Mr.Mahmood H. Musavi, Pune vs Assessee

Mr. Mahmood H. Musavi, 301/302, Sunny Climes, 951, Nana Peth, Pune - 411002 .... Appellant PAN: ABBPN0508R

Vs.

The Asst. Commissioner of Income-tax, Central Circle 1(2), Pune. .... Respondent

Appellant by : Shri Nikhil Pathak Respondent by : Shri Chandip Singh Date of hearing : 29-04-2015 Date of pronouncement : 30-04-2015

ORDER

PER SUSHMA CHOWLA, JM:

This appeal filed by the assessee is against the order of CIT(A)-IV, Pune

dated 24.06.2010 relating to assessment year 2007-08 passed under section

143(3) r.w.s. 153A(b) of the Income-tax Act, 1961.

2. The assessee has raised the following grounds of appeal:-

On the facts & circumstances of the case and in law:-

1) The learned Commissioner of Income tax(A)-IV, was not justified in confirming an addition of Rs.38,76,523/- as un-explained cash credit u/s.68 of the I.T. Act,1961. The learned Commissioner of Income tax(A)-IV, Pune failed to appreciate that the cash of Rs.38,76,523/- was deposited in bank out of cash in hand as per books of account and hence your appellant request for deletion of the said addition.

2) The appellant craves leave to add, alter or delete of any of above ground in appeal.

3. The only issue raised in the present appeal is against the addition of

Rs.38,76,523/- as unexplained cash credit under section 68 of the Act. 2 ITA No.1232/PN/2010

Mr. Mahmood H. Musavi

4. Briefly, the facts of the case are that the assessee was engaged in the

business of builder and developer. Search under section 132 of the Act was

carried out at the residential premises of the assessee as well as office

premises at M.G. Road, Pune on 21.09.2006. During the course of search, the

assessee had declared additional income of Rs.26 lakhs relating to assessment

year 2005-06 on account of profit on sale of Ahmednagar land. Further, the

assessee had declared additional income of Rs.24 lakhs for the instant

assessment year on account of commission from trading in cars and

Rs.1,50,000/- on account of unaccounted investment in household articles. In

response to notice issue under section 153A of the Act, the assessee furnished

the return of income in which he claims that Rs.1,50,000/- was declared as

income from other sources, whereas Rs.24 lakhs was declared as income from

business. With regard to the profit on sale of Ahmednagar land, the assessee

submitted that the same land belonged to M/s. Radiant Constructions i.e. the

partnership firm of the assessee and by an error, the additional income was

offered in his hands. However, the same was offered in the case of M/s.

Radiant Constructions for assessment year 2005-06. In the post search

enquiries, the statement of the assessee was recorded on 12.10.2006 and the

assessee was asked to confirm the cash balance as on the date of search.

The assessee had shown cash balance of Rs.2.92 crores in his books as on

date of search and he stated that he kept the cash balance with his Accountant

who was out of town. During the course of assessment proceedings on

10.12.2008, the Assessing Officer recorded the statement of Ms. Rajani

Bhalerao, Accountant of the assessee, who had been working with the

assessee since 1993. In the said statement, the lady admitted to have been

working with the assessee, but she denied any cash or money or sum was kept

by the assessee with her. The relevant portion of the statement is reproduced

by the Assessing Officer under para 5 of the assessment order. Further,

statement of the receptionist Ms. Nazneen Ismail Shaik, of the assessee was

also recorded on 10.12.2008 in which she also denied to have any connection 3 ITA No.1232/PN/2010 Mr. Mahmood H. Musavi

with the accounts or cash transactions or any other financial matters of the

assessee or of his concerns. The relevant portion of the statement of the lady

is reproduced under para 6 of the assessment order. The assessee thereafter,

was given a chance of rebuttal and his statement was recorded on 16.12.2008,

in which he admitted that one Mr. Thakkar was working with him in M/s.

Radiant Constructions as Accountant, who left the service in July / August,

2006. The assessee thereafter, stated that he used to keep part of his cash in

hand with him as he was looking after not only his accounts but also the day-to-

day business needs. Further, some cash in hand was claimed to have been

kept with his friend Mr. Aamir Khan who stays near airport, Pune. The relevant

portion of the statement of assessee is reproduced under para 7 of the

assessment order. In view of the above said statements recorded, the

Assessing Officer questioned the validity of the statement of the assessee in

keeping cash to the tune of Rs.1.20 crores with his Accountant and cash of

Rs.1.72 crores with the friend of the assessee. The Assessing Officer noted

that the assessee had made no reference about the said persons in his

statement recorded on 12.10.2006, but in the rebuttal, the assessee claims

otherwise. The Assessing Officer thus, was of the view that the cash actually

found at the residential and business premises was the cash available with the

assessee. Another point noted by the Assessing Officer was that the assessee

was leading a lavish life style, which was apparent from the expenditure

through his credit card and the various bills and vouchers found in respect of

various expenditure incurred over the period of time. The Assessing Officer

took note of about five vouchers, under which the assessee had incurred

certain expenditure i.e. Rs.2 lakhs as charity paid to Poonawala Masjid Trust,

smaller expenses of Rs.462/- and Rs.2,072/- and telephone bills of Rs.11,356/-.

In view thereof, the conclusion of the Assessing Officer was that there was

substantial amount of unexplained expenditure outside the books of account,

which was expended out of cash in hand appearing in the books of account and

that is why the cash was not found during the course of search. The Assessing 4 ITA No.1232/PN/2010 Mr. Mahmood H. Musavi

Officer further noted that cash of Rs.83,000/- was found at the residence of the

assessee and no cash was found from the office premises, hence, the cash in

hand as on the date of search 12.09.2006 was Rs.83,000/-. The explanation of

the assessee that it had made cash deposits in the bank out of cash in hand

available in his books of account, was rejected and only credit of the opening

cash in hand of Rs.83,000/- and withdrawals made from the month to month

was allowed in the hands of the assessee. The deficit of Rs.38,76,533/- being

highest negative cash was treated as unexplained credit under section 68 of

the Act in the hands of the assessee.

5. The CIT(A) after going through the factual aspects and the statements

recorded by the assessee and taking into consideration the explanation of the

assessee vis-à-vis cash in hand shown in the books of account and its

availability, observed that holding of such huge cash balance despite the

availability of banking facilities was not explainable. The CIT(A) upheld the

finding of Assessing Officer that the cash available in the books of account was

not existing in reality and the assessee had utilized the same for personal use

and for any other purpose and the Assessing Officer had correctly held that no

cash was available and the book entry had to be corrected. The explanation of

the assessee that it had utilized the cash available in the books for deposits

made in the bank, subsequent to the search, was rejected by the CIT(A) and

the addition of Rs.38,76,523/- was upheld in the hands of the assessee.

6. The assessee is in appeal against the order of CIT(A).

7. The learned Authorized Representative for the assessee pointed out that

as per the books of account, the cash in hand available with the assessee on

the date of search was Rs.2.92 crores, which was not found from the

possession of the assessee. The learned Authorized Representative for the

assessee pointed out that the Assessing Officer made certain enquiries from

two of the employees of the assessee and also statement of the assessee was 5 ITA No.1232/PN/2010 Mr. Mahmood H. Musavi

recorded during the course of assessment proceedings and the Assessing

Officer came to the conclusion that the cash reflected in the books of account

on the date of search has been spent by the assessee on various expenditures.

Our attention was drawn to the photo copy of part of cash book, which is placed

at pages 26 to 32 of the Paper Book, in which the cash entries were reflected,

which in turn were deposited in the bank account of the assessee or certain

expenditure was incurred out of cash in hand. The learned Authorized

Representative for the assessee referred to the balance sheet placed at page

24 of the Paper Book and the closing cash in hand position as available at page

32 of the Paper Book and pointed out that the available cash in hand in the

books of account as on closing of the year was Rs.4.17 crores, which has been

accepted by the authorities below. The learned Authorized Representative for

the assessee placed reliance on the ratio laid down in CIT Vs. K. Sreedharan

(1993) 201 ITR 1010 (Ker), wherein the Hon'ble Kerala High Court had held the

credit of cash withdrawals after four years of the date of withdrawal.

8. The learned Departmental Representative for the Revenue on the other

hand pointed out that during the course of search, sum of Rs.83,000/- was

found from the possession of the assessee. The claim of the assessee during

the course of search was rest of the cash was with the Accountant. However,

the Accountant denied having received any money or having kept any cash in

hand of the assessee. In rebuttal, when the statement of assessee was

recorded, he talks of two new persons, which he had not referred in the original

statement. Accordingly, no reliance could be placed on the statement of the

assessee and in the absence of any explanation being given vis-à-vis the cash

deposits in the bank account and / or expenses made in cash, the same had to

be added as income of the assessee.

9. We have heard the rival contentions and perused the record. Search

and seizure proceedings under section 132 of the Act were carried out at the

residential and office premises of the assessee on 21.09.2006. As on the date 6 ITA No.1232/PN/2010 Mr. Mahmood H. Musavi

of search, the cash book of the assessee reflected cash of Rs.2.92 crores. The

said entries in respect of cash in hand were available in the cash book on the

date of search. However, during the course of search, only cash to the extent

of Rs.83,000/- was found from the possession of the assessee in his residential

premises and no cash in hand was found from the business premises of the

assessee. The statement of the assessee was recorded during the post search

enquiries and vide question No.7, the assessee was asked to confirm the cash

balance as on date of search. In reply, the assessee stated that the said cash

balance was worked out after considering the books of account and bank

books. He further stated that as per his normal practice, he keeps the cash

with his Accountant, who is out of town. It may be pointed out that the

assessee in addition to carrying on the sole proprietor business, was also a

partner in partnership firm M/s. Radiant Constructions. The Assessing Officer

during the course of assessment proceedings recorded the statement of Ms.

Rajani Bhalerao, Accountant of the assessee and Ms. Nazneen Ismail Shaik,

receptionist of the assessee, both of them have denied to be in possession of

any cash on behalf of assessee. The Assessing Officer in order to give a

chance of rebuttal to the assessee recorded his statement on 16.12.2008, in

which he explained that the money was kept with one Mr. Thakkar, who was

working with him in M/s. Radiant Constructions as Accountant. However, the

said person had left job in July / August, 2006. At the time of search, as per the

assessee approximately Rs.1.20 crores was kept with him, which was

recovered from him in financial year ending 31st March, 2007. Further, sum of

Rs.1.72 crores, the assessee claimed that he had kept with one of his friends,

who also returned the said cash to the assessee. Admittedly, on the date of

search, cash to the tune of Rs.83,000/- was found from the possession of the

assessee as against the cash in hand recorded in the books of account at

Rs.2.92 crores. No further enquiries or investigation was made by the search

team and even by the Assessing Officer. The assessee at the clos e of the year

i.e. 31.03.2007 has declared cash in hand of Rs.4.17 crores in its books of 7 ITA No.1232/PN/2010 Mr. Mahmood H. Musavi

account, which in turn has been declared in the balance sheet filed as on

31.03.2007. The said cash in hand of Rs.4.17 crores available with the

assessee as on the close of the year has been accepted by the Assessing

Officer while completing assessment under section 143(3) of the Act and there

are no adverse finding of the Assessing Officer with regard to the said cash in

hand. However, with regard to the cash in hand as on date of search i.e. of

Rs.2.92 crores, the finding of the Assessing Officer was that the said amount

has been spent by the assessee on his lavish life style and that is why the

same was not found available with the assessee on the date of search. We

find no merit in the said finding of the Assessing Officer in the absence of any

evidence found to establish that the cash in hand recorded in the books of

account has been expended by the assessee. The Assessing Officer in the

assessment order has made reference to certain expenditures incurred by the

assessee, evidence of which was filed during the course of search i.e. one

voucher of charity to Poonawala Masjid Trust of Rs.2 lakhs, cash payment of

telephone bills of Rs.11,356/-, expenditure of Rs.4,62,272/- and another

voucher of Rs.41,996/- expended in cash. The perusal of the assessment

order reflects that the Assessing Officer had made addition on account of

unexplained and unaccounted expenditure of Rs.2,02,072/-, Rs.41,996/- and

Rs.11,818/-, which has been accepted by the assessee and no ground of

appeal in this regard was raised before the CIT(A). Once the said expenditure

has been found to be unexplained in the hands of the assessee, the same

vouchers cannot be relied on to hold that the cash recorded in the books of

account as on date of search is not available to the assessee as the same has

been spent on various items including the vouchers found from the possession

of the assessee. In the entirety of the above said facts and circumstances, we

find no merit in the orders of authorities below and reversing the same, we hold

that the cash available with the assessee in his books of account as on date of

search, was available with the assessee for making cash deposits or incurring

expenditure in cash from month to month, which in turn has been debited to the 8 ITA No.1232/PN/2010 Mr. Mahmood H. Musavi

cash in hand of the assessee for the year under consideration and balance

cash in hand of Rs.4.17 crores had been declared in the books of account by

the assessee, which in turn has been accepted by the Assessing Officer. In

view thereof, we direct the Assessing Officer to delete the addition of

Rs.38,76,523/-. The grounds of appeal raised by the assessee are thus,

allowed.

10. In the result, the appeal of the assessee is allowed.

Order pronounced on this 30th day of April, 2015.

Sd/- Sd/- (R.K. PANDA ) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 30 th April, 2015 GCVSR

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-IV, Pune; 4) The CIT - IV, Pune; 5) The DR "A" Bench, I.T.A.T., Pune; 6) Guard File. By Order //True Copy//

Assistant Registrar I.T.A.T., Pune