The Principal Commissioner Of Income Tax v. Shitalben Saurabh Vora

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 196 of 2020 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX VersusSHITALBEN SAURABH VORA ========================================================== Appearance: MR MR BHATT, SENIOR COUNSEL with MRS MAUNA M BHATT, SENIOR STANDING COUNSEL (174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATHandHONOURABLE MR. JUSTICE J.B.PARDIWALA Date : 18/09/2020 ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at theinstance of the Revenue and is directed against theorder passed by the Income Tax Appellate Tribunal,Rajkot Bench, Rajkot dated 20.09.2020 in ITA No.651/RJT/2014 for A.Y. 2003-04. 2. The Revenue has proposed the following substantialquestion of law for the consideration of this Court:-question of law for the consideration of this Court:- “Whether on facts and in the circumstances of the case, the Appellate Tribunal was justified in restricting the addition of Rs. 7,78,35,500/-made by the Assessing Officer under section 68of the Act to the extent of 2% of the total creditsdespite the fact that the assessee has failed toprove the source of credits, genuineness andcreditworthiness of depositors? “ 3. We have heard Mr. M.R. Bhatt, the learned SeniorCounsel assisted by Ms. Mauna M. Bhatt, the learnedSenior Standing Counsel appearing for the Revenue.Counsel assisted by Ms. Mauna M. Bhatt, the learnedSenior Standing Counsel appearing for the Revenue. 4. It appears that huge amount of cash credits wasfound in the bank account of the assessee. In suchcircumstances, the notice under Section 148 of theAct, 1961 was issued with a request to furnish thereturn of income for the A.Y. 2003-04. Thereafter, thenotice under Section 143(1) of the Act, 1961 was alsoissued. However, the assessee neither filed anyreturn of income nor complied with the notice. Insuch circumstances, a show cause notice dated04.12.2009 came to be issued, whereby the assesseewas asked to explain the source of cash deposits offound in the bank account of the assessee. In suchcircumstances, the notice under Section 148 of theAct, 1961 was issued with a request to furnish thereturn of income for the A.Y. 2003-04. Thereafter, thenotice under Section 143(1) of the Act, 1961 was alsoissued. However, the assessee neither filed anyreturn of income nor complied with the notice. Insuch circumstances, a show cause notice dated04.12.2009 came to be issued, whereby the assesseewas asked to explain the source of cash deposits of Rs.2,72,89,000/- in the current bank account No.3575 of Riddhi Impex with Nawanagar Co-operativeBank Ltd, Udyognagar, Jamnagar. 5. Ultimately, the Assessing Officer framed theassessment under Section 143(3) read with Section147 of the Act, 1961 on 15.12.2009 determining thetotal income of Rs.7,78,35,500/- under Sections 68and 69A respectively of the Act, 1961 for the hugecash deposits in the saving bank accounts.assessment under Section 143(3) read with Section147 of the Act, 1961 on 15.12.2009 determining thetotal income of Rs.7,78,35,500/- under Sections 68and 69A respectively of the Act, 1961 for the hugecash deposits in the saving bank accounts. 6. The assessee being dissatisfied with the assessmentorder preferred appeal before the Commissioner ofIncome Tax (A) (for short “CIT(A)”). The CIT (A) calledfor the remand report and thereafter dismissed theappeal of the assessee vide order dated 25.02.2013. order preferred appeal before the Commissioner ofIncome Tax (A) (for short “CIT(A)”). The CIT (A) calledfor the remand report and thereafter dismissed theappeal of the assessee vide order dated 25.02.2013. 6. The assessee being dissatisfied with the assessmentorder preferred appeal before the Commissioner ofIncome Tax (A) (for short “CIT(A)”). The CIT (A) calledfor the remand report and thereafter dismissed theappeal of the assessee vide order dated 25.02.2013. order preferred appeal before the Commissioner ofIncome Tax (A) (for short “CIT(A)”). The CIT (A) calledfor the remand report and thereafter dismissed theappeal of the assessee vide order dated 25.02.2013. 7. The assessee being dissatisfied with the order passedby the CIT(A), preferred appeal before the AppellatTribunal. The Appellate Tribunal condoned the delayin filing the appeal and directed the CIT(A) to disposeby the CIT(A), preferred appeal before the AppellatTribunal. The Appellate Tribunal condoned the delayin filing the appeal and directed the CIT(A) to dispose of the appeal on merits. 8. The CIT(A), vide order dated 08.08.2014 directed the Assessing Officer to delete the addition ofRs.7,78,35,500/- made under Section 68 of the Act,1961 and considered the deposits as the turnover ofthe assessee. The CIT(A) also directed to adopt thenet profit rate of 8% on the turnover. 9. The assessee being dissatisfied with the order passedby the CIT(A), preferred appeal before the AppellateTribunal. The Tribunal partly allowed the appeal filedby the assessee and dismissed the appeal filed bythe Revenue holding as under:-by the CIT(A), preferred appeal before the AppellateTribunal. The Tribunal partly allowed the appeal filedby the assessee and dismissed the appeal filed bythe Revenue holding as under:- “9. We have heard the rival contentions of both theparties and perused the materials available on record.The issue in the present case relates whether theamount deposited by the assessee in the form ofcash/cheques represents the income of the assessee.Admittedly, there was huge deposit of cash/cheques inthe bank account of the assessee. But on perusal of thebank statement, it is revealed that there weresimultaneously withdrawals from the bank accountleaving the negligible balance in the bank account of the assessee. Now 1st of all we have to see whether suchdeposit and withdrawal from the bank is representingthe trading activities of the assessee. In this regard wefind that the assessee has filed the evidences as under : i.Current bank account in the name of the assessee in the capacity of proper of M/s. Riddhi Impex. ii.Sale tax assessment order iii.Sales and purchase bills iv.Form 18G issued by the sales tax department 9.1To our mind, the assessee has discharged herburden by furnishing the details stated above that she isengaged in the business activity and the transactionsreflected in the bank statements are in connection withsuch business. As such, the onus shifted on the Revenueto negate the contentions of the assessee based on thedocumentary evidence. Therefore, the AO was toexercise the powers given under the statute to find outthe veracity of the contentions of the assessee. The AOcould have deputed the inspectors of the income tax toconduct the enquiries at the site of the parties fumishedby the assessee. But he has not done so. Furthermore,the assessee cannot be penalized on account of non-response from the sales tax department. 9.2We further note that, the Revenue has not broughtanything on record suggesting that the assessee had somuch of the income as computed by the AO. As such theAO was under the obligation to bring on record todemonstrate that the assessee has made some 9.2We further note that, the Revenue has not broughtanything on record suggesting that the assessee had somuch of the income as computed by the AO. As such theAO was under the obligation to bring on record todemonstrate that the assessee has made some investment or incurred some expenses out of suchincome. But there is no such information available withthe Revenue. Indeed, the assessee has certainly hasviolated the provisions of law by not maintaining thebooks of accounts, furnishing income tax return,providing sufficient details but that does not lead toreach the conclusion that the amount deposited in thebank represents the undisclosed income of theassessee. As such, the deposits in the bank cannot betreated as income on standalone basis withoutconsidering the withdrawal. Thus in the absence of anyinformation demonstrating that the withdrawal from thebank has been utilized by the assessee either in theform of some investment or the same has been incurredas an expense, the deposits cannot be treated asincome in the given facts and circumstances. Thus, inour considered view in such a situation the only optionavailable to compute the income on some reasonableestimate. 9.4We are also conscious to the fact that there is nostandard jacket formula to work out the income of theassesse on estimated basis. One has to apply someguesswork based on some scientific method. In thisregard we note that the assesses has made reference tocertain orders of the ITAT where the income has beenestimated with respect to the assessee engaged in thesimilar line of activities. Some of the orders for the sakeof understanding are reproduced as under : 6.Your may kindly appreciate that in presentcase the appellant has sold goods by making URDpurchases, in the similar case of URD purchases Hon. Rajkot bench of ITAT have held that profitrate of 1.25% is reasonable. We summaries gist ofcases as under and enclose herewith copies oforder for your honours ready reference. M/s. Balkrishnahna Dwarkadas Vs. ITO. ITA No.923/RJT/2010 dated 01.01.2010, Rajkot Bench. The addition of unaccounted sales founded duringthe course of survey by Sales-Tax Department.ITAT Rajkot bench has held that that entireamount of sale cannot be added but only profit @5% of unaccounted sales can be added and hencebench has confirm the addition of profit on salerather that entire amount of sale. Shri Rakesh S. Chhaparwal (HUF) Vs. ITO. ITA No.502 & 503/RJT/08 dated 28.08.2009 Rajkot BenchLd. AO had made an addition by estimating ofprofit @5 % on sale of URD purchase. CIT(A),Jamnagar has restricted the said addition to1.25%, which was upheld by hon. ITAT. Pushkar Raj J.Kabra Vs. ITO ITA No: 867/RJT/2009dated 23.08.2010, Rajkot Bench L.d. AO had made an addition by estimating ofprofit @ 5% on sale of URD purchase. CIT(A),Jamnagar has restricted the said addition to1.25%, which was upheld by Hon. ITAT byreplacing addition on percentage basis tolumpsum addition of Rs.5,00,000 againstRs.22,24,031/- made by AO. CIT v. Balchand Ajit Kumar 2003 Tax Pub (DT)1999 (MP-HC) : (2003) 263 ITR 0610 : (2004)1 86CTR 0419 : (2004) 135 TAXMAN 0180 Shri Rakesh S. Chhaparwal (HUF) Vs. ITO. ITA No.502 & 503/RJT/08 dated 28.08.2009 Rajkot BenchLd. AO had made an addition by estimating ofprofit @5 % on sale of URD purchase. CIT(A),Jamnagar has restricted the said addition to1.25%, which was upheld by hon. ITAT. Pushkar Raj J.Kabra Vs. ITO ITA No: 867/RJT/2009dated 23.08.2010, Rajkot Bench L.d. AO had made an addition by estimating ofprofit @ 5% on sale of URD purchase. CIT(A),Jamnagar has restricted the said addition to1.25%, which was upheld by Hon. ITAT byreplacing addition on percentage basis tolumpsum addition of Rs.5,00,000 againstRs.22,24,031/- made by AO. CIT v. Balchand Ajit Kumar 2003 Tax Pub (DT)1999 (MP-HC) : (2003) 263 ITR 0610 : (2004)1 86CTR 0419 : (2004) 135 TAXMAN 0180 Income from undisclosed source-ADDITION UNDERSECTION 69 Non-reflection of credit sales. Duringthe search, it was found that there were creditsales which were not reflected in the books ofaccount. The assessing officer on scrutiny of theregular books of account maintained by theassessee being dissatisfied rejected the same andadded total unrecorded sales as profit towards thesales profit of the assessee. The Commissioner(Appeals) came to the conclusion that the entirecredit sales could not have been included in thetotal income of the assessee and accordinglyfollowed the method of adding a net profit rate offive per cent, on these sales and accordinglyincluded on that score. The total unrecorded salecannot be regarded as the profit of the assessee.The net profit rate has to be adopted and once anet profit rate is adopted, it cannot be said thatthere is perversity of approach. 9.5However, the learned CIT (A) while deciding theissue has not considered the case law relied upon by theassessee. In our considered view the learned CIT (A) wasunder the obligation to reject the contention of theassessee based on some cogent materials. 9.6As such we are of the view that the learned CIT (A)was to bring some comparative materials to justify the profit computed by him at the rate of 8% of theturnover. Thus in the absence of any basis brought onrecord, we are not inclined to uphold the finding of thelearned CIT (A). 9.7At the time of hearing, we requested the learnedDR to depute the inspector of the income tax to conductthe enquiry at the place of the assessee to find out hisfinancial status so that a rational /informed basis couldbe found out to estimate the income. But no suchinformation was fumished to us. Hence we left with noalternate except to accept the contention of theassessee after some modification suiting to us in thegiven facts and circumstances. 9.8Thus after considering the case law cited by theassessee we feel that justice will be served to boththe assessee and the Revenue if the income isestimated at the rate of 2% of the amount depositedwith the bank. Hence, the ground of appeal of theRevenue is dismissed and the CO filed by the assesseeis partly allowed. In the result, the appeal filed by the Revenue isdismissed and the CO filed by the assessee is partlyallowed.” 10.The CIT(A) thought fit to compute the profit atthe rate of 8% of the turnover. However, the Tribunalnoticed that such computation was without any basisor materials on record. Ultimately, the Tribunal thought fit to estimate the income at the rate of 2%of the amount deposited with the bank. If such is theview of the Tribunal,, then, in our opinion, we shouldnot disturb the same. 11.The question as proposed by the Revenue in theaforesaid set of circumstances cannot be termed as asubstantial question of law. aforesaid set of circumstances cannot be termed as asubstantial question of law. 12.In the result, this appeal fails and is herebydismissed.dismissed. (VIKRAM NATH, CJ) NAIR SMITA V. (J. B. PARDIWALA, J)