Addition on account of unexplained deposits in bank account, information found during the income tax raid of other persons

Short Overview: As assessee had not filed return for the year under consideration and no assessment was made under section 143(1)/143(3), therefore, bank account found during search in case of searched person, constituted seized material so as to invoke section 153C in assessee’s case.

The fact that assessee had made huge cash deposits in bank account, of which the source was not explained, come to notice of department during search and seizure operations conducted in case of one ‘D’. Accordingly, AO issued notice under section 153C to assessee and made addition. Assessee challenged this on the ground that assessment was made on the basis of deposits made in bank accounts without having the seized material. 

it is held that assessee had not filed  regular return of income and no assessment was made under section 143(3)/143(1) for impugned assessment year. Thus, bank account found during search was not declared by the assessee and the same constituted seized material. Accordingly, action of AO for initiating proceedings under section 153C and legal validity of consequent additions made by AO was upheld.

Decision: Against the assessee.

IN THE ITAT, VISAKHAPATNAM BENCH

1. DURGA RAO, J.M. & D.S. SUNDER SINGH, A.M.

Dharipalli Rangamma v. ACIT

ITA No. 425-429/Viz/2017

26 October, 2018

Assessee by: M.V. Anil Kumar, Authorised Representative

Revenue by: Deba Kumar Sonowal, Departmental Representative

ORDER

Per Bench

These appeals are filed by the assessee against the order of the Commissioner (Appeals) (Commissioner (Appeals))-3, Visakhapatnam vide ITA No. 305/2015-16/Commissioner (Appeals)-3/VSP/2016-17 dated 10-3-2017 for the assessment year (A.Y.) 2007-08 to 2011-12. Since the grounds raised in the appeals are common, these appeals are clubbed, heard together and a common order is being disposed of for the sake of convenience as under.

2. The assessee raised the following grounds of appeal for the assessment year 2007-08. These grounds are common for all the assessment years 2007-08 to 2011-12.
3. The Commissioner (Appeals) as well as the assessing officer ought to have appreciated the fact that your Appellant was provided with the copies of the seized material without sufficient time to analyse and file return under section 153C, therefore, assessment under section 144 is bad in law.
4. The Commissioner (Appeals) erred in law and facts of the ease in confirming the addition of Rs. 2,94,500 made in assessment.
5. The Commissioner (Appeals) and the assessing officer have erred in law and facts of the case adding Rs. 2,73,000 being cash deposited in Bank on mere suspicion and presumption that it belongs Your Appellant ignoring the deposition of Smt. U. Rajyalakshmi.
6. The Commissioner (Appeals) having called for the records and assessment orders of Smt. U Rajyalakshiui ought to have given an opportunity to verify the same and explain the facts, after considering the same ought to have deleted the addition.
7. Your Appellant submits that the cash deposit of Rs. 21,500 is out of the income of her late husband Sri. D. Krishnamachary, which is below the taxable income, therefore the addition may be deleted.
8. Your Appellant submits that the addition is not based on any seized material but based on cash deposited in bank account, the addition is bad in law and may be deleted.
9. Ground No. 1 is related to the issue of not providing the seized material to the assessee well in advance to analyze and file the return of income. This ground is common for all the appeals for the assessment years of 2007-08 to 2011-12. A search under section 132 was conducted in the case of D. Sampath on 13-7-2011 in connection with the cases of Smt. U Rajya Lakshmi and others. During the course of search, certain incriminating material relating to the assessee was found and seized indicating undisclosed income of the assessee from the premises of searched person. Consequently, the assessing officer (AO) had issued the notice under section 153C on 13-8-2013 calling for the returns of income for the assessment year 2007-08 to 2011-12, but there was no response from the assessee. Subsequently, the assessing officer issued a letter calling for information and there was no response from the assessee for the letter also. The assessee has requested for copies of the seized material on 11-3-2014 and the assessing officer supplied the copies of the seized material on 13-3-2014 within two days of time, thus we do not find any lapse from the assessing officer. During the appeal hearing before the learned. Commissioner (Appeals) also, the assessee did not analyze the seized material taken by her and presented the case. This ground was not raised by the assessee before the learned. Commissioner (Appeals) and during the appeal hearing, the learned. Authorised Representative did not make any argument to support this ground. Therefore, we do not find any merit in the ground raised by the assessee and this ground is dismissed. This ground is involved for the assessment years 2007-08 to 2011-12 and the assessee’s appeals on this ground for all the assessment years are dismissed.
10. Ground No. 2 and 3 are related to the cash deposits made in the bank account of Late Shri D. Krishnamachary father of D. Sampath. During the search and seizure operations in the premises of D. Sampath, the assessing officer found the bank accounts relating to Late Sri D. Krishnamachary father of D. Sampath. The assessee found to have made huge cash deposits in the bank accounts for the assessment years. 2008-09 to 2011-12 as under:–

Name of the account Holder (Sri/Smt.	Name of the Bank	Account No. .	Deposits (inRs. )
Financial Year 2005-06 relevant to assessment year 2006-07
F. Y. 2005-06
D. Krishnamachary	State Bank of Hyderabad, Warangal Main Branch	52111317053	58,500
		Total	58,500
Financial Year 2006-07 relevant to assessment year 2007-08
F. Y. 2006-07
D. Krishnamachary	State Bank of Hyderabad, Warangal Main Branch	52111317053	21,500
		Total	21,500
Financial Year 2007-08 relevant to assessment year 2008-09
F. Y. 2007-08
D. Krishnamachary	State Bank of Hyderabad, Warangal Main Branch	52111317053	50,000
D. Krishnamachary	Axis, Warangal	292010100062286	7,58,000
		Total	8,08,000
Financial Year 2008-09 relevant to assessment year 2009-10
F. Y. 2008-09
D. Krsinamachary	Axis Bank,	292010100062286	3,67,500
	Warangal
		Total	3,67,500
Financial Year 2009-10 relevant to assessment year 2010-11
F. Y. 2009-10
D. Krsinamachary	Axis Bank, Warangal	292010100062286	1,81,500
D. Krsinamachary	Axis Bank, Warangal	910010040762965	6,00,000
D. Ranganayakamma	Axis Bank, Ramnagar, Visakhapatnam	910010043099019	1,49,000
		Total	9,30,500
Total deposits for the F. Ys. 2005-06 to 2010-11 relevant to assessment years 2006-07 to 2011-12		Total Deposits	26,21,000

5. The assessing officer also observed that these deposits were made by her sons Shri D. Sriramulu and Shri D. Sampath. Since the assessee could not explain the sources for the deposits, the assessing officer treated the same as undisclosed income of the assessee for assessment year 2007-08 to 2011-12 as under :–

2007-08 Unexplained income	Rs. 2,73,000
2008-09	Rs. 8,08,000
2009-10	Rs. 6,90,000
2010-11	Rs. 3,67,000
2011-12	Rs. 9,30,500

6. Aggrieved by the order of the assessing officer the assessee went on appeal before the Commissioner (Appeals) and the learned. Commissioner (Appeals) confirmed the addition for want of evidence.
7. Against the order of the learned. Commissioner (Appeals), the assessee filed appeal before us. During the appeal hearing, the learned. Authorised Representative argued that the assessing officer made the entire deposits as addition though there were frequent cash deposits and withdrawals. Cash deposits were made out of the withdrawals and both the cash deposits and withdrawals are nothing but circulation of money in the same account, therefore, requested to consider the peak deposits instead of the entire deposits. The learned. Authorised Representative further submitted that due to deep trouble and life threat to Sampath the son of the assessee, the entire family was scared of threats from Rajyalakshmi and others and could not comply with the notices issued by the department. The learned. Authorised Representative requested to remit the matter back to the file of the assessing officer to consider the peak credits as income and assured of full cooperation with the department and submit the necessary evidences for completion of the assessment.
8. We have heard both the parties and perused the material placed on record. In this case, the assessing officer made the addition of entire cash deposits in the bank account. The assessee contended that the deposits were made out of withdrawals. Further, the assessee did not press her contention that the money does not belong to Late Shri Krishnamachary. The learned. Authorised Representative has requested only to consider the peak credit as income for the respective assessment years. As evident from the bank account, there are frequent cash deposits and withdrawals which required to be considered in the totality of the facts, but not the deposits alone. Since the assessee has assured that they would submit the entire information required for the purpose of completion of the assessment, in the interest of justice, we are of the considered opinion that the issue should be remitted back to the file of the assessing officer to arrive at the true and correct income. The assessee should submit the necessary information explaining the sources of deposits, application of money and arrive at the peak deposit before the assessing officer to consider the same as income. Accordingly we set aside the order of the lower authorities and remit the matter back to the file of the assessing officer for fresh consideration, with a direction to give one more opportunity to the assessee before completing the assessment. The appeals of the assessee for the assessment years 2007-08 to 2011-12 on this ground are allowed for statistical purpose.
9. Ground No. 4 is related to the contention of the assessee that the Commissioner (Appeals) ought to have verified the records and the assessment order of Smt. U Rajya Lakshmi and given an opportunity to the assessee. During the appeal hearing this ground was withdrawn by the learned. Authorised Representative therefore, this ground is dismissed as withdrawn for the assessment years. 2007-08 to 2011-12.
10. Ground No. 5 is related to cash deposit of Rs. 21,500 in the account of Late Shri D. Krishnamachary, This issue is involved for the assessment year 2007-08 to 2009-10 as under :

2008-09	Rs. 29,000
2009-10	Rs. 42,900

The assessee explained the sources for the deposit for the assessment year 2007-08 & 2008-09 as pension deposit and for the assessment year 2009-10 the source was stated to be out of pension and agricultural income. Since the cash deposits in ground No. 2 and 3 are remitted back to the file of the assessing officer, we are of the view that it is also required to be considered along with cash deposits discussed in ground No. 2 and 3 of this order. Thus, we remit the matter back to the file of the assessing officer for fresh consideration. Accordingly, the appeals of the assessee on this ground are allowed for statistical purpose.

11. Ground No. 6 is related to the additions based on bank deposits instead of seized material.
12. During the appeal hearing, the learned. Authorised Representative submitted that the search under section 132 was conducted in the case of D. Sampath and notice under section 153C was issued to the assessee and the assessment was made on the basis of deposits made in the bank accounts without having the seized material. Therefore, argued that the assessments made without the basis of the seized material required to be deleted.
13. On the other hand, the learned. Departmental Representative supported the orders of the lower authorities.
14. We have heard both the parties and perused the material placed on record. The assessing officer issued the notice under section 153C stating that the incriminating material/documents pertaining to the assessee were found and seized during the course of search conducted under section 132 in the case of Shri D. Sampath. The assessee had a bank account and made huge cash deposits in the said bank account. The fact that the assessee has made huge cash deposits in the bank account, for which the source was not explained has come to the notice of the department during the course of search and seizure operations conducted in the premises of searched person. In this case, the assessee has not filed the regular return of income and no assessments were made under section 143(3)/143(1) for the impugned assessment year. Thus, the bank account found during the course of search was not declared by the assessee. Therefore, the bank accounts found during the course of search constitutes the seized material capable of initiating proceedings under section 132. Accordingly, we uphold the action of the assessing officer for initiating the proceedings under section 153C and the legal validity of consequent additions made by the assessing officer and dismiss the appeal of the assessee on this ground. This ground is involved for the assessment years from 2007-08 to 2011-12 and the appeals of the assessee for the assessment year 2007-08 to 2011-12 on this ground are dismissed.
15. The additional issue involved in this appeal for the assessment year 2009-10 is the expenditure incurred for construction of the house which is contested in this appeal as Ground No. 5 and 6. During the search proceedings the assessing officer found that the assessee had renovated the house and incurred the expenditure of Rs. 18,43,758 for renovation. The source was stated to be the money received by her husband out of the amounts received from U Rajya Lakshmi. The assessing officer has issued several notices but the assessee did not furnish the evidence for the source of the expenditure incurred. Therefore, the assessing officer made the addition of Rs. 18,43,758 as unexplained expenditure.
16. Aggrieved by the order of the assessing officer, the assessee went on appeal before the Commissioner (Appeals), but no fresh material was placed to support the claim made by the assessee to explain the source which was stated to be received from U Rajya Lakshmi, Shri D. Sampath or Shri D. Sriramulu. The source was also not explained by Shri D. Sriramulu and Shri D. Sampath in their returns of income. There was no confirmation or evidence having received the sums from U Rajya Lakshmi. Therefore, the learned. Commissioner (Appeals) confirmed the addition. For ready reference, we extract relevant part of the order of the learned. Commissioner (Appeals) which reads as under :–

“Regarding the expenditure made towards construction/renovation of house situated at Warangal, the assessing officer vide Annexure-A/DS/12, Page Nos. 198 to 200 has found that certain expenditure was incurred by the appellant’s husband towards construction of house at Warangal to the tune of Rs. 18,43,758 and the same was confirmed by Sri D. Sriramulu, son of the appellant. As no satisfactory evidence was produced, the assessing officer has treated the same as unexplained/unaccounted income in the hands of the appellant.

On the other hand, the appellant has contested that the amount of money spent for renovation is only Rs. 15,00,000. The sources for the same are the amounts received from Sri D. Sampath and Smt. Uppu Rajyalakshmi.

I have considered the facts and circumstances of the case. It is the claim of the appellant that the source for either expenditure or deposits is pointing to Smt. UppuRajyalakshmi. There is no material in substantiating this claim. In view of the facts discussed, I am constrained to confirm the addition of Rs. 18,43,758 made by the assessing officer as no credible evidence is produced even before me. “

17. We have heard both the parties and perused the material placed on record. During the search and seizure operations conducted in the premises of Shri D. Sampath, the assessing officer found the material marked as Annexure A/DS/12 at page Nos. 198-200 and noticed that Late Shri D. Krishnamachary has made notings with regard to the house construction at Warangal. The same was confirmed by his son Shri D. Sampath in the statement recorded on 1-8-2011. However, neither Shri D. Sampath nor Shri D. Sriramulu has explained the source. The source was stated to be from the amounts received from U Rajya Lakshmi, but no evidence was furnished with regard to the receipt of money from U Rajya Lakshmi. During the appeal hearing, before the Commissioner (Appeals) and before us, the assessee failed to furnish any evidence to explain the source of the expenditure for construction/renovation of the house. Therefore, we do not find any reason to interfere with the order of the learned. Commissioner (Appeals) and the same is upheld.

In the result, the appeals for the assessment year 2007-08 to 2011-12 are partly allowed.