Suraj G. Kanal, Mumbai vs Department Of Income Tax

ACIT Circle-25(2), C-11, Pratyakshakar Bhavan, R. No. 108, Bandra Kurla Complex Bandra (E), Mumbai 400 051 .............(Appellant) Vs. Shri Suraj Gopaldas Kanal, 201, Shobana Apartment, Chandavarkar Lane, Borivali (W) Mumbai 400 092 PAN:AAGPK 8201 K ...............(Respondent)

Appellant by : Shri Neil Philip Respondent by : Shri Anil Thakrar

Date of hearing : 04.06.2015 Date of Pronouncement : 10.06.2015

ORDER

PER SUSHMA CHOWLA, JM:

The appeal filed by the Revenue is against the order of the CIT(A)-35, Mumbai dated 18.12.2012 relating to Assessment Year 2008-09 against order passed under section 143(3) of the I.T. Act.

2 ITA No. 1891/Mum/2013 Assessment Year: 2008-09

2. The Revenue has raised following grounds of appeal:-

" i) On the fact and in the circumstances of the case and in law, the CIT(A) erred in deleting the addition Rs.4,57,009/- on account of cash deposit in bank without appreciating the fact that the assessee was able to substantiate the claim fully that the cash deposit was on account of share transaction.

ii) On the fact and in the circumstances of the case and in law, the CIT(A) erred in restricting the addition to Rs.38,000/- out of Rs.10,56,000/- made on account of cash deposit in the Bank A/c. without appreciating the fact that assessee failed to prove any nexus and sequence of cash deposit and withdrawal in the bank account."

3. The issue in ground of appeal no. 1 raised by the Revenue is against the deletion of addition of Rs.4,57,009/- made on account of cash deposit in the bank. The Revenue is also in appeal vide ground of appeal no. 2 against the order of the CIT(A) in restricting the addition to Rs.38,000/- out of Rs.10,56,000/- made by AO on account of cash deposit in the bank account. The plea of the Revenue was that where the assessee had failed to substantiate its claim fully, there was no merit in the aforesaid deletion.

4. Briefly in the facts of the present case the assessee was a Professor by profession and was running coaching classes. The case of the assessee was selected for scrutiny. The AO noted that as per the AIR Information, cash had been deposited in saving account with Axis Bank Ltd., Borivali Branch. The assessee was asked to submit the details of the bank account maintained by him. In reply the details were filed, however, in the aforesaid details the assessee had not reflected saving bank account maintained with Axis Bank Ltd. The assessee in the first instance submitted that he was not maintaining any saving account with Axis Bank jointly at Borivali (West) Branch. It was also submitted by the assessee that amount of Rs.10,47,000/- does not pertain to him. The AO thereafter issued notice u/s 133(6) of the Act to the bank and received the copy of the statement along with the copy of account opening form. On the perusal of the details it was noted by the AO that the said bank account was in the name of 3 ITA No. 1891/Mum/2013 Assessment Year: 2008-09

the assessee and his wife Anita S. Kanal. The total deposits in the said bank account were Rs.25,55,723/- including cash and cheque. Another show cause notice was issued to the assessee as to why the entire deposits should not be treated as unexplained cash credit u/s 68 of the Act. In response to the said show cause notice the assesssee did not furnish any details/explanation before the AO. Therefore, the AO added the total deposit in the bank account amounting to Rs.25,55,723/- to the total income of the assessee as unexplained cash credit u/s 68 of the Act.

5. In appeal before the CIT(A) the assessee furnished written submissions which in turn were forwarded to the AO to furnish remand report. The explanation of the assessee before the CIT(A) was that no time was given by the AO to collect information and before the same could be gathered and submitted, the AO had passed the order u/s 143(3) of the Act on 06.12.2010.

6. With regard to the cash deposits in the joint bank account, the assessee furnished certain explanation. The CIT(A) accepted the details filed by the assessee and forwarded the same to the AO who in turn furnished the remand report, which is reproduced under para 5 at pages 4 to 8 of the appellate order. In reply the assessee furnished explanation which is reproduced under para 6 at pages 9 to 13 of the appellate order. The CIT(A) thereafter upheld the addition on account of admission fee received to Rs.2,75,190/-, security deposit against Renting of Property of Rs.5,04,800/- . Against which the Ld. A.R. for the assessee has not pointed out that any appeal has been filed. The next addition made in the hands of the assessee was on account of cash deposit of Rs.10,56,000/-. The assessee explained that sum of Rs.6,50,000/- was deposited out of the cash withdrawals made from the said bank account itself however, the said plea of the assessee was not accepted by the AO because of time gap between the date of withdrawals of cash and date of deposit of cash. The CIT(A) rejecting the contention of the AO observed that where the AO had not 4 ITA No. 1891/Mum/2013 Assessment Year: 2008-09

been able to disprove the basic contention of the assessee amount the addition of Rs.6,50,000/- is deleted. With regard to the addition of deposit of Rs.4,06,000/-, the CIT(A) noted that the assessee has been able to explain the source of Rs.3,68,000/- which in turn was cash withdrawn from account on earlier date. The CIT(A) thus restricted the addition to Rs.38,000/- and deleted the addition of Rs.3,68,000/-. Another addition made on account of the amount received from sale of shares of Rs.4,57,009/- was deleted by the CIT(A) since the money belonged to the wife of the assessee, who was joint account holder with the assessee. Certain other additions were deleted by the CIT(A) of Rs.1,79,000/- and Rs.75,000/- against which the Revenue is not in appeal. The Revenue is only in appeal against the deletion of addition of Rs.4,57,009/- and Rs.10,56,000/-.

7. Shri Neil Philip appeared on behalf of the Revenue and Shri Anil Thakrar appeared on behalf of the Assessee and put forward their contentions.

8. We have heard rival contention and perused the record. The additions were made in the hands of the assessee while passing the assessment order under section 143(3) of the Act, since the assessee failed to furnish the explanation before the AO vis-à-vis the deposit in the saving account with Axis Bank Ltd.. The AO had received AIR Information under which it was pointed out that there was cash deposit in the saving account with Axis Bank Ltd. The assessee in the first round of submissions stated that he was not holding any bank account with Axis Bank Ltd. jointly or otherwise. However, the AO sought information from the bank under section 133(6) of the Act under which it was reported that the assessee along with his wife was operating the said bank account. The AO issued show cause notice to the assessee, which was not complied with and consequently the total deposits in the said bank account i.e. cheque entries and cash deposits were treated as unexplained cash credit under 5 ITA No. 1891/Mum/2013 Assessment Year: 2008-09

section 68 of the Act and additions to the extent of Rs.25,55,723/- was made in the hands of the assessee.

9. Before the CIT(A) the assessee furnished details and it was pointed out that certain credits in the said bank account in cash was on account of cash withdrawals made on the earlier dates, which were redeposited in the bank account. The assessee further furnished information in respect of the other credits in the bank account. The CIT(A) forwarded said information to the AO who submitted the remand report. The AO though objected to the admission of the said explanation but also furnished the remand report in respect of the various deposits. The two additions made in the hands of the assessee, which have been deleted and challenged by the Revenue in the present appeal are totaling Rs.4,57,009/- and Rs.10,56,000/-. The remand report is reproduced by the CIT(A) in the appellate order and in respect of the amount of Rs.4,57,009/-, the AO in the remand proceedings reported as under:-

"Amount belongs to Anita Kanal of the Amount of Rs.4,57,009/-: The assessee has stated that the said amount belongs to his wife, Ms Anita Kanal which were certain receipts from share broker towards sale of shares owned by her that were deposited in the said joint a/c. But As per the records, during the assessment proceedings copy of ITR of Anita Kanal was submitted along with bank statement of SB a/c maintained with the Zoroastrain Co-op Bank, Borivali Branch declaring total income of Rs.5,28,866/-, and no details as regard to this contention was submitted during assessment proceedings In-spite of showcause issued to the assessee. Further if the said amount was received as proceeds from sale of sharers. the same ought to have been shown as income in the relevant assessment year. The statement of total income of Ms Anita Kanal does not reflect this deposit as income under any head".

10. Further in respect of the cash deposit of Rs.10,56,000/- the explanation of the assessee was that the amounts were withdrawn on earlier dates and were deposited in the bank account on latter dates. The AO in the remand report observed as under:-

"iii) Cash deposit of Rs. 10,56,000/- The assessee has stated that in the said account some amount of cash withdrawn from bank was re-

deposited (Rs.4,06,000/-). This contention of the assessee is not at all 6 ITA No. 1891/Mum/2013 Assessment Year: 2008-09

tenable , as from the bank a/c details it is clearly evident that there was unaccounted deposit of cash and subsequent withdrawal in cash. There is cash withdrawal of Rs.3,68,000/- after good amount of time had lapsed after the last cash deposit in the said account . Thus it clearly shows that there was not enough cash in hand to justify a circular transaction of the same money. Further, the assesee has stated that an amount of Rs.6,50,000/- was received from Mrs. Lata Soni as an advance payment against sale of property. The alleged amount is said to have been withdrawn by Mrs. Lata Soni from her bank account on 07/07/2007 and the same was deposited by the assessee in his bank a/c on 10/01/2008. There is no substance in this argument. There is no connection between the two events. Also, there is substantial gap between the two transactions to justify any connection. The assessee has submitted one letter dated 13/08/2012 from Mrs. Lata Soni, where she has mentioned that she had withdrawn cash of Rs.15,00,000/- and out of which she has paid Rs.6,50,000/- to the assessee and the said amount was repaid back in cash in two installments of Rs.6,00,000/- and Rs.50,000/- respectively. This argument is not acceptable. The assessee has failed to prove with any evidence to show that there was such an agreement for sale of house property between the alleged parties and any connection and sequence of cash transact ion. There is clearly absence of any proper evidence to justify the transaction apart From the designed statement made by the respective parties. The assessee has failed to prove the source of the cash deposit and any proof to Justify that same money was rotated."

11. The main allegation of the AO in rejecting the explanation of the assessee was the time gap between the withdrawals made in the bank account and in the deposit of the cash in the said bank account. The assessee in rejoinder submitted further explanation before the CIT(A) in respect of both the additions which read as under:-

i. Rs.4,57,009/- Amount belonging to Mrs. Anita Kanal: I have already submitted that I am holding the bank account of Axis bank jointly with my wife Mrs. Anita Kanal and accordingly there were certain receipts from share broker towards sale of shares owned by my wife and the sale proceeds were deposited in the said joint account and there were other deposits also. The break up said amount is as under:-

Particulars Amount (Rs.)

Received towards Sale proceeds of Shares belonging to 2,04,947.88 7 ITA No. 1891/Mum/2013 Assessment Year: 2008-09

Mrs. Anita Kanal from her Broker M/s. Navratan Capital & Securities Pvt. Ltd.

Received on maturity of Fixed Deposits taken from the said 50,000.00 bank account on 28.11.2007 Received on Maturity of Other Fixed Deposits 2,00,000.00 Interest received on the said Fixed Deposits 2,061.00 TOTAL 4,57,009.00

Also during the year various payments totaling to Rs.5,92,670/- were made on behalf of Anital Kanal for investments in IPO and to the Share Broker etc, Mrs. Anita Kanal had incurred a loss of Rs.98,552/- in the Share Transactions with M/.s Navratan Capital & Securities Pvt. Ltd. and the details of the same are annexed in "Anexure1". I have already submitted the ledger account of Mrs. Anita Kanal in the books of M/s. Navratan Capital & Securities Pvt. Ltd. and all the entries in the said ledger are verifiable with the details given I the Annexure1. The other deposits are maturity proceeds of FDRs and out of which FDR of Rs.50,000/- was taken from the said bank account on 28.11.2007. A statement confirming account as maturity of FDR is enclosed and marked as "Annexure 2." Since all these credits are not unexplained credits the addition made on this account should be deleted.

ii. Deposit of Rs. 10,56,000/- : As regards Cash deposit of Rs.l0,56,000/- it is submitted that during the year the I had withdrawn Cash of Rs.10,07,953/- from Axis Bank and there was a Cash deposit of Rs.10,56,000/- In the said account. Some amount of Cash withdrawn from bank was re-deposited and an amount of Rs. 6,50,000/- was received by me from Mrs. Lata Soni as an advance payment against sale of property belonging to me. The said amount was withdrawn by Mrs. Lata Soni from her bank account on 7.7.2007 and was given to me on 9.1.2008 as an Advance against sale of property. I had deposited the said cash in my account with Axis Bank on 10.1.2008. However the transaction between us did not materialized and Mrs. Lata Soni insisted for refund of the said amount in Cash . Accordingly I withdrew a sum of Rs. 6 Lacs from my bank account on 30.1.2008 and balance Rs. 50,000/-

Cash as paid on 23.2.2008. The said entries are reflected in the bank statement of AXIs Bank. The copy of Passbook of Mrs. Lata Soni and bank statement of my Axis Bank account are already submitted by me. During the course of remand proceedings Mrs. Lata Soni had personally appeared before the Assessing Officer and had also filed a Confirmation Letter that she had paid an advance to me and the same have been returned back to her. However the learned AO did no appreciate the facts of the case and concluded that I have failed to 8 ITA No. 1891/Mum/2013 Assessment Year: 2008-09

substantiate the source of cash only on the ground that there was a time lag been the withdrawals of Cash by Lata Soni and payment of same by her to me. It is submitted that the source of Cash has been explained by me and Mrs. Lata Son also personally appeared and filed her confirmation. The learned AO does not have any contrary material to the said facts and only on the basis of presumption no addition can be made. Hence it is submitted that this is also no an unexplained credit and he addition should be deleted.

As regards a balance sum of Rs.4,06,000/- it is submitted that the said deposit was partly out of cash in my hand and partly out of cash withdrawn from the bank. The summary of cash withdrawn from bank and deposited in bank has been given in "Annexure 3".

12. In view of the above said explanation of the assessee the addition of Rs.4,57,009/- has been deleted in the hands of the assessee and addition of Rs.10,56,000/- has been scaled down to addition of Rs.38,000/- only. The relevant finding of the CIT(A) are as under:-

"7.2 Amount received from sale of shares- Rs.4,57,009/- In this case, Mrs. Anita Kanal is holding joint account with the appellant. She is the wife of the appellant. Since the appellant has explained that the money belonged to the transactions do ne by his wife, the relevant amount cannot be considered in the hands of the appellant. Accordingly, this amount is deleted.

7.3 Cash deposit of Rs.10,56,000/-

An amount of Rs.6,50,000/- is stated to be taken from Mrs. Lata Soni through banking channel where date of transactions is also mentioned in the Remand Report The only reason given by the A.O. is that there was considerable time gap between withdrawals and deposits and for that reason only the appellant's pleas has been rejected by AO. In his regard It may be stated that it is the discretion of the appellant to decide as to when to deposit money in the bank account, and upto what time he will keep it in the form of cash and at what point of time he will deposit back into the bank account. This all depends upon the business needs of the appellant. The A.O. cannot sit in the chair of businessman and decide the timing. The A.O. has not been able to disprove the basic contention of the appellant Under the circumstances, after considering the rebuttal submission by the appellant on the Remand Report of the AO, the addition of Rs.6,50,000/- is deleted.

As regards Rs.4,06,000/-, the appellant has been able to explain the source of Rs.3,68,000/- whereas the A.O. has only harped on the ground that this amount was redeposited after a lapse of certain time but has not been able to contradict the basic contention of the appellant.

9 ITA No. 1891/Mum/2013 Assessment Year: 2008-09

Therefore, the addition of Rs.4,06,000/- is restricted to Rs.38,000/- (4,06,000-Rs.3,68,000) and the balance of Rs.3,68,000/- is deleted. As regards the amount belonging to Lata Soni, the AO is directed to send the information to the AO of Lata Soni to examine the source of the amount in her hand."

13. The Ld. D.R. for the Revenue has failed to controvert the finding of the CIT(A). In view of the above said facts and circumstances and the explanation furnished by the assessee, we find no merit in the grounds of appeal raised by the Revenue. Upholding the order of the CIT(A) we dismiss the grounds of appeal no. 1 and 2 raised by the Revenue.

14. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on this 10th day of June, 2015.

Sd/- Sd/- (R. C. SHARMA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 10.06.2015 *Srivastava Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "E" Bench

//True Copy//

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.