shares. The return of income for the assessment year 2008-09 was filed by the assessee on 21-7-2008 declaring total income of Rs. 1,83,414. Subsequently, a revised return was filed on 30-9-2008 declaring total income of Rs. 2,67,518. The learned assessing officer observed that the assessee appeared before the learned assessing officer from time to time and produced books of accounts and all documents for verification. From the details filed during the course of assessment proceedings, the learned assessing officer sought to verify the sundry debtors’ balance as appearing in the books of proprietary concern M/s. Rajeev Trading Co. and issued notices under section 133(6) of the Act to seven parties. The said notices returned unserved. Since the notices got returned unserved, the learned assessing officer came to conclusion that the entire credits shown by the assessee in the form of realization from debtors to the total sum of Rs. 1,89,34,232 during the year as not proved within the meaning of section 68 of the Act and added the same to the total income by treating the same as unexplained cash credit.

4. The assessee pleaded that the assessee credited a sum of Rs. 1,89,34,232 in cash to the account of the various sundry debtors as detailed in page 2 of the assessment order. The assessee stated that these realizations were made against the supplies made in earlier year. The assessee furnished the names and addresses of the debtors and has filed a statement showing particulars of account in their names during this year, recovery of amounts during the year and closing balance outstanding as on 31-3-2005 to 31-3-2009, profit and loss account for the same period, list of sundry debtors, confirmatory certificates and such other particulars to prove that these sums represent realization from debtors. Accordingly, it was pleaded that the provisions of section 68 per se are not at all applicable in the facts of the instant case as it pertains to trade receipts and not loan receipts or share capital receipts. The assessee also placed reliance on certain decisions in support of these contentions. The learned Commissioner (Appeals) deleted the addition by observing as under :–

“12. All the grounds of appeal are directed against the addition of Rs. 1,89,34,232 made by the assessing officer I have given careful consideration to the contention of the appellant and have also perused the order of the assessing officer and relevant documents. I find, there are sufficient force to the arguments placed by the learned counsel for the appellant. Before dwelling upon the impugned issue related to addition of Rs. 1,89,34,232 it may be necessary to examine first the method of accounts followed by the appellant which resulted debts due from the customers in earlier years. The appellant was engaged in the business of sawn timbers during the previous year relevant to the assessment year 2005-06 and the appellant derived income of Rs. 1,20,306 from the business which was disclosed in the return for the assessment year 2005-06. As per audited statements of account for the year ended 31-3-2005 there were sundry debtors of Rs. 7,54,45,999 and sundry creditors of Rs. 7,91,60,460. The appellant realized money partly from sundry debtors and met liabilities out of the sums collected from the sundry debtors in the subsequent years. It is also important to note that as per balance sheet as at 31-3-2007, i.e., immediately preceding year, the appellant had an outstanding liability of sundry creditors to the tune of Rs. 1,35,58,275 and at the same time he had sundry debtors of Rs. 2,96,92,935. This clearly demonstrates that on the one hand the appellant had liability towards these creditors and on the other hand he had assets in the forms of sundry debtors and other kinds. During the relevant previous year the appellant realized Rs. 1,89,34,232 out of sundry debtors of Rs. 2,96,92,935 standing as assets on 31-3-2007. A cash flow chart for the year under consideration was furnished by the appellant which indicated recovery of debts and disbursement of fund as mentioned thereunder:–

3.3 In course of the assessment proceedings, the appellant furnished a cash flow statement (annexure-C) which indicated disbursement of the sum realized from the sundry debtors as mentioned hereunder :–

13. The apparent state of affairs clearly indicate that the appellant sold goods on credit in earlier years and met liabilities in subsequent years out of sums collected from the sundry debtors. In my view the assessing officer acted upon mere assumption that those sums credited to the accounts were not genuine transactions. Mere suspicion cannot take the place of proof. Accordingly, the overall circumstances also do not suggest that any adverse inference should be drawn against the appellant. The same procedure was followed by the appellant in the previous year relevant to the assessment year 2006-07 and the realization of money from the sundry debtors was brought into controversy in the assessment. The dispute cropped up for the assessment year 2006-07 was resolved by the order of the Hon’ble Tribunal in the appeal in ITA No-371/Kol/2010 preferred by the appellant. The relevant observation of the Hon’ble Tribunal in para 6 of the said order read as under :–

“… The contention of assessee that the realization made by the assessee in cash from the sundry debtors and subsequent payments to the sundry creditors are duly reflected in the books of accounts are not rejected by the Revenue authorities for the assessment year 2006-07 which is under dispute. We find no justification on the part of the Revenue to make either additions of Rs. 25,00,000 by assessing officer or enhancement made by the learned Commissioner (Appeals) to the extent of Rs. 2,37,06,226 is not sustainable in the eyes of law, keeping in view of the fact that neither the assessing officer nor the learned Commissioner (Appeals) has rejected the books of accounts maintained by assessee nor disputed that the assessee is showing sundry debtors as well as sundry creditors as on 31-3-2005 which were substantially reduced as on 31-3-2006. Under these circumstances, the addition made by the assessing officer and enhancement made by learned Commissioner (Appeals) are liable to be dismissed…. “

14. It may be viewed from another aspect. The point raised by the learned counsel with reference to the observation made in the cited cases is an important issue, The learned counsel argued that when the Hon’ble Tribunal on same facts and circumstances and considering all the materials has held that realization from debtors cannot be treated as cash credit in view of the fact that the amount of sundry debtors represented a trading asset and a receipt remained conversion of trading asset into cash in the instant case, it was not open for the assessing officer to upset the judgment of the Hon’ble Tribunal. Such act is a gross breach of quasi-judicial discipline. In this view of the matter, where the basic facts before the assessing officer for subsequent year were the same as were before the Hon’ble Tribunal for an earlier year, it would not be appropriate for the assessing officer to differ from the view expressed by the higher appellate authority for the earlier year particularly because it is the same dispute in one and same setting. The Hon’ble Calcutta High Court in Voest Alpine Ind. GmbH v. ITO & Ors. (2000) 246 ITR 745 (Cal-HC) : 2000 TaxPub(DT) 1516 (Cal-HC) held that it is well settled principle of law that the junior incumbent is supposed to obey and carry out the order and/or observations ‘made by the superior authority, be it judicial forum or a quasi-judicial forum or even in any administration field. In CIT v. Ralson Industries Ltd. (2007) 288 ITR 322 (SC) : 2007 TaxPub(DT) 875 (SC)the Hon’ble Supreme Court observed that when an order is passed by a higher authority, the lower authority is bound thereby keeping in view the principles of judicial discipline. Therefore, I hold that the assessing officer should not deviate from the earlier decision of the Hon’ble Tribunal in the case of the appellant for application of the same view in this year.

15. Having considered the contention of the appellant, the relevant facts, material on record and citation relied upon I am of opinion that the addition is not sustainable in law. I find that the issue is squarely covered in favour of the appellant vide Order, dt. 9-11-2012 of the jurisdictional Tribunal in ITA No-371/Kol/2010 in the appellant’s own case for the assessment year 2006-07. Respectfully following the aforesaid order of the Honourable Tribunal in the appellant’s own case, the addition of Rs. 1,89,34,232-made by the Assessing officer is deleted.”

Aggrieved the revenue is in appeal before us.

5. We have heard the rival submissions. At the outset, we find that there were certain cash deposits made in the bank account of the assessee which were explained as realization made from various debtors of the assessee during the year under consideration. We hold that except crediting the cash to the credit of various debtors’ account in the ledger accounts of the assessee, we find that the assessee had not produced any other corresponding evidences from external sources such as from debtors’ confirming this fact of having settled their dues to the assessee in cash. The confirmatory certificate stated to have been filed by the assessee before the learned Commissioner (Appeals) is not forming part of Paper Book filed before us and hence the same cannot be taken into account for want of proof. We hold that once the cash is deposited into bank account of the assessee, the onus is primary on the assessee to prove that the said cash is sourced by realization from debtors, which in the instant case has not been proved by the assessee except making an oral statement and taking credence from the entries passed by him in the books of accounts of Rajeev Trading Co. It is not in dispute that the seven notices sent by the learned assessing officer under section 133(6) to seven sundry debtors returned unserved. The assessee did not take corrective measures to produce confirmations from these seven sundry debtors either during the assessment proceedings or during the appellate proceedings. Hence we hold that the primary onus and the three ingredients of section 68 has not been discharged by the assessee in the instant case. We hold that the Hon’ble Supreme Court had addressed the very same issue in the case of Vijay Kumar Talwar v. CIT reported in (2011) 330 ITR 1 (SC) : 2011 TaxPub(DT) 693 (SC), dt. 6-12-2010 against the assessee. Hence the primary argument advanced by the learned Authorised Representative on behalf of the assessee deserves to be dismissed in the instant case.

6. However we find that the learned Authorised Representative had made an alternative argument before us stating that in case if the said credit to the account of the sundry debtors are not believed to be genuine by the department, it cannot be disputed that the assessee had reduced the debtors’ account balances to the tune of Rs. 1,89,34,232 in its books of accounts which effectively amounts to write off of debts to that extent. The learned Authorised Representative argued that this write off is otherwise allowable as a deduction as bad debts under section 36(1)(vii) of the Act. In support of this proposition, he placed reliance on the Co-ordinate Bench decision of this Tribunal authored by the undersigned in the case of D.K. Industries v. ITO in I.T.A. No. 683/Kol/2013 for assessment year 2009-10 dated 8-4-2016, wherein it was held as under :–

“6. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee comprising of (i) copy of partnership deeds dated 1.4.1994, 1-4-2007 and 1-4-2008 vide pages 1 to 41 of paper book ; (ii) copy of Income Tax Return acknowledgement together with audited accounts for assessment year 2009-10 vide pages 42 to 56 ; (iii) copy of assessment order under section 143(3) of the Act dated 7-12-2010 for assessment year 2008-09 vide pages 57 to 72 ; (iv) Copy of intimation under section 143(1) of the Act dated 27-7-2001 for assessment year 1999-2000 vide page 73 ; (v) copy of tax audit report together with audited accounts for assessment year 1999-2000 vide pages 74 to 105 ; (vi) copy of Income Tax Return acknowledgement and assessment order us 143(3) of the Act for the assessment year 1998-99 vide pages 106 to 113 and (vii) copy of audited balance sheet as on 31-3-1998 together with tax audit report vide pages 114 to 140.

6.1. We find that the addition has been made the learned assessing officer on the ground that the assessee could not obtain the confirmation from M/s. Raj Enterprises and M/s. Brand Alloys Ltd. It is not in dispute that the assessee had indeed furnished confirmation from Mr. Vinay Kumar Baid together with his PAN details which fact is also mentioned in the assessment order. The assessee had claimed that the source of cash deposits are nothing but realization of loan dues from the three parties in cash which were deposited into the bank account of the assessee. It is not in dispute that the assessee had indeed requested the learned assessing officer to issue summons to M/s. Raj Enterprises and M/s. Brand Alloys Ltd. to make verification of the subject mentioned receipts. But the said summons could not be served on the parties at the address given by the assessee to learned assessing officer. The assessee had only proved the identity of the loan creditors (as they are existing from 31-3-1998 in its books which is also accepted by revenue), but however, the assessee was not able to prove the creditworthiness of those parties. The genuineness of transaction has not been proved by the assessee. In these circumstances, though there is no direct evidence to prove that the assessee had only routed its undisclosed monies in the form of realization from loan parties, by virtue of operation of deeming provisions of section 68 of the Act, the addition made by the learned assessing officer needs to be sustained. With regard to the decision relied upon by the learned Authorised Representative on the co-ordinate bench of this tribunal in the case of Sanjeev Kejriwal v. ITO in ITA No. 371/Kol/2010, dt. 9-11-2012, we find that the facts stated thereon are squarely distinguishable with regard to realization of monies from debtors. In that case, there was a clear finding given by the learned Commissioner (Appeals) that the monies received represent realization from debtors. Whereas, in the instant case, the entire dispute revolves on the fact of realization of monies from loan debtors. Hence reliance placed on the aforesaid decision does not advance the case of the assessee on this aspect. Hence the same would become taxable as income from other sources.

6.2. It is not in dispute that the assessee had shown these loan balances due from these three parties as loans and advances receivable in its balance sheet for more than 10 years. It is also not in dispute that one of the main businesses of the assessee firm is money lending activity. This is quite evident from the various partnership deeds of the assessee vide clause 3 which are reproduced herein below for the sake of convenience :–

3. That the business of the firm shall be mainly that of export & import of agro products like raw cotton, pulses, food grain, spices etc., ginning and pressing of cotton, commission agent, manufacturer’s representative, general merchant, financier including money lending business, real estate and shall be entitled to carry on any other trade or business or manufacturing whatsoever as mutually agreed upon by the partners.

The same clause is present in the original partnership deed dated 1.4.1994 vide clause 3 and also in reconstituted partnership deeds dated 1-4-2007 and 1-4-2008.

This goes to prove that the assessee is indeed engaged in money lending business also. We also find that the assessee had duly shown the amounts receivable from the aforesaid three parties (i.e. Raj Enterprsies, Brand Alloys Ltd. and Vinay Kumar Baid) as loans and advances in the balance sheet as on 31-3-2008 (immediately preceding asst year) with the balances of Rs. 36,50,036 in total of these three parties. This goes to prove that the assessee had continued its money lending business. During the asst year under appeal, the balances from these three parties are shown as nil in view of recoveries made by the assessee from them, according to assessee, which fact is also evident from the balance sheet as on 31-3-2009 filed in the paper book. However, the realization of monies from these loan parties have been disbelieved by the learned assessing officer and we have already given our finding in that regard hereinabove in favour of the revenue. But one more fact cannot be swept under the carpet that the assessee had brought the loan balances from these three parties to Nil as on 31-3-2009 in its books of accounts. It is not in dispute that the assessee was indeed carrying on money lending business in the past and had derived interest income thereon. This is quite evident from the copy of audited balance sheets filed by the assessee for the years ended 31-3-1998 and 31-3-1999, wherein the interest income is admitted by the assessee as income from business. It is also not in dispute that the revenue had also accepted the same as income from business in the past. It is not in dispute that the assessee had continued to carry on its money lending business. It is also not in dispute that the lending to these parties were made in the ordinary course of money lending business of the assessee. Since the assessee has claimed that the monies have been realized from these parties, it is estopped from proceeding against these parties from making any recoveries. It is also not in dispute that the assessee had brought the balances of these parties to Nil as on 31-3-2009 in its books of accounts. Hence the assessee is entitled to claim the balances of these three parties as a trading loss under section 28 of the Act. In view of these facts and circumstances, we find lot of force in the alternative argument of the assessee that the non-recovery of the loan dues, according to learned assessing officer, should be allowed as a deduction as regular business loss from money lending activity, which in turn would only go to increase the business loss of the assessee for the year under appeal and the same would in turn be available for set off against the alleged income from other sources under section 68 of the Act. Hence in any case, no addition could be made in the hands of the assessee in the sum of Rs. 36,50,036. Hence we find lot of force in the alternative argument of the learned Authorised Representative. Accordingly, the grounds raised by the assessee are allowed.”

We find that the decision placed by the learned Authorised Representative is well founded and is directly applicable to the facts of the instant case. Hence by placing reliance on the said decision, we hold that the assessee in the instant case is entitled for deduction as bad debts based on alternative argument advanced by the learned Authorised Representative. Accordingly, grounds raised by the revenue are dismissed.

7. In the result, the appeal of the revenue is dismissed.