Sandeep Sharma, New Delhi vs Department Of Income Tax

ITO, Ward 46 (4), vs. Shri Sandeep Sharma, New Delhi. D-5/105, Ist Floor, Avadh Complex, Laxmi Nagar, New Delhi.

(PAN : AQTPS5071Q)

(APPELLANT) (RESPONDENT)

ASSESSEE BY : Shri Adhir Samal, CA REVENUE BY : Shri T. Vashantan, Senior DR

Date of Hearing : 13.07.2015 Date of Pronouncement : 22.07.2015

ORDER

PER A.T. VARKEY, JUDICIAL MEMBER :

This appeal, at the instance of the revenue, is directed against the

order of the Commissioner of Income-tax (Appeals)-XXX, New Delhi

dated 28.10.2011. The relevant assessment year is 2008-09.

2. The effective grounds of appeal taken by the revenue read as under :

"On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in:-

2 ITA Nos.142/Del./2012 1. Reducing the addition of Rs.4,29,98,561/- to Rs. 4,39,985/-

rightly made by the A.O. on account of unexplained cash credits in assessee's bank account.

2. Directing the A.O. to compute the income of the assessee as commission income without any substantiating evidence against the A.O's finding that the amount under dispute is unexplained income of the assessee."

3. The assessee filed the return of income on 09.02.2009 declaring an

income of Rs.1,15,000/-. The assessee's case was selected for scrutiny

through CASS and notice u/s 143(2) of the Income-tax Act, 1961

(hereinafter 'the Act') was issued on 06.08.2009. Subsequently, a notice

u/s 143(2) of the Act was issued on 19.01.2010, fixing the case for

01.02.2010. In response to the notice, the assessee himself appeared and

was asked to file the details of his income and financial transaction during

the financial year. Subsequenlty, notices u/s 142(1) of the Act along with

the detailed questionnaire were served on the assessee but these notices

were remained uncomplied with. In view of the non-compliance of the

notices, the AO issued show cause notice u/s 271(1)(b) and the assessee

replied the same with partial details as per the questionnaire. Before the

AO, the assessee submitted that he was having only one Bank account with

the Bank of Baroda. The AO informed the assessee that as per AIR

information, the assessee was having an account with Punjab National

Bank, Circle Office, Rajendra Bhawan, Rajendra Place, New Delhi and a

total amount of Rs.2,46,25,891/- was deposited in cash in the said bank 3 ITA Nos.142/Del./2012

account and the copy of the same was given to the assessee. The AO

asked the assessee to explain the nature and source of cash transactions.

However, the assessee did not give any reply to the said question and

sought for time to provide the details about the nature and source of cash

deposits. The AO recorded the statement of the assessee and the matter

was adjourned to 09.11.2010 and later on, adjourned to 22.11.2010 on the

request of the assessee. Meanwhile, the AO verified the cash transactions

from the Punjab National Bank and the Bank informed that the said

account was maintained by Shri Sandeep Sharma in the name of

proprietary concern, M/s. Om Weighing India in another branch i.e. P.N.B,

scope tower, Laxmi Nagar New Delhi and also informed that

Rs.4,29,98,561/- ( which includes cash deposit of Rs. 3,86,62,391/- and

other deposits amounting to Rs.43,36,170/-) was deposited in cash during

the year. The AO has reproduced the bank statement in his order. The

AO observed that from a perusal of the bank statement, it revealed that

nominal balance was being maintained throughout the year and every

deposit entry was followed by withdrawal of identical amounts. On

22.11.2010 when the statement u/s 131 of the assessee was resumed, the

AO again asked the assessee to provide the details of transactions and

source and nature of deposits in the said account maintained with Punjab

National Bank and the assessee accepted that he was proprietor of M/s.

Om Weighting India and Director of two companies i.e. M/s. Prolon 4 ITA Nos.142/Del./2012

Marketing Pvt. Ltd. and M/s. Ja Gang Plastics (India) Private Limited.

However, the assessee stated that no business was being carried out by

M/s. Om Weighing India and the other two companies. But, the AO

observed that when the assessee was asked to provide the nature and

source of huge amounts of cash/fund inflow, the assessee showed

ignorance about the source of the funds and did not provide any

explanation. The assessee's statement was recorded till 22.11.2010 and

the matter was adjourned to 26.11.2010 for further recording the statement.

But, on 26.11.2010, none attended nor any written reply was submitted by

the assessee. The AO observed that assessee was not having any details in

his possession about the huge amounts of deposits totaling to

Rs.4,29,98,561/- and the assessee was also not filing any supportive

evidences or explanations regarding nature and source of deposits

appearing in the bank account of the assessee. The AO, after going

through the banks details and the statement recorded by the assessee,

observed as follows :-

"(i) Sh. Sandeep Sharma (assessee) is proprietor of M/s Om Weighing India for which no income was returned. The assessee is also one of the two Directors in M/s Pro Ion Marketing Pvt. Ltd. and M/s Ja Gang Plastics(India) Private Limited. The assessee in his answer to Question Nos.13 & 14 denied having known the other directors of the above companies.

(ii) He has deposited total amount of Rs.4,29,98,561/- 90 % of which is in cash in the bank account maintained with PNB, Scope Tower, Laxmi Nagar, New Delhi by him in the name of M/s Om Weighing India, his proprietary concern. The evidence is obtained from the bank and is placed on records.

5 ITA Nos.142/Del./2012 (iii) He has transferred almost whole of the amount by cheques to M/s Prolon Marketing Pvt. Ltd. and M/s Ja Gang Plastics (India) Private Limited in which he is director.

(iv) Despite providing with more than sufficient opportunities the assessee didn't reveal the source of funds amounting to Rs.4,29,98,561/- in his account in the PNB.

(v) He has no explanation to offer about the source of the funds and the funds are nothing but his unexplained income from the undisclosed sources which has not been offered to tax.

(vi) The funds have been used for financing his business transactions of M/s Prolon Marketing Pvt. Ltd. and M/s Ja Gang Plastics(India) Private Limited.

(vii) The assessee is deriving income from salaries and did not return any income from his proprietary concern.

(viii) The assessee has shown income from salaries only and the amount of Rs.4,29,98,561/- found deposited in his account in the PNB during the F. Y. 2007-08 is unexplained income for A.Y. 2008-

09 and the same has not been offered for tax as per the provisions of the Income Tax Act 1961."

The AO, in view of the above mentioned facts, observed that the assessee

did not come forward to give any explanation regarding the nature and

source of cash and other deposits to the tune of Rs.4,29,98,561/- in his

bank account with PNB and held that this amount stood unexplained and,

therefore, deemed it as income of the assessee for the year under

consideration as per the provisions of section 68 of the Act. Accordingly,

the AO made the assessment by passing order u/s 144 of the Act by adding

unexplained cash deposits u/s 68 of the Act in Bank of Rs.4,29,98,561/- as

assesse's income.

6 ITA Nos.142/Del./2012

3. Aggrieved, the assessee preferred an appeal before the first

appellate authority. The CIT (A) after going through the written

submissions filed by the assessee, which has been reproduced by the CIT

(A) in his order was pleased to partly allow the appeal of the assessee and

directed the AO to estimate the assessee's income as commission business

for providing entries to parties @ Rs. 1/per Rs. 100/- and thus calculated

assessee's income as Rs. 4,39,985/- in addition to his other income

returned by him. . The relevant finding of the CIT (A) is reproduced as

under :-

"3. I have considered the written submissions of the AR, assessment order of A.O., grounds of appeals, and discussed the matter with the AR and appellant very carefully. The AIR data shows that the assessee had deposited total amount of Rs.2,46,25,891/- in cash in the bank account with Punjab National Bank. When he was asked to explain the sources of deposits, he did not reply anything to the AO. The observation of AO in Para-10 & 11 of his order speaks that Sh. Mukesh Gauam and Sh.Chandra Prakash Bhardwaj was issuing cheques to two of their own companies M/s Prolon Marketing Pvt Ltd. and M/s Ja Gang Plastics (India) Pvt. Ltd. These two companies then give cheques to beneficiaries, who have given cash to the appellant for getting entry through banking channel. In the process, the appellant gets commission @ 0.25% to 0.5% or more in cash, which is his profit or income from business of providing entry to those people.

The issue involved here is identical with the issue of Shri Manoj Agrawal & Bemco Jewellers Private Ltd (BJPL) which had been decided by ITAT Special Bench Delhi, in 2008. Now the Jurisdictional Delhi H.C. had passed an interim order in the case of Manoj Agrawal reported in 2011-TIOL-645-HC-DEL-IT vide order dt. 30.09.2011. The jurisdictional High Court is yet to decide the case after getting relevant papers books from both the parties i.e. revenue and the appellant Sh.Manoj Aggarwal & Others. The ITAT had accepted the commission @ 50 paise to Rs.100 and allowed further deduction of 15 paisa for expenses on maintenance of staff, traveling to bank and others place and other office expenses. I have 7 ITA Nos.142/Del./2012

discussed the matter with the appellant and his AR, persuaded them to estimate the commission income at Re.1 per 100 for estimation of his income from providing entry operations through banking channel under the head business income. These operations are bogus and accommodation entry to give relief to beneficiaries by treating such entries as loan / gift / investment and reducing tax burden in their hands.

The AR of the assessee had given a table of calculation of peak commission / commission @0.25% in P.B. page - 9 to 14 in the paper book. As per the table, the total commission calculated @ 0.25% on amount credited of Rs.4,39,98,561/- is Rs.1,09,996/- only. The A.O. had taken the amount credited to the account of appellant at Rs.4,29,98,561 as cash deposit in appellant's PNB a/c. Since the appellant had disclosed a higher figure of Rs.4,39,98,561/-, the A.O. is directed to verify the appellant's figure with that obtained by A.O. from bank and reconcile the total cash credit in appellant's a/c, on which cheques have been issued. Since the appellant admits bonafidely to have given such cheques to parties through two of his companies, I estimate appellant's income from commission business on providing entries to parties @ Re.1/- per Rs.100/- and calculate his income at Rs.4,39,98,561 x 1/100 = Rs.4,39,985/- in addition to his other incomes returned and assessed by A.O. The A.O. is directed to recompute his total income and charge interests u/s 234-A, 234-B, 234-C, 234-D accordingly, which are mandatory in law."

4. The revenue, being aggrieved, is in appeal before us.

5. Ld. DR relied on the order of the AO and submitted that the CIT (A)

has wrongly reduced the addition on account of unexplained cash credits in

assessee's bank account and also erred in directing the AO to compute the

income of the assessee as commission income without substantiating

evidences against the findings of the AO that the amount under dispute

was unexplained income of the assessee. He also pointed out that even the

alternate prayer before the Ld CIT(A) was to consider the peak-credit, but

the Ld CIT(A) has gulped whatever the assessee said and treated the 8 ITA Nos.142/Del./2012

income as from commission for providing accommodation entry, which,

according to Ld DR, is erroneous. He pleaded that the order of the CIT

(A) may be set aside and that of the AO upheld.

6. On the other hand, ld. AR for the assessee relied on the order of the

CIT (A).

7. We have heard the rival submissions and perused the material on

record. We find that the Assessing Officer made the addition of

Rs.4,29,98,561/- u/s 68 of the Act, on the ground that the assessee was not

able to furnish the explanation regarding the nature and source of cash and

other deposits and held the amount as unexplained. We find that the ld.

CIT (A) has simply accepted the admission of the assessee that he was

providing accommodation entry for commission @ 0.25% to 0.50% or

more in cash and that being his profit or income should only be taxed and

not the entire amount deposited in his bank account. Ex-consequenti, ld.

CIT (A) estimated the income of the assessee @ Rs.1/- per Rs.100/- and

calculated the income as Rs.4,39,985/- along with other income of assessee

which is reflected in his return. The Revenue is aggrieved by the said

impugned order of the ld. CIT (A). In this case, we find that the AO issued

first notice dated 06.08.2009. Pursuant to it, ld. AR of the assessee, Shri

Pawan Kedia appeared on 24.12.2009 and thereafter, we find that several

notices/ questionnaire were issued to the assessee/AR, who did not bother

to respond. Only after show cause notice u/s 271(1)(b) was issued on 9 ITA Nos.142/Del./2012

01.07.2010, the assessee came up with partial details. We find that

assessee's statement was recorded on 29.10.2010 & 22.11.2010, and

thereafter,when the assessee was asked to come on 26.11.2010 for further

examination, he did not turn up. Thereafter, we find that the AO completed

the assessment on 16.12.2010, u/s 144 of the Act by stating the non-

cooperation conduct of assessee. Later, we find that the assessee contended

before the ld. CIT (A) that he had sent a letter dated 16.12.2010, wherein

he has explained and admitted his business of providing accommodation

entries, which could not have been acted upon by the AO because he

passed the order on 16.12.2010, so the assessee wanted the said letter to be

admitted as evidence as per Rule 46A of the Income-tax Rules, 1962. In

the aforesaid back-ground, we find that the following facts emerge from

the proceedings before the AO :

(a) The assessee had a proprietary concern and was the Director of two companies. The assessee does not know who the other Directors in the said companies are, namely, M/s. Prolon Marketing Pvt. Ltd. and M/s. Ja Gang Plastics (India) Pvt. Ltd.;

(b) He does not know who deposited the amounts in his account in Punjab & National Bank; and

(c) He does not divulge anything about providing accommodation entries etc before the AO till the assessment order is passed.

So, we find that the AO felt helpless because assessee did not disclose

anything before him, so he resorted to section 144 assessment, without 10 ITA Nos.142/Del./2012

resorting to any investigation as to where the money deposited in assesse's

bank account is being transferred and where the money trail ends.

Whereas, we find that CIT(A) after going through the written submissions

of the assessee, without seeking a remand report from AO, comes to the

conclusion that modus-operandi of the assessee was that first, cash was

deposited in the proprietary concern account of assessee in Punjab

National Bank ; and in the second stage, it was transferred by the assessee

through banking channel to two companies wherein he is the Director ; and

in the third stage, the other two Directors, namely, Shri Mukesh Gauam

and Shri Chandra Prakash Bhardwaj used to issue cheques to the entry

seekers, thus the cash deposited in bank is back in the hands of the

depositors. However, we find this modus operandi does not come out of

the written submission or emerge from the records before us. We are

unable to understand how the CIT (A) accepted the modus simply

accepting the version of the assessee without at least calling for the bank

statement of the two companies wherein he is the Director to verify

whether the contention of the assessee saying that he is only an

accommodation entry provider is correct or not; or by calling for remand

report and find out to whom accommodation entries were given etc. In the

said scenario, we set aside the order of the CIT (A) and remand the matter

back to the file of the AO for de novo assessment. Needless to say,

adequate opportunity may be granted to the assessee to put forth his case 11 ITA Nos.142/Del./2012

before the AO. The AO shall not be influenced by any of the observations

which we have made above and has to pass the assessment order in

accordance to law, untrammeled by any observations by us.

8. In the result, the appeal of the revenue is allowed for statistical

purposes.

Order pronounced in open court on this 22nd day of July, 2015.

SD/- SD/- (J.S. REDDY) (A.T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated the 22ND day of July, 2015/TS

Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-XXX, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.