Rajpal Singh Shekhawt , Surat vs Department Of Income Tax

.Income-tax Officer, Ward 3(4), Vs Shri Rajpal Singh Shekhawat Surat. Prop. Of Monu Industrial Security, G-9, Nav Mangalam Complex, Nr. Maharaja Agresen Bhavan, City Light Area, Surat. (Appellant) (Respondent) PA No.ASPPS 3053C

Appellant by Shri Nimesh Yadav, Sr.DR Respondent by Shri Rasesh Shah, AR

Date of hearing: 04/06/2015 Date of pronouncement: 24/06/2015

ORDER

PER Shri Rajpal Yadav, Judicial Member.

The Revenue is in appeal before us against the order of ld.

CIT(A) dated 21st February, 2011 passed for AY 2007-08. On receipt

of notice in the Revenue's appeal, assessee has filed Cross

Objection bearing No.142/Ahd/2011.

2. The Revenue has taken three grounds of appeal but its

grievance revolves around a single issue which is common ground ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 2 Asst. Year 2007-08

no.3 of the CO filed by the assessee. The common issue in both

these grounds is that ld. AO has made an addition of Rs.68,51,309/-

on account of unexplained deposit in bank account. The ld. CIT(A)

after applying the peak credit theory on the bank account restricted

this addition to Rs.9,41,557/-. The Revenue is aggrieved with deletion

of addition whereas assessee is aggrieved with confirmation of

addition at Rs.9,41,557/-.

3. The brief facts of the case are that assessee has filed his return

of income on 31.10.2007 declaring total income at Rs.2,85,966/-. The

case of the assessee was selected for scrutiny assessment and a

notice under section 143(2) dated 4th August, 2008 was issued and

served upon the assessee. The assessee was running a textile

trading business, in the accounting years relevant to AYs 2003-04

and 2004-05. He discontinued this business and started the business

of providing security services. On scrutiny of the accounts ld. AO has

noticed two bank accounts with Dena Bank, Nanpura, Surat. Account

No.CA 25397 was current account and a/c SB No.29271 was a

savings bank account. The assessee has made deposits of

Rs.1,12,93,090/- in the current account and Rs.28,41,085 in the ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 3 Asst. Year 2007-08

savings bank account. Thus a total deposits of Rs.1,41,34,175/- was

made by the assessee in these two accounts during the accounting

period relevant to this AY. On an analysis of the account the ld. AO

found that a sum of Rs.61,79,940/- was deposited by the assessee in

cash on various dates. He directed the assessee to explain the

source of deposits. The assessee contended that he was running a

textile trading business during the accounting years relevant to AYs

2003-04 & 2004-05. The said business was discontinued and all the

debtors and creditors of that business were transferred to his

personal balance sheet. He received payment from the debtors

during the previous year and also paid the amount to the creditors.

The assessee has submitted copy of the profit and loss account,

balance sheet, audit report, service tax receipts etc. The AO has

directed the assessee to submit the list of creditors as well as debtors

and confirmations from them. He failed to submit. Accordingly ld. AO

rejected the contention of assessee. He worked out intra deposits

and withdrawals of these bank accounts and made addition of

Rs.68,51,309/- under section 68 of the Income-tax Act, 1961

(hereafter the Act).

ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 4 Asst. Year 2007-08

4. Dissatisfied with the action of the AO, assessee carried the

matter before the CIT(A). He contended that after collecting the

complete evidence from the bank including the details of cheque

numbers it was gathered by him that he had received cheques from

his clients in the business of providing the security. These cheques

were discounted by him from the financier and the amounts were

deposited in cash. Therefore, there is a variation between the

deposits and the cheques issued by him. The first appellate authority

has appreciated the contention of the assessee but did not concur

with his submissions. The ld. CIT(A) has observed that assessee

failed to prove the fact that he has received cash by discounting of his

cheques from the financiers. The ld. first appellate authority, however,

has observed that the detail analysis of the bank accounts would

indicate that these bank accounts were used by the assessee for

making payments as well as depositing cheques and cash. According

the ld. CIT(A) the unexplained amount and the profits thereon could

be worked out by applying peak credit theory. Finding of the ld.

CIT(A) in this connection reads as under :-

''5.2 Upon consideration of all the facts discussed above, I find that it is not disputed by the appellant that the cash deposits in the two bank ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 5 Asst. Year 2007-08

accounts are unaccounted, that is not appearing in his books of accounts, and the appellant's contention that the cash deposited in the two accounts has been received by discounting of cheques, is also not supported by any confirmation from the financiers, however, a detailed study of the two bank accounts show that there is debt of equal or more or less of the same amounts of the cash deposited in the bank accounts at regular intervals, which lends some credence to the submission of the appellant that he has been arranging funds from the financiers in cash against cheques discounted by them. The assessing officer has rejected the alternate submission of the appellant to adopt peak of the cash deposits in the two bank accounts to arrive at the income not accounted in his books of accounts on the ground that the withdrawals made from the two bank accounts show that the cheques have been issued to different parties. The assessing officer has however, while rejecting the above alternate submission of the appellant, has not explained as to how when the cheques have been issued to different parties, representing the debits in the above two accounts the same will have a bearing the peak of the cash deposits, if it is so accepted.

5.3 In view of the discussion made above, I hold that the entire deposits cannot be taken as income of the appellant, as the two bank accounts wherein the cash deposits have been made also show debits of regular intervals. Therefore, in the fitness of things, it will be appropriate to take the 'peak' of the cash deposits in the above two bank accounts and the gross profit declared in the return of income on the cash deposits appearing in the two accounts subsequent to the date of 'peak' credit. The position of the same, as verified during the course of appellate proceedings, is as follows:-

(i) CA A/c No.25397 -peak credit of cash deposits (14.07.2006) Rs.2,78,934/-,

(ii) Savings A/C No.29271 -peak credit of cash deposits (27.1.2007) Rs.1,03,751/-.

Total of peak credit of cash deposits - Rs.3,82,685. ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 6 Asst. Year 2007-08

G.P. on turnover (cash deposits) after 14.07.2006 in current account @ 15.58% on Rs.18,52,810/- and after 27.1.2007 in savings a/c @ 15.58% on Rs.17,34,300, that is @ 15.58% on Rs.35,87,110/- Rs.5,58,872/-.

In view that 'peak'credit of cash deposits in the two accounts has been taken, the G>P. element in the cash deposits (turnover) in the two accounts upto the date of 'peak'credit is included in the amount of Rs.3,82,685/-. I, therefore, uphold the addition made on account of unexplained cash deposits in the two bank accounts to the extent of Rs.9,41,557/-. The first ground of appeal is, accordingly, partly allowed.''

5. Before us, the Revenue has contended that the theory of peak

credit is not applicable in this case because the same amount of

withdrawal has not been deposited again and again. A perusal of the

bank statement would show that several deposits have been made in

cash on different dates but the withdrawals have been made through

cheques issued to different parties.

6. On the other hand, ld. counsel for the assessee relied upon the

order of CIT(A) as well as he put reliance upon the decision of

Hon'ble Gujarat High Court in the case of CIT vs. Tirupati

Construction Co. 55 taxmann.com 308 (Gujarat). This decision has

been rendered on 3rd November, 2014 in tax appeal Nos. 1010 to

1012 of 2014. He placed on record a copy of the Hon'ble High Court's ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 7 Asst. Year 2007-08

decision. In this case during the course of search a paper exhibiting

debit and credit entries was found. The CIT(A) applied peak credit

theory. The view of the CIT(A) has been upheld by the Tribunal. The

Hon'ble High Court has also dismissed the appeal of Revenue. The

ld. counsel for the assessee further placed on record copies of bank

statement for the period from 1.4.2006 to 31st March, 2007. Referring

to the Savings Bank account, he pointed out that for example a sum

of Rs.1,00,000/- was withdrawn vide cheque no.622040 on 6th March,

2007, further sum of Rs.1,00,000/- was deposited. On 5th March,

2007 Rs.99,000/- were deposited. There is a complete chain of

deposit and withdrawal.

7. On the strength of these details he submitted that ld. CIT(A)

has rightly applied the peak theory and has worked out the profit

element.

8. We have duly considered the rival contentions and gone

through the record carefully. The ld. first appellate authority has

rejected both the contentions of the assessee that he has received

the amounts from his debtors from discontinued business in textile

trading. The ld. CIT(A) has also rejected the contention that assessee ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 8 Asst. Year 2007-08

has discounted the cheques from the financiers received in respect of

his business of providing security services. However on an analysis

of the account ld. first appellate authority had arrived at a conclusion

that the account was used for the purpose of some business,

because there are debit and credit entries in a systematic manner.

The debit of equal or more or less of the same amount of the cash

deposit in the bank account at regular interval is available. The total

of the cash deposits in such circumstances cannot be considered as

unexplained income of the assessee. The ld. CIT(A) has worked out

the peak credit in both the accounts. These credits are on 14th July,

2006 in the current account and 27th January, 2007. He worked out

the total of the cash deposits and thereafter computed the GP on

turnover of cash deposits after 14th July, 2006 in current account and

after 27th January, 2007 in savings account. The CIT(A) has worked

out the GP element in these transactions. He has added the profit

earned by the assessee in the business after working out the peak

credit. In other words the maximum amount of the peak deposits is

Rs.3,82,688/-. This was considered as representing the investment in

this activity which has been carried out with these two bank and

thereafter worked out the profit element. He made an addition of ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 9 Asst. Year 2007-08

Rs.9,41,557/- which is total of Rs, 5,58,872/- + Rs.3,82,685/- i.e.

profit on the turnover + alleged initial investment in the shape of peak

credit. This factor can take care of both these issues.

9. The assessee in his C.O. has submitted that net profit shown

by him is 3.36% in AY 2007-08. The maximum profit shown by him is

5.05% in AY 2010-2011 whereas the lowest is 1.94% in 2014-2015.

Considering this subsequent history of the assessee the profit ought

to be worked out by adopting a reasonable figure and not as high as

15.50% considered by the CIT(A). However, we do not see any merit

in this contention of assessee because he is unable to support his

claim with any authentic books of account. It is not discernible

whether these net profits have been accepted in the scrutiny

assessment or not. Considering the facts and circumstances of the

case we do not find any reason to interfere in the order of CIT(A). The

solitary ground raised by the Revenue as well as ground No.3 raised

by the assessee in the CO are rejected.

10. In ground nos.1 & 2 of the C.O. assessee has pleaded that ld.

CIT(A) has erred in confirming the disallowance of Rs.14,200 out of

telephone and mobile expenditure. He further pleaded that ld. CIT(A) ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 10 Asst. Year 2007-08

has erred in confirming disallowance of Rs.39,310/- out of vehicle

expenses, depreciation and petrol expenses. We find that assessee

has failed to submit the supporting evidence in respect of these

expenditures. The ld. AO has made an ad hoc disallowance at 20%

of the expenses. The ld. first appellate authority has confirmed the

disallowance. Since the assessee is running a proprietorship

concern, element of personal benefits out of the use of these facilities

i.e. phone(s) and car cannot be ruled out. The assessee was not

maintaining any log book nor produced any other details, in support

of his claim. Therefore, ld. revenue authorities have rightly disallowed

the expenditure on an estimate basis. We do not find any reason to

interfere with the order of CIT(A). Both the grounds are rejected.

11. In the result, the appeal of Revenue and C.O. of the assessee

are dismissed.

Order pronounced in the open Court on 24/6/2015

Sd/- Sd/-

(N. S. Saini) (Rajpal Yadav) Accountant Member Judicial Member

Dated 24/6/2015 Mahata/- ITA No. 1399/Ahd/2011 & CO No.142/Ahd/2011 11 Asst. Year 2007-08

Copy of the order forwarded to: 1. The Appellant 2. The Respondent 3. The CIT concerned 4. The CIT(A) concerned 5. The DR, ITAT, Ahmedabad 6. Guard File BY ORDER

Dy. Registrar, ITAT, Ahmedabad

1. Date of dictation: 23.6.2015

2. Date on which the typed draft is placed before the Dictating Member: 24.6.2015 other Member:

3. Date on which approved draft comes to the Sr. P. S./P.S.:

4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________

5. Date on which the fair order comes back to the Sr. P.S./P.S.:

6. Date on which the file goes to the Bench Clerk: 24/6/2015

7. Date on which the file goes to the Head Clerk:

8. The date on which the file goes to the Assistant Registrar for signature on the order:

9. Date of Despatch of the Order: