Addition under section 68 towards Unexplained cash credits

Overview :

Where assessee received loan amount and the loan amount was duly deposited in bank account of the assessee, but the assessee failed to establish genuineness of the loan transactions and none of the creditors were found to be creditworthy, therefore, addition under section 69 was rightly made on account of unexplained credit.

During course of assessment proceedings, AO found unexplained credit in bank account of assessee. Therefore, the AO made addition on account of unexplained cash credit, which was confirmed by CIT(A). Assessee’s contention was that he had received loan amounts from creditors, which were deposited in the bank account. Therefore, no addition could be made under section 68.

It is held that the assessee had received the loan amount and the loan amount was duly deposited in the bank account of the assessee, but the assessee failed to establish genuineness of the loan transactions and none of the creditors were found to be creditworthy. CIT(A) had also admitted the factum of earning of agricultural income. Therefore, inference that the entire amount was not belonging to the creditors would be fallacious. Thus, considering the facts and material available on record, 50% of the addition was deleted.

Decision: Partly in assessee’s favour.

Referred: VISP (P) Ltd. v. CIT (2004) 265 ITR 202 (MP-HC) : 2004 TaxPub(DT) 776 (MP-HC); P.V. Ajay Narayan v. ITO (1997) 57 TTJ 159 (Bang-Trib) : 1997 TaxPub(DT) 593 (Bang-Trib);  CIT, Poona v. Bhaichand H. Gandhi (1983) 141 ITR 67 (Bom-HC) : 1983 TaxPub(DT) 582 (Bom-HC); CIT v. Bhaichand H. Gandhi (1983) 141 ITR 67 (Bom-HC) : 1983 TaxPub(DT) 582 (Bom-HC) and Sundar Lal Jain v. CIT (1979) 117 ITR 316 (All-HC) : 1979 TaxPub(DT) 737 (All-HC); D.M. Neterwalla v. CIT (1980) 122 ITR 880 (Bom-HC) : 1980 TaxPub(DT) 448 (Bom-HC); Steel Containers Lt.d v. CIT (1978) 112 ITR 995 (Cal-HC) : 1978 TaxPub(DT) 250 (Cal-HC) and Baladin Ram v. CIT (1969) 71 ITR 427 (SC) : 1969 TaxPub(DT) 155 (SC).

IN THE ITAT, INDORE BENCH

KUL BHARAT, J.M. & MANISH BORAD, A.M.

Om Prakash Patidar (HUF) v. ITO

ITA No. 220/Ind/2017

January 3, 2019

Appellant by: Ashish Goyal & N.D. Patwa, Authorised Representatives

Respondent by: Rajiv Jain, Departmental Representative.

ORDER

Kul Bharat, J.M.

This appeal by the assessee is directed against order of the Commissioner (Appeals)-I, Indore dated 23-1-2017 pertaining to the assessment year 2013-14. The assessee has raised following grounds of appeal :–

1. The learned Commissioner (Appeals) has erred in confirming the addition of transfer expenses of Rs. 2,00,000 on sale of agricultural land.
2. The learned Commissioner (Appeals) has erred in confirming the addition of cash credits amounting to Rs. 17,51,000.
3. The appellant craves leave to add or amend any of the aforesaid grounds of appeal.
4. The facts giving rise to the present appeal are that assessee filed return of income on 28-1-2014 declaring total income of Rs. 6,98,467 and an agricultural income of Rs. 4.50,200. The case of the assessee was selected for scrutiny assessment. The assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) was framed vide Order, dt. 16-1-2016.The assessing officer while framing the assessment made addition in respect of capital gain of Rs. 75,35,438, income from other sources of Rs. 23,90,602 and unexplained credit in bank account of Rs. 17,51,000. Hence, the assessing officer after giving deduction under Chapter 16A assessed income at Rs. 97,40,840. The assessing officer also computed agricultural income at Rs. 3,00,000 against the agricultural income claimed at Rs. 4,50,200.
5. Aggrieved by this action of the assessing officer, the assessee preferred an appeal before learned Commissioner (Appeals), who after considering the submissions partly allowed the appeal. While partly allowing the appeal, the learned Commissioner (Appeals) confirmed disallowance of transfer expenses of Rs. 2,00,000 and the additions made in respect of the deposits made in the bank account of Rs. 17,51,000. Rest of the additions were deleted by the learned Commissioner (Appeals) for the assessee and the revenue had challenged the assessment order. Appeal of the revenue in ITA No. 305/Ind/2017, dt. 19-9-2018was dismissed for low tax effect. The present appeal of the assessee remains to be adjudicated. Ground No. 1 is against addition of transfer expenses of Rs. 2,00,000 on sale of agricultural land. At the time of hearing, this ground was not pressed, hence, dismissed as not pressed.
6. Apropos to Ground No. 2, learned Counsel for the assessee submitted that all the details have been filed. Learned Counsel for the assessee further reiterated the submissions as made in the written synopsis. The submissions of the assessee are as under :–

S. No.	Name	Amount	Remarks
1.	Shri Jagdish Patidar	3,50,000	(1) Received by cheque. Bank pass book. PB 115. A.O. wrongly quoted bank account of Lalita at pg.15 of his order. (2) Confirmed in statement u/s 131(1) before Ld. A.O. pg.16 para (d) (3) Identity proof –Election ID PB 113 (4) Confirmation PB 112(back) (5) Source of Income – Agriculture, land revenue records produced PB 113 (6) Repaid on 19-1-2013. PB 115 (7) Cash was deposited before issue of cheque to assessee. He was agriculturist and his income was in cash only. He would explain his source. CIT v. Jai Kumar Bakliwal (2014) 366 ITR 217 (Raj-HC) : 2014 TaxPub(DT) 1890 (Raj-HC) Also Orissa Corpn P Ltd. 25 Taxman 80F (SC)
2	Smt. Lalita Patidar, w/o Jagdish Patidar	3,51,000	(1) Received by cheque. Bank pass book. PB 118. A.O. wrongly quoted bank account of Jagdish at pg.16 of his order. (2) Identity proof – Election ID PB 116 (back) (3) Confirmation PB 116. (4) Source of Income – Agriculture – Land revenue records produced PB 117 (5) Repaid on 19.1.2013 PB 118 (back) (6) Cash was deposited before issue of cheque to assessee. He was agriculturist and his income was in cash only. He would explain his source. CIT v. Jai Kumar Bakliwal(2014) 366 ITR 217 (Raj-HC) : 2014 TaxPub(DT) 1890 (Raj-HC)
3	Shri Vishwas Patidar s/o Radheshyam Patidar	3,00,000	(1) Received by cheque, Bank pass book at pg.17 para (c) (2) Identity proof – Election ID PB 120 (back) (3) Confirmation PB 119 (4) Source of Income – Agriculture, land revenue records produced PB 117 (5) Repaid on 19.1.2013 PB 118 (back) (6) Cash was deposited before issue of cheque to assessee. He was agriculturist and his income was in cash only. He would explain his source. CIT v. Jai Kumar Bakliwal(2014) 366 ITR 217 (Raj-HC) : 2014 TaxPub(DT) 1890 (Raj-HC)
4.	Shri Radheyshyam Patidar	3,00,000	(1) Received by cheque. Bank pass book at pg.19 (2) Confirmation PB 119 (3) Source of income – Agriculture land revenue records produced PB 122- 123 4) Repaid on 7.1.2013 AO pg.19 (5) Cash was deposited before issue of cheque to assessee. He was agriculturist and his income was in cash only. He would explain his source. Huge cash deposits before issue of cheque to assessee. He would explain his source. CIT v. Jai Kumar Bakliwal(2014) 366 ITR 217 (Raj-HC) : 2014 TaxPub(DT) 1890 (Raj-HC)
5	Shri Prahlad Patidar	4,50,000	(1) Received by cheque. Bank pass book at pg.17 para (c) (2) Identity proof – Election ID. (3) Confirmation (4) Source of Income – Agriculture, Land revenue records produced. (5) Repaid on 19.1.2013 (6) Cash was deposited before issue of cheque to assessee. He was agriculturist and his income was in cash only. He would explain his source. Huge cash deposits before issue of cheque to assessee. He would explain his source. CIT v. Jai Kumar Bakliwal (2014) 366 ITR 217 (Raj-HC) : 2014 TaxPub(DT) 1890 (Raj-HC)

4. Learned Departmental Representative opposed the submissions and supported the orders of the authorities below.
5. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. Learned Commissioner (Appeals) confirmed this addition. Learned Commissioner (Appeals) decided this issue by observing as under :–

8.1 As seen from the assessment order the addition consists of following loans:-

S. No.	Name	Amount & Date
1.	Shri Jagdish Patidar	Rs.350000 12.9.2012
2.	Smt. Lalita Patidar	Rs.351000 12.9.2012
3.	Shri Vishwas Patidar	Rs.300000 12.9.2012
4.	Shri Radheshyam Patidar	Rs.300000 12.9.2012
5.	Shri Prahlad Patidar	Rs.450000 15.9.2012
	TOTAL	Rs.1751000

Each of these loans is taken up hereunder :–

1. Shri Jagdish Patidar :–

As noted in the assessment order the identity of Shri Jagdish is not in doubt however the creditworthiness of Shri Jagdish is not established though he has confirmed having given the loan but the loan is stated to be out of agricultural income of Shri Jagdish. The assessing officer has rightly noted that the land holding of Shri Jagdish is not adequate and independent to justy the cash deposited in his account just prior to the giving of loan to the appellant. The cash deposits are of the amount of Rs. 49000, just below Rs. 50000, and thus appear to be intentionally done with the aim of avoiding the quoting of PAN and subsequent scrutiny. It is also to be noted that there is no evidence placed on record that the deposits flow out of sale of agricultural produce and even if it is so curiously all sales are of Rs. 49000. In the normal course the agricultural receipts would vary and if the entire amount was in hand with the depositor the same could have been deposited at one go. The bank account of the depositor produced does not establish that the deposit pattern was a regular feature in the account of Shri Jagdish Patidar is found to be not satisfactorily explained and hence the assessing officer was justified in treating the same as income of the appellant.

2. Smt. Lalita Patidar :–

Shri is the wife of Shri Jagdish Patidar and the facts are identical to those of Shri Jagdish Patidar. Her creditworthiness is not established as her agricultural land holding and income is not adequate to explain the cash deposits in her bank account. Therefore, assessing officer was justified in treating the said deposit as also not having been satisfactorily explained.

3 & 4 Shri Vishwas Patidar & Radhyshyam Patidar :–

Shri Vishwas Patidar & Radhyshyam Patidar are son and father and are related to the appellant. As noted by the assessing officer here also the loan is stated to be out of agricultural income however the agricultural land holding is not commensurate with cash deposit in the accounts which are again of Rs. 49000 or below that amount just prior to the loan given to the appellant. Shri Vishwas has no separate land in his name. Total land in the family in name of grand mother uncle etc. is only 16 Bighas and the details of the bank accounts in name of uncle and his family have not been given. In view of the above it is held that the loan from the above two creditors are also not satisfactorily explained.

5. Shri Prahlad Patidar :–

As in the case of the above 4 depositors in this case also there are cash deposits in the bank account of the depositor of Rs. 49000 or below, just before giving the loan to the appellant. The deposits are not commensurate with the land holding which is a meagre 3 Bighas only and the depositor has not produced any other details of his family and agricultural income. It is otherwise also too much of a coincidence that all the depositors inspite of small land holdings had agricultural income of almost equivalent amount and deposited the same in their bank accounts in a sum of Rs. 49000 or below, at the same time. The coincidence is beyond human probabilities and the whole thing is engineered to facilitate the loans to the appellant. The genuineness of the loan transactions is therefore not established and none of the depositors are found to be credit worthy.

8.2 The appellant has argued that the confirmations have been filed and copies of bank statements have also been filed and as all loans are from agriculturist for a short period of time no adverse inference need be drawn. The appellant has also argued that the assessing officer did not allow the appellant opportunity to cross examine the depositors. Such contention is devoid of merits as from the assessment order it is seen that the assessing officer has not drawn any adverse inference based on the statements recorded. Mere filing of confirmations per se does not establish the transaction as genuine.

8.3 The appellant during the course of appellate proceedings has contended that the assessing officer was not justified in adding the above loans under section 68 of the Act as there was no credit in the books of the appellant as the appellant was not maintaining any books of accounts and on the basis of entries in the bank account no addition can be made under section 68 of the Act. From the record it is seen that during the course of assessment proceedings the appellant has filed balance sheet, Trial balance, ledger accounts cash book and UCO bank savings a/c book. The last named account shows the receipt of money as loan from all the above cash creditors and the unsecured loans outstanding at the end of the year are seen in the balance sheet. In view of the above the contention that section 68 cannot be invoked as no books are maintained is found to be without merits. In this context it is relevant to note the observations of the Hon’ble jurisdictional High Court in the case of VISP (P) Ltd. v. CIT (2004) 265 ITR 202 (MP-HC) : 2004 TaxPub(DT) 776 (MP-HC)which are reproduced below.

Learned counsel, appearing for the assessee placing reliance on the decision of the Supreme Court reported in Baladin Ram v. CIT (1969) 71 ITR 427 (SC) : 1969 TaxPub(DT) 155 (SC) and the decisions of the Mumbai and Allahabad High Courts reported in CIT v. Bhaichand H. Gandhi (1983) 141 ITR 67 (Bom-HC) : 1983 TaxPub(DT) 582 (Bom-HC) and Sundar Lal Jain v. CIT (1979) 117 ITR 316 (All-HC) : 1979 TaxPub(DT) 737 (All-HC), respectively, contended, that section 68 of the Act can be invoked only, when, the books of account of the assessee show the cash entry and not otherwise.

We are afraid, such a narrow and restricted interpretation of the provisions, contained in section 68 was advanced by learned counsel for the appellant/assessee, cannot be accepted. If the liability shown in the said account which, is found to be bogus and in the absence of any plausible and reasonable explanation offered by the assessee, then, certainly, the amount can be added towards the income of assessee and brought to tax in the hands of the assessee.

The reliance placed on the decisions, in our considered opinion, do not apply to the facts and circumstances of the case and are distinguishable.”

8.4 In the instant case also as pointed out above the appellant has submitted the copies of balance sheet ledger accounts bank book cash book etc at the time of assessment and the receipt is duly reflected in these accounts and hence assessing officer was justified in invoking the provisions of section 68 of the Act. The ITAT Bangalore in the case of P.V. Ajay Narayan v. ITO (1997) 57 TTJ 159 (Bang-Trib) : 1997 TaxPub(DT) 593 (Bang-Trib) has held as under :–

“It is further contended by the learned counsel for the assessee that the addition cannot be made under section 68 because the assessee has not been maintaining regular books of account. It is contended that only in cases where regular books are maintained the provisions of section 68 would be applicable. But the learned Departmental Representative, on the other hand, submitted that misquoting of a section is not fatal to the case of the Revenue. For this proposition, he relied on the following case law :–

(i) CIT, Poona v. Bhaichand H. Gandhi (1983) 141 ITR 67 (Bom-HC) : 1983 TaxPub(DT) 582 (Bom-HC)

 (ii) Steel containers Lt.d v. CIT (1978) 112 ITR 995 (Cal-HC) : 1978 TaxPub(DT) 250 (Cal-HC)

(iii) D.M. Neterwalla v. CIT (1980) 122 ITR 880 (Bom-HC) : 1980 TaxPub(DT) 448 (Bom-HC)

The above decisions point out to one thing that the Tribunal has power to allow the Revenue to raise a ground for the first time before it. It is also held therein that the Tribunal can uphold disallowance under another section. In the light of the above decisions we hold that mentioning of a wrong section is not fatal to making an assessment under any other section.”

8.5 Admittedly the appellant has received the amount in question and the amount is duly deposited in the bank account of the appellant and the appellant has failed to satisfactorily explain the source of the said deposits in his bank account and hence the investment in the bank deposit is not found to be satisfactorily explained and hence the addition can be confirmed under section 69 of the Act. Considering all the facts in totality the addition is confirmed in appeal. This ground of the appellant is therefore dismissed.”

6. From the finding of learned Commissioner (Appeals), it is evident that the explanation of the assessee was not found satisfactory on the basis that before advancing money to the assessee, there were cash deposits in the account of the creditors. However, learned Commissioner (Appeals) has admitted the factum of earning of agricultural income. Therefore, inference that the entire amount was not belonging to the creditors would be fallacious. We therefore, looking into the facts and material available on records, hereby delete 50% of the addition of Rs. 17,51,000. The ground of the assessee’s appeal is partly allowed.
7. In the result, appeal of the assessee is partly allowed.