Ahsan Ahmed Shaikh, Mumbai vs Assessee

The aforesaid appeal has been filed by the Assessee, against order dated 09.02.2011, passed by Ld. CIT(A)-31, for the quantum of assessment u/s 144 of the Act for the A.Y. 2006-07. In the grounds of appeal the assessee has raised following grounds:

"1. The order passed by the CIT(Appeal) is contrary to the facts, arbitrary, imaginary against the provision of Income Tax Act, and therefore liable to quashed.

ITA No. 1801/Mum/2011 2 Assessment Year: 2006-07

2. On facts and circumstances of the case and law on the subject, the CIT(Appeals) has erred in confirming the addition of Rs.33,57,080/- in respect of cash deposits in various bank accounts without taking into account the nature of the business of the appellant and also taking the opening peal balance into account while determining the peak balance available with the appellant."

2. The brief facts qua the issue involved are that, assessee is an individual and has claimed to be in the business of money transfer to various places in the State of Uttar Pradesh from Mumbai. The trade name of the said business was known as "Raj Quick Services". Before the assessing officer, the assessee had explained the modus operandi, that he collects the money from persons who are mostly labourers and working class in Mumbai who intended to sent their money to the their family and relatives in various places in U.P. His brother, Shri Irfan A. Shaikh is based at Lalbaug in District Azamgarh of Uttar Pradesh, who receives the money in his ban account and disburses the money to the respective persons. The transfer of money is through banking channel services where cash is deposited and collected from the branch located in Azamgarh. In this process the assessee gets 3% commission as his income. It was also stated by the assessee that he has registered himself under the category of "Business Auxiliary Services" of service tax, under service tax laws. The assessing officer noted that, the assessee had shown net profit from money transfer business at Rs.1,23,800/- however, no profit and loss account was filed. As per the information gathered by him, the assessee is having bank account in Canara Bank and Bhart Co-op Bank. Only one account in Canara Bank was disclosed in the balance sheet and not the other bank accounts. Even the bank balance shown in the Canara Bank does not tally with the figure shown in the balance sheet. As per the AIR information, the ITA No. 1801/Mum/2011 3 Assessment Year: 2006-07

assessee had deposited sum of Rs.43,85,936/- in the Canara Bank account in cash. The assessee had failed to give the name and addresses of the persons from whom he has accepted the money for transfer to Azamgarh U.P. and the persons to whom the money was distributed or handed over. He further noted that in the two bank account of Bharat Co-op. Bank the assessee has deposited Rs.26,60,060/- and Rs.23,62,741/-, aggregating to Rs.50,22,801/-. Since, the assessee neither furnish any necessary evidence nor appeared before the AO to clarify his accounts, he treated the entire sums deposited in both the accounts as undisclosed income u/s 68. Accordingly, following addition was made as income from undisclosed sources.

(a) Deposits in two account of Bharat Co-op. Bank Account Rs.50,22,801/-

(b) Deposit in Canara Bank Account Rs.43,85,936/-

Besides this, he has also taxed the commission income of Rs.1,23,800/- shown on account of money transfer business.

3. Before the Ld. CIT(A), first of all entire is modus operandi of money transfer business was explained and was submitted that entire cash deposited in the three undisclosed bank account of the assessee cannot be considered as unexplained income. Because the said money does not belong to the assessee as he is engaged in the business of "Angadia Services". This money transfer business is done mainly for the labourers belonging to various places of UP working in Mumbai. The assessee used to deposit the cash in the bank account of such persons/ customers to be transferred to the various places in UP. The cash deposited was transfer in the bank account in UP and from there money ITA No. 1801/Mum/2011 4 Assessment Year: 2006-07

was withdrawn by his brother and disbursed to the concerned relatives or family members of the customers. The assessee only gets commission on such transfer of money and this business is being regularly carried out by him for last several years and the income earned thereon has been disclosed in return of income filed regularly. Alternatively, it was submitted that if the cash has been deposited in the bank account, then there are corresponding withdrawals also from the same bank account and therefore, entire cash deposit cannot be taxed. The assessing officer should have the worked out the peak balance of the cash for the purpose of making the addition. The assessee had also filed certain additional evidences in the form of list of the persons from whom the cash was collected and transferred to various places in UP along with copy of certain demand drafts to show the genuineness of the transaction. The Ld. CIT(A) directed the AO to verify all the relevant bank accounts which has not been disclosed by the assessee in his regular books of account and in the balance sheet. AO was also directed to verify the claim of the assessee regarding transfer of money through banking channel. In the remand report, the AO submitted that assessee had submitted list of five bank accounts, the details of which relevant as under:-

Sl No. Name of the Bank Branch Type of account Account no.

(i) Canara Bank Sakinaka OD 1208 (ii) Canara Bank Sakinaka SB 27731 (iii) Canara Bank Sakinaka SB 29646 (iv) The Bharat Co-op. Andheri (E) SB 8781 Bank (v) The Bharat Co-op. Andheri (E) SB 8926 Bank ITA No. 1801/Mum/2011 5 Assessment Year: 2006-07

Out of these bank accounts, the last three bank accounts have not been disclosed by the assessee in his books of account. The total addition of Rs.94,08,737/- was not only made on account of cash deposited but also included opening balance, amount collected by cheque or transfer entries. The three bank accounts, not disclosed; were maintained by the assessee jointly either with his wife, Smt. Keshari Begum Shaikh or his daughter, Shabnum Sultana. He also reported that no scrutiny assessment in the case of the assessee prior to this year has been made therefore, it cannot be said that department has accepted the assessee's business of money transfer. He reported that following cash were deposited or withdrawn from the three undisclosed bank accounts.

Sr. No. Account No. Cash deposited Cash withdrawal 1 The Bharat co-op Bank 22,54,165/- 16,45,000/-

A/c No. 8781 2 The Bharat co-op Bank 20,86,460/- 14,13,393/-

A/c No. 8926 3 Canara Bank A/c. No. 32,50,170/- 38,70,000/-

29646 Total 75,90,795 62,98,393/-

The AO further reported that assessee could produce only five parties for verification and copies of confirmation from some of the relatives of the customers were filed. The assessee's submission on and comments given by the AO's in his remand report, has been dealt by the Ld. CIT(A) in detail from pages 6 to 11 of the appellate order.

4. Ld. CIT(A) admitted the additional evidences and also noted the relevant observation of the AO given in the remand report. He noted that as per the detail finding of the AO and categorical admission of the ITA No. 1801/Mum/2011 6 Assessment Year: 2006-07

assessee that no proper details and supporting evidences relating to money transfer business for cash deposit could be furnished, therefore, it cannot be held that the cash deposit should be treated as disclosed receipts. However, Ld. CIT(A) agreed with the alternate contention of the assessee that there had been regular cash withdrawal and cash deposit in the same bank account, therefore, the entire cash deposited cannot be added as undisclosed income. The effect of both debits and credits has to be taken into consideration and peak credit should be added. Accordingly, he held that the positive peak cash balance during the relevant accounting year worked out for all the undisclosed bank accounts should be considered as unaccounted income of the assessee. The peak credit worked out to at Rs.29,69,518/- He further observed that the credits maintained in the bank account with SBI Lalganj Azamgarh is also to be considered as part of assessee's total turnover, because the money was deposited in the said bank account for disbursement and therefore, it is also part of his turnover. Thereafter he held that commission income @ 3% should be separately added on account of total credits deposited in the bank accounts i.e. three undisclosed bank account and one that of the SBI Lalganj, Azamgarh. The aggregate credit deposits in these bank accounts was at Rs.1,29,18,737/-. Thus, he worked out the commission income of Rs.3,87,562/- on such turnover. Finally the addition to the extent of Rs.33,57,080/- which consisted of peak credit of Rs.29,69,518/- and commission income of Rs.3,87,562/- was sustained by the Ld. CIT(A).

5. Before us, learned counsel, Shri Rakesh Joshi, after explaining the entire facts and the nature of assessee's business, submitted that, it cannot be disputed in assessee's case that, he was engaged in the ITA No. 1801/Mum/2011 7 Assessment Year: 2006-07

business of money transfer. The deposits in the bank accounts cannot be said to belonging to the assessee or treated as unexplained income. If the source of each and every deposits could not be satisfactory explained then at the most, income element which is the commission income should be taken as the real income of the assessee. He further submitted that, even peak worked out by the Ld. CIT(A) is not correct, because firstly, the Ld. CIT(A) has not considered the opening balance of Rs.12,39,133/- which should be removed from the working of peak credit; Secndly, the deposit of his brother's account has also been taken into consideration, while taking the figure of peak credit; thirdly, not only that some of the account with Bharat Co-op bank belongs to assessee's wife and not to the assessee, as on the said bank account is shown in her balance sheet and she is separately assessed to tax. In support of his contention, he drew our attention to assessment order passed u/s 143(3) for the A.Y. 2006-07 in the case of the assessee's wife; Lastly, in the alternative, he submitted that if peak credit is to be added then further addition of commission income cannot be separately added.

6. On the other hand, Ld. DR strongly relied upon the order of the Ld. CIT(A) and submitted that if the assessee has failed to prove the source of the cash deposited, then the same has to be treated as undisclosed income. The Ld. CIT(A) has very rightly held that peak credit should be added.

7. We have heard the rival submissions and also perused the relevant finding given in the impugned order and also the material placed on record. The main issue involved is unaccounted cash deposits made in the various bank accounts of the assessee. The assessee's case had ITA No. 1801/Mum/2011 8 Assessment Year: 2006-07

been that, he is engaged in the business of money transfer, wherein various customers approached him for transfer of the money to their native place and from native places to Mumbai. These clients used to hand over the money to the assessee, who used to deposit the same in this various bank account and send it to his brother's bank account in Azamgarh from where the money was disbursed or vice versa. From the perusal of the detail finding given in the CIT(A)'s order including that of AO's comment in the remand report, it is seen that assessee has been unable to explain the source of cash deposits vis-a-vis any corroborative evidence. Whatever material has been placed on record though establishes that assessee was in some kind of money transfer business, however, the onus is upon the assessee to correlate the cash deposits with some evidence or the same has been recorded in regular books of account. It is also an undisputed fact that three of the assessee's bank accounts was not disclosed, either in the balance sheet or in the books of account. In such a case ones lies heavily upon the assessee to prove the source of the cash deposits in the bank account. Since there was a regular cash deposits and regular withdrawals from same nature of transaction, then positive peak credit has to be worked out for the purpose of addition which has rightly done by the Ld. CIT(A). Accordingly, the Ld. CIT(A)'s conclusion that peak credit should be added is affirmed.

8. However, it is noted that while arriving at the peak credit of all the bank accounts, it is seen that firstly, the Ld. CIT(A) has not given credit of opening balance as on 1st of April 2005 and secondly, he has also included the cash deposits made SBI bank account of Lalganj Azamgarh which belongs to his brother. If the said bank account belongs to his ITA No. 1801/Mum/2011 9 Assessment Year: 2006-07

brother then no addition on account of unexplained credit can be made in the hands of the assessee. Though the said bank account may be relevant to work out the assessee's commission income but definitely cannot be taken as undisclosed bank account of the assessee as it belongs to assessee's brother who is separate and distinct from the assessee. Thus, we direct the AO to work out the peak credit only from three undisclosed bank account of the assessee, after excluding the opening balance and the entry in bank account belonging to his brother for the purpose of addition on account of unexplained deposits in the bank account.

9. Once the addition on account of peak credit is being made, then no separate addition on account or commission income should be made separately as made by CIT(A). The reason being, the unexplained peak credit itself takes care of income element and secondly, if commission income is to be added then it leads to an inference that all the credits and deposits are accepted and only the income qua the transaction is to be taken as an income. Here-in-this case we have already upheld the addition on account of peak credit therefore, no separate addition on account of commission income should be added separately. Accordingly, the addition of Rs.3,87,562/- as made by the Ld. CIT(A) is deleted. The final addition will be on account of peak credit which would be worked in accordance with the aforesaid direction. The AO is directed to work out the peak credit in the manner indicated above. Accordingly, the ground raised by the assessee is partly allowed.

ITA No. 1801/Mum/2011 10 Assessment Year: 2006-07

10. In the result, the appeal filed by the Assessee is partly allowed.

Order pronounced in the open court on this 25th day of February, 2015.

Sd/- Sd/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 25.02.2015 *Srivastava Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "I" Bench

//True Copy// By Order

Dy/Asstt. Registrar, ITAT, Mumbai.