Ita/122/2014 Of Sudhir Kumar Sharma(Huf) v. Commissioner Of Income Tax-Iii

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.122 of 2014 (O&M)Date of decision: 12.05.2014 Shri Sudhir Kumar Sharma (HUF) .....- Appe Vs, The Commissioner of Income Tax III, Aayakar Bhawan, Rishi Nagar,Ludhiana ....mesponden CORAM: HON’?BLE MR. JUSTICEK AJAY KUMAR MITTHON BLE MR. JUSTICE JASPAL SINGH Present:Mr. Sanjay Bansal, Sr. Advocate with Ms.Rajni Pal, Advocate for the appellant. Ajay Kumar Mittal,J, inThis order shall dispose of ITA Nos.122, 131, 81 to 89 and 128of 2014 as according to the learned counsel for the appellant, the issuesinvolved therein are similar. However, in ITA No.81 of 2014, an additionalsubstantial question of law regarding reopening has been proposed which 1sto the following effect:- “Whether the Hon'ble Tribunal as well as the learned CIT(A)acted illegally and perversely in sustaining the addition underSection 68 of the Income Tax Act, 1961 without recording anyfinding (s) with regard to the action of the Assessing Officer ininitiating proceedings under Section 148/147 of the Act againstthe assessee — company which were totally illegal, withoutJurisdiction and contrary to the principles of natural justice?” ITA No.122 of 2014 (O&M) DoITA No.122 of 2014 has been preferred by the assessee underSection 260A of the Income Tax Act, 1961 (in short, “the Act”) against theorder dated 27.6.2013, Annexure A.3 passed by the Income Tax AppellateTribunal, Chandigarh Bench 'A', Chandigarh in ITA No.964/Chd/2010 forthe assessment year 2007-08, proposing to raise following substantialquestions of law for determination of this Court:- ‘‘a) Whether the Tribunal misdirected itself in law as well aon facts in reversing the order of the learned CIT(A) wherebythe latter had upheld the theory of peak credit on the facts ofthe case of the appellant emerging from the material onrecord’ b) Whether on the facts and in the circumstances of the case,the Tribunal while affirming the order passed by the AssessingOfficer acted illegally and perversely in recording itsconclusions based on irrelevant findings and in ignoringuncontroverted relevant material on record? c) Whether on the facts and in the circumstances of the case,the Tribunal was legally correct in applying the provisions ofsection 68 of the Income Tax Act, 196l while affirming thadditions made by the Assessing Officer? d) Whether on the facts and in the circumstances of the case,the Tribunal was legally correct in sustaining the additionmade under Section 68 of the Income Tax Act, 1961 by theAssessing Officer contrary to the principles of natural justiceand in undue haste? e) Whether on the facts and in the circumstances of the case,the Tribunal was legally correct in sustaining the additionmade by the Assessing Officer under Section 68 of the IncomeTax Act, 1961 on the basis of statement recorded during!survey under Section 133 of the Act which has no evidentiaryvalue? tf) Whether on the facts and in the circumstances of the case the impugned order passed by the Tribunal is perverse and aresult of total non application of mind? d) Whether on the facts and in the circumstances of the case,the Tribunal was legally correct in sustaining the additionmade under Section 68 of the Income Tax Act, 1961 by theAssessing Officer contrary to the principles of natural justiceand in undue haste? e) Whether on the facts and in the circumstances of the case,the Tribunal was legally correct in sustaining the additionmade by the Assessing Officer under Section 68 of the IncomeTax Act, 1961 on the basis of statement recorded during!survey under Section 133 of the Act which has no evidentiaryvalue? tf) Whether on the facts and in the circumstances of the case the impugned order passed by the Tribunal is perverse and aresult of total non application of mind? 3.Briefly, the facts necessary for adjudication of the controversyinvolved, as narrated in ITA No.122 of 2014 may be noticed. The assessee,an individual, is engaged in the business of brokerage/trading 1n shares andcommodities. Survey under Section 133A of the Act was conducted at thebusiness premises of the assessee on 31.10.2007 whereupon statement ofthe assessee was recorded by the then Assistant Director of Investigation(Income Tax). Thereafter, for the assessment year in question namely 2007-08, the assessee herein filed his return of income declaring total income of41,61,680/-. During assessment proceedings, the Assessing officer directedthe appellant to produce certain documents like cash book, general ledger,stock register etc. The assessee submitted the requisite documents. Hisstatement was also recorded. After examining the record, the AssessingOfficer vide order dated 31.12.2009, Annexure A.l made an addition of L7,81,87,362/- by invoking the provisions of Section 68 of the Act holdingthat the amount was in the form of unexplained cash credits. Aggrieved bythe order, the assessee filed appeal before the Commissioner of Income Tax(Appeals) [CIT(A)]. Vide order dated 16.4.2010, Annexure A.2, the CIT(A)partly allowed the appeal and sustained the addition on the basis of peakdeposits to the tune ofLv17,66,000/- thereby deleting the addition of=7,64,21,362/-. Feeling aggrieved, both the assessee and the department filedappeals before the Tribunal. Vide order dated 27.6.2013, Annexure A.3, theTribunal dismissed the appeals of the assessees and allowed that of therevenue. Hence the present appeals by the assessees. ITA No.122 of 2014 (O&M) were trade debts and, therefore, Section 68 of the Act was not applicable. Anapplication bearing CM No.5693-CII of 2014 has been filed by theappellant giving the list (Annexure A.5) of persons (cash creditors), from!whom cash had been received and payment had been made by cheque,Learned counsel submitted that without prejudice to the rights of thedepartment to recover the amount under the orders of the Tribunal, thematter may be remanded back to the Assessing Officer to summon allpersons as per Annexure A.5. Similar applications have also been filed insome of the connected appeals as well. 4]We have heard learned counsel for the appellant and perusedthe record. 6.While framing the assessment, the Assessing Officer vide orderdated 31.12.2009, Annexure A.| invoking Section 68 of the Act madeadditions amounting to”<7,81,87,362/- on account of alleged cash credits. Itwas noticed as under:- “5S. In view of the facts mentioned above, the cash deposittaken from so called customers have entered 1n cash book andaccordingly the cash deposited in the bank account of theassessee are unexplained cash credits in the books of theassessee and fall within the purview of Section 68. The assesseeis not able to prove the source of these cash deposits 1n hisbooks of account. Therefore, they are held to be cash creditwithin the meaning of section 68 and accordingly, the totalamount of<a7,81,87,362/- deposited 1n cash, 1s added back tothe taxable income of the assessee. 6.While framing the assessment, the Assessing Officer vide orderdated 31.12.2009, Annexure A.| invoking Section 68 of the Act madeadditions amounting to”<7,81,87,362/- on account of alleged cash credits. Itwas noticed as under:- “5S. In view of the facts mentioned above, the cash deposittaken from so called customers have entered 1n cash book andaccordingly the cash deposited in the bank account of theassessee are unexplained cash credits in the books of theassessee and fall within the purview of Section 68. The assesseeis not able to prove the source of these cash deposits 1n hisbooks of account. Therefore, they are held to be cash creditwithin the meaning of section 68 and accordingly, the totalamount of<a7,81,87,362/- deposited 1n cash, 1s added back tothe taxable income of the assessee. In view of all these facts on record, it is held that theamount ofLy7,81,87,362/- 1n these alleged cash credits isnothing but the unaccounted income of the assessee in thebooks by way of cash deposits 1n different account as appearing in the annexure appended to this order. Same is_ therefore,added back to his total income. Since the assessee concealed theparticulars of this income penalty proceedings under Section27\(1) (c) of the Act are to be initiated separately forconcealing the particulars of income.” TiThe findings recorded by the CII(A) 1n his order dated16.4.2010, Annexure A.2 are as under:- “3.4 I also do not agree with the learned counsel that thedecision of the Hon'ble Rajasthan High Court 1n the case ofSmt. Harshila Chordia v. ITA reported in (2007) CTR (RAJ)208 (supra), helps the case of the appellant. In that case theHon'ble Tribunal had found as a fact that the assessee wasreceiving money from the customers against which delivery ofvehicles was made. It was accordingly held there that such cashdeposits were self explanatory and would not attract Section 68of the Act. However in the case of the appellant question ofreceiving advances against subsequent delivery of any othergoods etc. was not found to be a fact on the basis of materialwhatsoever brought on record. Therefore, the ratio of thisdecision would further not help the case of the appellant. 4. Next in the written submissions by referring to the decisionof the Hon'ble Mumbai High Court in the case ofCommissioner of Income Tax, Poona v. Bhaichand H.Gandhireported at 141 ITR 67 and the decision of the Hon'bleChandigarh bench of ITAT in the case of Ms. Mayawati v. Dy.CIT reported in (2008) 19 SOT (Delhi), the learned counsel hascontended that bank pass book supplied by the Bank to anassessee cannot be regarded as the book of the assessee and,therefore, such passbook does not fall within the ambit ofSection 68 of the Act. However here also | am not in agreementwith the learned counsel. First of all 1t 1s not the case of theappellant that books of account were not maintained. Theobservation of the AQ jn this case has been that such books of 4. Next in the written submissions by referring to the decisionof the Hon'ble Mumbai High Court in the case ofCommissioner of Income Tax, Poona v. Bhaichand H.Gandhireported at 141 ITR 67 and the decision of the Hon'bleChandigarh bench of ITAT in the case of Ms. Mayawati v. Dy.CIT reported in (2008) 19 SOT (Delhi), the learned counsel hascontended that bank pass book supplied by the Bank to anassessee cannot be regarded as the book of the assessee and,therefore, such passbook does not fall within the ambit ofSection 68 of the Act. However here also | am not in agreementwith the learned counsel. First of all 1t 1s not the case of theappellant that books of account were not maintained. Theobservation of the AQ jn this case has been that such books of account were not produced. In answer to question No.5 of thestatement of Shri S.K.Sharma recorded by the AO on14.12.2009 and which has been reproduced in the assessmentorder, Shri Sharma has stated that ‘record of clients 1s as perbooks of account’. In answer to question No.6 wherein the AOasked to provide the books of account Shri Sharma had statedthat ‘I will provide it on tomorrow 1.e. 15.12.2009". Again withregard to the query in respect of cash deposited as per books ofaccount on behalf of the clients, in answer to question No.8 ofthe statement Shri Sharma had stated that the details werethere and that he would check from the books of account andprovide the same. The answer to these questions clearly showthat the appellant did maintain the books of account. It 1stherefore, implied that the deposits made in the bank accountswere also entered in these books of account of the appellant.Accordingly though in the absence of the books of account theAO has made the basis of addition to be the deposits in thebank account, this would tantamount to same as_ suchdeposits/credits would also appear in the books of account ofthe appellant which were somehow not produced before theAO. The AO was therefore fully justified in invoking theprovisions of Section 68 of the Act in this case and the ratio ofdecisions relied upon by the learned counsel as above wouldnot take the case of the appellant any further. 41 In view of the above discussion and also the observationsof the AO in para 4 of the assessment order as reproduced inthe preceding paragraphs, having not been controverted by thelearned counsel, the decision of the AO to invoke theprovisions of section 68 of the Act in the facts andcircumstances of appellant's case 1s upheld 1n principle.” However, the CIT(A) sustained the additions by applying provisions of Section 68 of the Act but on the basis of peak credits maintained additions ITA No.122 of 2014 (O&M) perusal of the order of CIT(A) clearly spells out that CIT(A) withoutrecording whether there existed any nexus between various entries hadallowed the benefit of peak credit which was legally not sustainable, |While dismissing the appeals of the assessees and acceptingthose of the revenue and reversing the aforesaid basis of peak credit, theTribunal vide order dated 27.6.2013, Annexure A.3, noticed as under:- However, the CIT(A) sustained the additions by applying provisions of Section 68 of the Act but on the basis of peak credits maintained additions ITA No.122 of 2014 (O&M) perusal of the order of CIT(A) clearly spells out that CIT(A) withoutrecording whether there existed any nexus between various entries hadallowed the benefit of peak credit which was legally not sustainable, |While dismissing the appeals of the assessees and acceptingthose of the revenue and reversing the aforesaid basis of peak credit, theTribunal vide order dated 27.6.2013, Annexure A.3, noticed as under:- 21. The first issue to be addressed by us in the present factsand circumstances of the case is whether the provisions ofsection 68 of the Act are applicable to the facts of the presentcase. During the course of survey conducted under Section133A of the Act on 31.10.2007, in the statement recorded, theassessee admitted to be engaged in the business of givingaccommodation entries. The modus-operandi explained duringthe course of survey was that the assessee was receiving theamount in cash and the same were being returned vide chequesthrough bank accounts. However, during the course ofassessment proceedings, the statement of the assessee wasagain recorded wherein when confronted with the bankstatement of M/s Big Bull Commodities Pvt. Limited withCenturion Bank, Pakhowal Road, Ludhiana in which huge cashwas deposited by various entries, the assessee in reply statedthat the cash was deposited as per books of account on behaltof the chents. Vide query No.8, the assessee was asked toprovide the names and addresses of the customers/clients whohad deposited these amounts. The reply of the assessee 1n thisregard was, ‘If details are there, I will check from books ofaccount and provide the same’. The assessee, thereafter wasdirected to produce atleast 10 persons who had deposited =1 lacand above in the bank account. The assessee explained that hewill verify from record and let the Assessing Officer knowabout it. In reply to query No.10, the assessee claimed that cashis received from customers and same is deposited in bank. The plea of the assessee before the Assessing Officer was that hewas engaged in the business of commodities and query Nos.12,13 were raised in respect of the commission received fromLudhiana Commodities Exchange. The reply of the assesseequery No.13 1.e. ‘Are you registered with Ludhiana Commodityexchange’ was that 'only M/s Shubh Krishna of which HUF 1sthe proprietor and I am karta of HUF 1s registered with LCEand other companies and firms in which | am Director orProprietor are branches/traders of M/s Shubh KrishnaCommodities’. The query No.l4 was ‘whether the saidcompanies/firms who were the traders of M/s Shubh Krishnawere paying any charges to M/s Shubh Krishna’. The reply ofthe assessee 1n this regard was that 'He would let the AssessingOfficer know after checking the same Query No.16 to 19 andtheir answers were as under:- 5555555555555522. A bare perusal of the statement recorded during the courseof assessment proceedings reflects that the claim of theassessee to have changed. The assessee admits that only M/sShubh Krishna was registered with Ludhiana CommoditiesExchange and rest all the concerns were the branches or tradersof M/s Shubh Krishna commodities. In respect of the cashdeposit in the bank account of one of the concern, the assesseestated that it had received cash from various parties and thesame was as per the books of account. The case of the assesseewas that it was receiving cash from its clients. But before theAssessing Officer it was not the case of the assessee that it wasengaged in providing accommodation entries. In respect of theentries not being through the exchange, the assessee claimedthat client to client transactions were permissible as commercialtransactions. The statement was continued on 22.12.2009 andas per query No.24, there was a specific query raised to explainvarious cash credits/deposits in the bank accounts of differentcompanies 1n which the assessee was the Director and the assessee was also asked to give source of cash deposits invarious accounts. In reply to the same, a short reply was givenby the assessee that it 1s the same as what 1s stated on15.12.2009. At the conclusion of recording of the statement, theassessee Stated that he would further explain relating to thecash, during the course of assessment proceedings. However,the assessee failed to produce the books of account nor giveany explanation vis a vis the source of cash deposits 1n the bankaccount. In the absence of any explanation or any evidencebeing produced by the assessee, the onus cast upon the assesseenot being discharged, the said cash credits are to be included asincome of the assessee in view of the provisions of section 68ot the Act. J55555555555555524. Under the provisions of section 68 of the Act, it 1s providedthat where the assessee offers no explanation about the natureand source of the credits in the books of account, all theamounts so credited or where the explanation offered by theassessee 1S not satisfactory in relation to the same, then suchcredits may be charged to tax as income of the assessee for thatparticular previous year. Admittedly, in the case of the assessee,various amounts in cash are deposited in the bank accounts ofthe assessee and the onus was upon the assessee to explainnature and also the source of the said cash deposits. Theassertion of the assessee in this regard was that it was theamount received from clients. However, the assessee failed togive the list of such persons who had advanced the said cash tothe assessee. The assessee even failed to bring on record anyevidence to prove its stand that it was the amount receivedfrom such persons who were his clients. The assessee failed tofile any confirmation in respect of the said cash credits nor anyof the persons were produced for examination before theAssessing Officer, though specific direction in this regard wasgiven by the Assessing Officer within the course of recording of statement of the assessee, during assessment proceedings.The assessee even failed to produce the books of account. Inthe absence of the assessee having discharged his onus ofproving the identity, credit worthiness and genuineness of thecash transaction of the cash credits in the bank account, we findno merit in the plea of the assessee in this regard and dismissthe same. 25. Another plea raised by the learned AR before us was that asthe assessee was engaged in giving accommodation entries,only commission should be included as income of the assessee.Admittedly, while recording the statement during the course ofsurvey, the assessee had stated that 1t was engaged in thebusiness of giving accommodation entries. However, during thecourse of assessment proceedings, the assessee did not raiseany submissions in this regard and on the other hand, theassessee time and again in the course of statement recordedduring the assessment proceedings, pointed out that the cashdeposited 1n the bank account was as per entries 1n the books ofaccount and the same would be explained from the books ofaccount. The plea of accommodation entries was not put to theAssessing Officer. However, before CIT(Appeals), a plea wasraised that only commission is to be added 1n the hands of theassessee in view of various Judicial precedents. A perusal of theorder of the CIT(Appeals) does not reflect any findings on thisissue and issues addressed by the ClT(Appeals) were whetherprovisions of section 68 are applicable and 1n the alternative,whether peak credit is to be applied in the hands of theassessee. The assessee in this ground of appeal raised beforethe Tribunal has not raised any such issue of the commissionincome being included 1n his hands. Only two issues have beenraised 1.e. invoking of provisions of section 68 of the Act andconfirmation of addition ofLT10,55,260/-. The issue of whetherthe assessee 1s engaged in giving accommodation entries or notis a purely factual issue which has not been raised before the authorities below 1.e. during the course of assessmentproceedings or even before the CIT(Appeals), the said issue hasnot been adjudicated. The plea of the assessee of admission ofsuch new factual issue was not admissible at this stage ofadjudicating of the appeal in the captioned years. We find nomerit in the said plea of the assessee and the same 1s rejected.| 26. We are in conformity with the order of CIT(Appeals) inholding that the provisions of section 68 of the Act in thepresent set of facts and circumstances of the case are applicableand we uphold the order of CIT(Appeals) in this regard. 555555555555528.The next issue raised in the present appeals is 1n relation tothe applicability of peak credit theory. In the facts of thepresent case, the said peak credit theory 1s not applicable asthe assessee had deposited cash in the bank account andthereafter, cheques were issued to different parties. It 1s not acase where cash was deposited on different dates and inbetween, there were cash withdrawals from the differentdates and in between there were cash withdrawals from thebank account. It 1s a case where there are deposits in cash butas against the said cash deposited, various cheques wereissued and the assessee was unable to explain the source ofcash deposited in his bank account. Rejecting the theory ofpeak credits applied by the Assessing Officer, we reverse thefindings of ClT(Appeals) in this regard and restore theaddition made by the Assessing Officer at<1,26,66,000/-.55 5555555555XxX Q A perusal of the findings recorded by the authorities belowclearly spells out that admittedly, various amounts in cash were deposited inthe bank account of the assessee and the onus was upon the assessee toexplain the nature and source of the said cash deposits. The assertion of theassessee 1n this regard was that it was the amount received from his clients. ITA No.122 of 2014 (O&M) However, the assessee failed to give the list of such persons alongwithconfirmation in respect of the said cash credits nor any of the persons wereproduced for examination, who had advanced the said cash to him, beforethe Assessing Officer. The assessee also failed to bring on record anyevidence to prove that it was the amount received from such persons whowere his clients. The Assessing Officer had repeatedly providedopportunities to the assessee to produce the persons but they were notproduced. The Tribunal had also noticed that inspite of opportunity havingbeen provided to the assessee, in such circumstances, there was noJustification to allow the appellant further opportunity to produce thepersons. The parameters for leading additional evidence were not fulfilled,therefore, CM No.5693 CII of 2014 cannot be accepted and is accordinglyrejected. Further, the Tribunal had rightly held that there were cash depositsin the bank account and thereafter cheques were issued to different partiesand in such circumstances, the theory of peak credit could not be accepted,Moreover, the appellant had not been able to show that there existed anynexus whereby the amount deposited in cash had been withdrawn in cashand thereafter redeposited to take benefit under peak credit theory. 10.)In respect of the issue regarding reopening in ITA No.81 of2014, 1t may be noticed that once the additions were taxable under Section68 of the Act, the reopening was validly initiated. The reasons forreopening recorded, as appearing at Pages 44 and 45 of Paper Book of ITANo.81 of 2014, read thus; ‘In this case the assessment was framed under section 143(3) ofthe Income Tax Act, 1961 vide order dated 18.12.2008 at anincome oft=a42,420/- as against returned income ofv11,622/-. 10.)In respect of the issue regarding reopening in ITA No.81 of2014, 1t may be noticed that once the additions were taxable under Section68 of the Act, the reopening was validly initiated. The reasons forreopening recorded, as appearing at Pages 44 and 45 of Paper Book of ITANo.81 of 2014, read thus; ‘In this case the assessment was framed under section 143(3) ofthe Income Tax Act, 1961 vide order dated 18.12.2008 at anincome oft=a42,420/- as against returned income ofv11,622/-. During the assessment proceedings, information under Section133(6) of the Income Tax Act, 1961 was called from the bankswhich reveals that the assessee has deposited cash amountingCO=a2,13,28,500/- in its bank account maintained with StateBank of India, Feroze Gandhi Market, Ludhiana. As in theassessee'S own case for Assessment Year 2007-08, each cashdeposit has not been verified and treating these to be theassessee's income from undisclosed sources added back to theincome of the assessee. The amount of -2,13,28,500/-deposited in cash during the year under consideration alsoseems to be the income of the assessee company fromundisclosed sources which has escaped assessment. I have, therefore, reasons to believe that income of =2,13,28,500/- has escaped assessment in this case _ foAssessment Year 2006-07 within the meaning of Section 147 ofthe Income Tax Act, 1961.” Moreover, from the perusal of the reasons recorded for reopening, it couldnot be said that the essential requirements for reopening were not fulfilled,Further, the assessee had never challenged validity of reopening before theTribunal and, therefore, the claimed question does not arise from the orderoft the Tribunal. 10,In view of the above, no substantial question of law arises. Theappeals stand dismissed. In view of the dismissal of appeals on merit, noorder 1s required to be passed on the application filed under Section 5 of theLimitation Act, 1963 for condonation of delay in filing the appeal 1.e. ITA No. 122 of 2014. (Ajay Kumar Mittal)Judge May 12, 2014 ;7$; Singh Gurbax (Jaspal Singh) Judge