Kavita Rangwani, Jaipur vs Assessee

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 706/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2009-10

Smt. Kavita Rangwani cuke The I.T.O. 4-Ba-12, Jawahar Nagar, Jaipur. Vs. Ward-6(1), Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AATPR 5849 M vihykFkhZ@Appellant izR;FkhZ@Respondent

vk;dj vihy la-@ITA No. 709/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2009-10

The I.T.O. cuke Smt. Kavita Rangwani Ward-6(1), Jaipur. Vs. 4-Ba-12, Jawahar Nagar, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AATPR 5849 M vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri K.L. Moolchandani jktLo dh vksj ls@ Revenue by: Shri Dilip Sharma

lquokbZ dh rkjh[k@ Date of Hearing : 22 /04/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 15 /06/2015

vkns'k@ ORDER

PER: R.P. TOLANI, J.M.

These are cross appeals one by the assessee and another by the

department against the order dated 30/05/2012 passed by the learned 2 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

CIT(A)-II, Jaipur for A.Y. 2009-10. Respective grounds of both the

appeals are as under:-

Ground of assessee's appeal

"1. On the facts and in the circumstances of the case the learned CIT(Appeals) has factually and legally erred in confirming the addition made by the learned A.O. on account of unexplained deposits in bank account to the extent of Rs.

8,00,000/- without appreciating the fact that the appellant is a housewife, who has no regular source of income and other relevant facts of the case in right perspective."

Grounds of revenue's appeal

"On the facts and in the circumstances of the case and in law the learned CIT(Appeals) has erred in:-

"(i) deleting the addition of Rs. 20,73,876/- made by the A.O. on account of unexplained investment in construction of house despite the fact that the addition was made to the extent which the assessee could not furnish any source of investment.

(ii) Observing that the investment in construction ought to have been considered in two years i.e. F.Y. 2008-09 and 2009-10 which was contrary to the assessee's written submission filed on 26/09/2011.

(iii) Restricting the addition of Rs. 1,19,73,500/- to Rs. 8,01,050/-

being the peak credit as on 29/11/2008 despite the fact that the peak theory is applicable only in cash deposits and not in cheques deposited.

3 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

(iv) Restricting the addition made on account of unexplained credits even though the assessee could not prove (i) the identity of the creditor, (ii) the genuineness of the transaction and (iii) the creditworthiness."

2. Brief facts of the case are that the assessee is a widowed house

wife. Her husband Shri Sugan Chand Rangwani was also assessed to

income tax with ITO Ward 1(2), Jaipur with PAN number ABIPR 6405

R. He expired in August, 2012 after prolonged suffering from Malignant

Brain Tumor and a spell of being bed ridden for couple of years. The

assessee filed return of income declaring interest income. In this year a

house property was constructed by her at 2-Ga-24, Jawahar Nagar, Jaipur.

AO inquired about the cost of construction and sources thereof, in reply

assessee filed a registered valuer report Dtd. 22-5-10 Rs. 37,80,196/-,

which was for correcting some measurement mistakes was revised to Rs.

35,28,917/-.

2.1 Assessee filed a reply dated 26-09-11 stating that cost of

construction of Rs. 39,07,176/- was incurred and explained the source

thereof which is mentioned by AO at page 2 of his order. AO however

held that assessee could explain the sources to the extent of Rs.

18,33,300/- and the balance amount of Rs. 20,73,876/- was held to be

unexplained and added to her income. Her husband used to avail OD 4 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

facilities on an Axis Bank joint a/c No.. 031010300004114 operated

mainly by him and scantily be the assessee. The withdrawals were mainly

used for construction of the house in question, Assessee being a house

maker and no role in the work of construction which was supervised by

other family members. She signed the cheque whenever asked the

construction. As evident from the Bank Statement, the OD funds were

rotated depending on the construction exigencies and no fresh cash was

introduced. A cash flow statement reconciled with Bank A/c was filed,

demonstrating that credit entries were on account of redeposit of earlier.

Assessee's representative co-related each and every debit and credit entry

in the bank account and offered proper reconciliation with cash flow

statement. During the time of assessment, Shri Suganchand was seriously

ill and was operated upon in Apollo Hospital, Delhi then under-went

Radio Therapy and Chemotherapy treatment and was in a bad condition.

In these circumstances, assessee's representative could explain depending

on the faint memory of her ailing husband. Consequently ld AO made

the addition of Rs.1,19,73,500/- to her income. Further, ld. AO also made

addition of Rs.20,73,876/- on account of the alleged un-explained

investment in the construction of House Property. Assessee did maintain

books of accounts for construction work which was explained on the 5 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

basis of the withdrawals from bank a/c and valuation report. It was further

informed that the said construction works continued for two years i.e. for

the F.Y. 2008-09 & 2009-10 for which year-wise break-up was also given

along-with details of the withdrawals made from bank accounts for the

purpose. However ld. AO summarily rejected assessee's contentions and

made addition for alleged undisclosed investment in AY 2009-10 only.

2.3 Aggrieved assessee preferred first appeal, while appreciating the

above contentions of the appellant, the ld. CIT (A) deleted the addition of

Rs.20,73,876/- on account of the alleged un-explained investment in the

construction of residential house in the order vide para 3.1 at page nos. 7

to 10.

2.4 The second addition of Rs.1,19,73,500/- made on account of the

alleged un-explained bank transactions was also reduced to Rs.8,01,050/-

by adopting 'Peak Theory'.

2.5 Aggrieved both the parties are before us.

2.6 Assessee's sole ground and revenue ground (iii) and (iv) raise

common issue.

6 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

2.7 Ld. Counsel for the assessee contends that the surplus funds as

worked out by the ld. AO as per Annexure 'B' is replete with following

flaws and discrepancies:-

(i) In this chart no credit for the withdrawals of Rs.6,36,000/-

made in the names of family members had been given despite of the fact that affidavits of the family members were submitted certifying therein the fact that such withdrawals were made by them for the appellant only to be invested in the construction works of the residential house. Such affidavits were ignored without cross examining the deponents on the point P.B. No.59 to 61.

(ii) Further the 'deposits/outwards' of Rs.14,91,000/- were reduced without considering the explanation furnished by the appellant on the point with the help of a chart showing immediate sources of such deposits and outwards. The learned AO had over-looked these facts and explanation without assigning any reason and without brining any material on record contrary to the explanation of the appellant on the point. P.B. 38 & 41 to 46.

(iii) If both the figures of Rs.6 lacs and odd plus 14 lacs and odd are taken into account as explained by the appellant then the surplus funds would work out around Rs.38 to 39 lacs which would be more than sufficient to take care of the total investment of Rs.35,28,917/ as determined by the Approved Valuer and duly accepted by the Deptt. In the circumstances, no addition what- so-ever was called for on account of Annexure 'B'.

2.8 With these findings, the learned CIT (A) had reduced such addition

of Rs.1,19,73,500/ to Rs.8,01,050/- on the basis of 'Peak-Theory'.

The learned CIT (A) was of the view that as per Bank Statement, the peak

credit balance of the Bank Transactions was Rs.8,01,050/- on 29.11.2008, 7 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

so it would be fair and reasonable to treat such peak credit balance as

undisclosed income of the assessee. However while retaining the part

addition ld. CIT (A) ignored the fact that this peak credit balance

resulted due to transfer credit entry of Rs.25,00,000/- on 29.11.2008 as

explained vide letter dated 22.11.2011 In fact, such credit balance did not

result on account of any fresh credit entry but was due to re-payments of

old advances made before availing the OD facilities. However, the

learned CIT (A) did not appreciate this and without examining this fact

and explanation confirming the addition to the extent of Rs.8,01,050/-.

Ld. CIT(A) being satisfied with assessee's explanation, there was no

justification in retaining the addition; this can be very well implied from

his following observations:

"I have duly considered the submissions of the appellant. The AO instead of choosing to doubt the cash deposits doubted the cheque deposits. Without prejudice to the above, even the cheque deposits could not have been doubted as these funds flowed from the bank statement from the overdraft facility availed by the husband of the appellant. It was evident from the bank statement (account no.4114) that there was only rotation of overdraft funds whereby the funds advanced on earlier dates were received back subsequently and there were no fresh deposits."

2.9 Ld. CIT (A) over-looked the vital fact that assessee was hardly

operating the account and was mainly operated by her husband. Merely 8 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

because the assessee was constructing the house it has been lost sight of

that she was only joint beneficiary and not sole holder of the said bank

account. Consequently the peak amount cannot be added in the hands of

the appellant alternatively if assessee's contention is not accepted than

legally only ½ of the amount alone may be considered. Ld AO himself in

the body of the assessment order, has acknowledged that most of the

entries were operated by her husband.

2.10 Ld. Counsel contends that ld. CIT(A) grossly erred in holding

disclosed entry of Rs.8,01,050/- dated 29.11.2008 as 'undisclosed

income' without objectively rebutting the contentions. While doing so ld.

CIT(A) failed to consider the credit entry of Rs.25,00,000/- which would

nullify the peak deficit. Reliance is placed on following judicial

authorities:

(i) CIT vs Smt.P.K. Noorjahan (1999) 155 CTR 509 holding therein as under: "Income from undisclosed sources-

Addition under s. 69- Discretion of AO-Intention of Parliament in enacting s. 69 was to confer a discretion on the ITO in the matter of treating the unexplained source of investment as income of assessee- ITO is not obliged to treat such source of investment as income in every case- Whether it has to be treated as income or not has to be considered in the light of facts of each case- Assessee a young lady, could not explain satisfactorily her source of investment in lands- Tribunal held that it was not possible for her to earn the amount even during a decade and that the source of 9 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

investment could not be treated as income of assessee." (copy of relevant extract submitted herewith at P.B. No.62 & 63 - both sides).

(ii) Following the above famous judgment of honorable Supreme Court, the jurisdictional Court of Rajasthan have also held the same view in the case of CIT vs Ranjeet Kumar Sethia (2005)198 CTR (Raj) 550 observing as under:Cash credit-Peak credit in the bank account can not be treated as undisclosed income of the assessee-Justified- Banking transactions in the regular course of business cannot be treated as cash credit so as to invoke s.68. (copy of the judgement is submitted herewith at P.B. No.64 & 65 - both sides).

(iii) In the case of Smt. Panna Devi Chowdhary vs CIT (208 ITR

849), honorable High Court of Bombay held that whatever money received by a person cannot be regarded as his taxable income without there being anything on record to show that such receipt or any part thereof remained with him. The only fact that the amount was remitted by the Calcutta Company to the assessee is not sufficient to hold that the amount belonged to the assessee or that is constituted the income of the assessee......"(copy of relevant extract submitted herewith at P.B. No.66).

(iv) The honorable ITAT, Jaipur Bench Jaipur have also expressed same view recently in the case of Smt. Anita Kaushal (ITANo.390/JP/2009) (copy of the judgement is submitted herewith at P.B. No.67 & 74) that the assessee being an ordinary lady and is not of much means who can deposit her own unexplained money that too at Rs.46,55,800/- whose yearly income was Rs.1.25 lac which has been accepted by the AO himself for last so many years. There is no such asset or any other business activities from which it can be said that the assessee had earned a sum of Rs.46,55,800/- from undisclosed income. following the case of Smt. Pratibha Goyal (ITA No.705/JP/2009). This judgment has been accepted by the Department as no appeal/reference has been filed against it.

10 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

(v) Again, the honorable ITAT, Jaipur Bench, Jaipur have been consistently holding the view that all the bank transactions and deposits cannot be taken as undisclosed income of the assessee. The same can be taken as turn-over of the assessee and prevalent g.p. be applied and be taken as income of the assessee. Some cases are referred here-under for ready reference:

(i)Shri Arvind Bakliwal, Madanganj, Kishangarh(287/JP/10)

(ii)Shri Vineet Darda, Madanganj, Kishangarh (647/JP/2009)

(iii) Shri Gajanand Agarwal, Madangarh, Kishangarh (1440/JP/10)

It is contended that the remaining addition of Rs.8,01,050/- confirmed by

the ld. CIT (A) is unjustified and deserves to be deleted.

2.11 The remaining revenue grounds pertain to deletion of addition qua

construction of house by ld. AO amounting Rs. 20,73,876/-. There is no

dispute about the cost of the investment as valued by approved valuer at

Rs.35,28,917/-. Assessee furnished explanation about investment of

Rs.39,07,176/- whereas the AO held that only Rs.18,33,300/- were

available as per ann. B which resulted in addition of Rs.20,73,876/-. In

first appeal ld. CIT (A) on the basis of reconciliation of funds and written

submissions held that the Annexure'B' working was not correct and

deleted the addition by following observations:

"3.1 I have duly considered the submission of the appellant. In this case, the A.O. noticed that the assessee had constructed a property at 2-Ga-24, Jawahar Nagar, Jaipur and investment of Rs.39,07,176/- was claimed to have been made in the said property. The assessee 11 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

submitted a copy of valuation report dated 22-05-2010 from the registered valuer namely Shri R.S. Khandelwal wherein the cost of construction excluding land was declared at Rs.37,80,196/-. However later on, the registered valuer reported that he had taken wrong measurements and revised the cost of construction at Rs.35,28,917/-. When confronted, the assessee submitted the sources of investment in the said property as under:

Cash withdrawn during the March, 2008 as per relevant extract from the bank account Rs.2,75,000 Cash withdrawn during the year from the said bank account Rs.30.5 lakhs Less: Deposits made in bank account Rs. 9.0 lakhs Rs.21,50,000 Funds withdrawn from joint account No.268387 of husband Shri Suganchnd Rs.13,50,000 Cheques issued directly for material and other expenses as per chart enclosed and relevant entries duly highlighted Rs. 1,32,176 Total Rs.39,07,176

The A.O. verified the bank account submitted by the assessee and observed that though the assessee had claimed to have withdrawn cash from the bank account however there were 10 entries whereby the amount of Rs.8,34,000/- was transferred to the accounts of Sh. Suganchand Rangwani, Sh Rakesh , Sh Manoj or cash was deposited in the said bank account instead of withdrawal. The AO prepared cash flow statement which showed that cash funds available with the assessee were to the extent of Rs.16,58,300/- only. The AO further held that the opening cash available with the assessee was at Rs.1,75,000/- only. The AO also held that the investment of Rs.1,32,176/- in the purchase of material for construction was incorrect and it was in the nature of interest charged by the bank or insurance premium paid by the assessee. In the light of above facts, the AO held that the assessee had cash funds to the extent of Rs.18,33,300/- (Rs.16,58,300/- plus Rs.175,000/-) available with her whereas she had claimed to have invested an amount of Rs.39,07,176/- in the construction of said house. Therefore, the balance amount of lRs.20,73,876/- was treated as undisclosed investment in the said house property. On careful consideration of facts, I am inclined to agree with the contentions of the appellant. During the year under reference, the appellant had not declared any source of income except the interest income. No books of accounts were maintained by her. However, she had a joint bank account with her husband namely Sh Suganchand Rangwani (PAN ABIPR6504R) who availed overdraft facility from the Axis Bank. From this joint account, the husband of the appellant utilized the overdraft facility funds for various loan transactions and a part of amount was withdrawn/ utilized for construction of house at 2Ga-24, Jawahar Nagar, Jaipur. It was evident from the bank statement (account No.4114) that there was only rotation of overdraft funds whereby the funds advanced on earlier dates were received bank subsequently and there were no fresh deposits. All the credit entries in the said bank account flowed from that bank only. The bank account was

12 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

operated by the husband of the appellant. The AO directed the appellant to correlate each and every debit or credit entry in the said bank account. As the husband of the appellant was having malignant brain tumour and undergoing chemotherapy, he had faint memory and therefore the appellant was left with a hard task of correlating the various debit or credit entries. Further the AO had also made separate addition of Rs.1,19,73,500/- on account of entire credit entries through cheques in the hands of the appellant. As the books of accounts were not maintained by the assessee, the investment in the said house was declared on the basis of withdrawals made from the said bank account. Further the construction of the said house was carried out in FY 2008-09 and FY 2009-10. However, the AO had chosen to make the impugned addition one year only. The AO also did not accord any cognizance to the fact that part of cash amounting to Rs.6,36,000/- was withdrawn through other family members also as the appellant being a housewife did not visit the bank. Further the husband of the appellant had also withdrawn cash of Rs.13,50,000/- from another bank account (account No.268387) which was utilized in the construction activity however no credit for the same was given by the AO.

The details of such cash withdrawals made by the husband from the bank account No.268387 on various dates were given by the counsel of the appellant vide lettler dated 26-09-2011 to the AO. Further the opening cash on hand available with the appellant had her husband was of Rs.2,75,000/- however the AO had not allowed credit for Rs.1,00,000/- withdrawn in cash by the husband of the appellant in March, 2008. If there amounts are taken into consideration, it would exceed the addition of Rs.20,3,876/- made by the AO. Under the circumstances, I am of the opinion that there was no undisclosed investment in the construction of the said house and the addition made by the AO was totally unsustainable. Section 69 of the Income-tax Act, 1961`, opens with the words "wherein the financial year immediately preceding the assessment year, the assessee had made investment". Therefore, in the first instance it is incumbent upon the authority to establish that there were investments made by the assessee; this condition is satisfied in the present case. Further such investments were not recorded in the books of account maintained by the assessee; this condition is not satisfied in the present case.

Moreover, the assessee did not maintain any books of account and she had declared more withdrawals than the investment estimated by the registered valuer. Further such investments had been made in the financial year immediately preceding the assessment year in question: this condition is also not satisfied as the assessee had made investment in two financial years namely FY 2008-09 & FY 2009-

10. The appellant had not prepared any balance sheet or statement of affairs for the year under consideration. Therefore, even if the claim of purchase of material of Rs.1,32,176/- is rejected then still the total withdrawals shown by the appellant would exceed the value estimated by the registered valuer. Under these circumstances, I hold that no addition could have been made in the hands of the appellant on account of unexplained investment. I therefore direct the AO to delete the addition of Rs.20,73,876/- made by him. The ground appeal is allowed".

13 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

2.12 Ld. Counsel for the assessee contends that ld. CIT(A) has given

clear findings of facts and held that the opening cash of 2.75 lacs and

withdrawal of Rs. 1 lac contributed towards construction were not

considered, besides there was no justification in ignoring the cost of

material of Rs. 1,32,176/- as indicated by ld. CIT(A). The factual

discrepancies in AO's working of Annex. B have been demonstrated by

ld. CIT(A), his order deserves to be upheld on this issue.

2.13 Apropos ground no. (ii) regarding construction of house in two

years, ld. CIT(A) from the bank statement, endorsed the correct fact that

investment in the construction works was made partly in the Financial

Year 2007-08. This has been impliedly acknowledged by the learned AO

while discussing this addition in the body of the assessment order. These

vital facts emerging from record cannot be ignored on ipsi-dixit by

manufacturing some lacunae in assessee's reply. Therefore ld. CIT(A)'s

clear finding of fact that the investment in construction of house was

made in AY 2008-09 & 2009-10 is based on proper verification of facts

on record and there is no reason to disturb such findings of facts. It is

further contended that ground iv of the revenue has no meaning inasmuch

as the merits of all the credit entries stand proved by the assessee which is 14 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

manifest from the order of ld. CIT(A). consequently there remains no

issue about identity, genuineness and creditworthiness of these entries. In

the light of above observations and working, the conclusions so arrived at

by the learned CIT (A) are very fair, reasonable and logical so we rely

upon such findings of the learned CIT (A).

2.14 Ld. Sr. DR is heard on both assessee's and revenue appeal.

2.15 We have heard the rival contentions and perused the material

available on the record. Following facts emerge from the record:-

i. Assessee being a house hold leady, her husband being a cancer patient and critical during the period of assessment proceedings and ultimately expired is not in dispute. ii. The Axis bank OD bank a/c being jointly operated and mostly used for construction of house standing in assessee's name has not been doubted.

iii. Cost of construction as per the approved valuers report is not under question.

iv. No allegation of non cooperation or non compliance is made by AO.

v. The core of dispute pertains to alleged ann. B made by AO alleging that assesse could not explain the deposits therein which resulted in addition of Rs. 1,19,73,500/- holding most of the credit entries as unexplained.

vi. Ld. CIT(A) examined the annx B and reconciled the entries and has given clear findings of fact about the nature of redeposit based on cash flow statement filed by the assesse along with the reconciliation.

vii. The reasons given by ld. CIT(A) are based on proper reasons indicating relevant entries and reasonable of assessee's explanation.

15 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

viii. Ld. CIT(A) has given a clear finding of fact based on evidence the house was constructed in two years. It seems more likely as the husband of the assessee also was keeping unwell.

With these clear findings of facts, reasons and observations on record we

see no reason to interfere with ld. CIT(A) order who has co-terminus

powers with AO and can do what AO failed to do; except the alternate

plea of the assessee about the Axis bank a/c being joint account. This

becomes more relevant in the peculiar background of assessee's being a

house maker, having no knowledge of construction, debit and credit

entries in the bank and prolonged and terminal illness of the husband.

None of which is questioned by lower authorities Therefore, if at all it is

held that Rs. 8,01,050/- remained unexplained then assessee being a joint

a/c holder cannot be saddled with entire addition. The same is to be

treated equally half in the hands of husband and wife. In view thereof we

hold that the sustainable addition in the hands of assessee be restricted to

4,00,550/-.

2.16 Apropos the ground (iv) of the revenue, since the findings of ld.

CIT(A) are upheld the issues about the identity, creditworthiness and

genuineness become infructuous.

16 ITA 706 & 709/JP/2012_ Smt. Kavita Rangwani Vs. ITO

3.0 In view of the foregoing observations assessee's appeal is partly

allowed and revenue appeal is dismissed.

4.0 In the result, the assessee appeal is partly allowed and that of the

Revenue is dismissed.

Order pronounced in the open court on 15-06-2015.

Sd/- Sd/-

¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani)

ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 15th June, 2015

*Mishra

vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- Smt. Kavita Rangwani Jaipur.

2. izR;FkhZ@ The Respondent- The ITO, Ward- 6(1), Jaipur

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr@ CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 706/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asstt. Registrar