Income Tax Appellate Tribunal – Rajkot
Shri Rajeshbhai Hirabhai Patel,, … vs The Income Tax Officer, … on 15 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
Before: Shri Rajpal Yadav, Judicial Member
and Shri Amarjit Singh, Accountant Member
[Conducted through E-Court at Ahmedabad]
ITA Nos. 359 & 455/Rjt/2014
Assessment Year 2009-10
Shri Rajeshbhai Hirabhai The ITO,
Patel, W ard-1(3),
22-Udaynagar, Vs Ra jkot
Patel Boarding Road, (Respondent)
Mavdi Road, Ra jkot PAN: ALUPP2276N (Appellant) Reve nue by: Shri Pra veen Verma, Sr. D.R.
Assessee by: Shri M.J. Ra npura, A.R.
Date of hearing : 16-01-2018
Date of pronounce ment : 15-02-2018
आदेश /ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
These two appeals filed by assessee for A.Y. 2009-10, arise from order of the CIT(A)-I, Rajkot dated 31-03-2014 & 10-06-2014, in proceedings under section 143(3) and 271B of the Income Tax Act, 1961; in short “the Act”.
2. The assessee has raised the following grounds of appeal:-
ITA No. 359/Rjt/2014 “1. The grounds of appeal mentioned hereunder are without prejudice to one another
2. The ld. CIT(A) erred on facts as also in law in enhancing the addition of Rs. 36,04,879/- by alleging that the entire cash deposited in RCC Bank account I.T.A Nos. 359 & 455/Rjt/2014 A.Y. 2009-10 Page No 2 Shri Rajeshbhai Hirabhai Patel vs. ITO are of the income from undisclosed sources. The enhancement is totally unjustified on facts as also in law and may kindly be deleted.”
3. In this case, return of income declaring income of Rs. 1,47,590/- and agricultural income of Rs. 1,87,400/- was filed on 25th Nov, 2009. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 31st August, 2010. During the course of assessment proceedings, the assessing officer observed that assessee had maintained bank a/c. no. 07280150021 with ICICI bank Ltd which was not reflected in the books of account. In the aforesaid undisclosed bank a/c. there was a cash deposit of Rs. 40,04,610/- on various dates. The assessing officer has further noticed that assessee was also maintaining saving bank a/c. no. 0614 with Rajkot Commercial Co-operative Bank which was reflected in the books of accounts and an aggregate cash of Rs. 38,57,000/- was also deposited in this account. Thereafter, during the course of assessment proceedings, the asssessee has filed an revised financial statement on 10th August, 2011 showing income from other sources of Rs. 36,04,880/- along with loss from share trading of Rs. 36,34,642/-. During the course of assessment proceedings, the assessee has also submitted along with his statement dated 24th August, 2011 that he has been engaged in the business of trading on electrical motor and floor- mill kit and offered net profit @ 5.5% on total turnover of Rs. 42,66,010/- which comes to Rs. 2,34,631/-. On questioning about source of cash deposit the assessee has opposed to the addition of entire cash deposit of Rs. 40,04,610/- in the ICICI bank a/c on the other hand offered net profit @ 67.22% as total receipt from his regular business which comes to Rs. 28,67,612/-. He stated that he has disclosed profit of Rs. 36,04,879/- as revised income which in fact represent his job work income not disclosed in the books of accounts. Consequently, the assessing officer has added net profit of Rs. 36,04,879/- to the total income of the assessee. Apart from the above, the assessing officer has also made addition of Rs. 2,52,121/- as income from unexplained sources being the differential of cash deposit of Rs. 38,57,000/- in the RCC Bank a/c no. 06114 and I.T.A Nos. 359 & 455/Rjt/2014 A.Y. 2009-10 Page No 3 Shri Rajeshbhai Hirabhai Patel vs. ITO profit earned from job work income of Rs. 36,04,879/- In respect of share transactions the assessee had not furnished the demat a/c statement however, he has produced the bills for verifications along with copy of his trading a/c. The assessee has turn-over of Rs. 6,98,58,295/- in share trading business during the year under consideration. The assessing officer had not allowed the loss in share trading of Rs. 36,34,642/- by stating that in order to claim any business loss assessee has to file return of income as per the provisions of section 139(1) of the act showing the amount of loss.
4. Aggrieved against the decision of the assessing officer, the assessee has filed appeal before he ld. CIT(A). The ld. CIT(A) has allowed set off of loss of Rs. 36,34,642/- against income of the assessee computed at Rs. 76,58,669/- by the ld. CIT(A). The relevant part of the decision of the ld. CIT(A) is reproduced as under:-
”DECISION:
8.0 After considering the, submissions made by the appellant and perusing the material on record including the impugned assessment order u/s. 143(3), the Grounds-of appeal are decided as under.
8.1 Grounds of appeal No. 1 & 5 are general in nature and do not require to be adjudicated separately.
Ground No. 2 : The learned A. O. erred on facts as also in law. The appellant claim’s was for set-off of loss from share trading business against income from other job work i.e. business which he has added. Both the businesses were not included in regular books of accounts but admittedly existence of the same is accepted. There is no objection in law to allow set-off of one against income from other.
Ground No. 3 : The A.O. may kindly be directed to allow set-off of loss from share business against other business income.
8.2 Both these grounds are being adjudicated together for the sake of convenience. In this case, the return of income was filed showing income of Rs.1,47,590/- and agriculture income of Rs. 1,87,400/. During the course of assessment proceedings, the A.O. observed that the appellant was having an account with ICICI Bank which was not reflected in his hooks of accounts. There were cash deposits of Rs.38,57,000/- in the hank account. When asked to explain the source of the cash deposits, the appellant filed a revised financial statement showing income from other sources of Rs.36.04.880/- and loss of share trading of Rs.36,34,642/-. Vide his letter dt. 05/ 12/2011, the appellant contended that the profit can be computed at Rs.28,67,612/- a 67.22% of the cash deposits Rs.42,62,010/-. However, the appellant himself had offered Rs.36,04,879/- as income from business of miscellaneous job work. The A.O. accepted the contention of the appellant and treated Rs.36,04,879/- as the income of the appellant. The A.O.
further observed appellant had cash deposits of Rs.38,57,000/- in savings A/c. No.061 14 with Rajkot Commercial Coop. Bank (RCC Bank). It was contended by the appellant that the profit earned from job work income was deposited in this account. The A.O. accepted I.T.A Nos. 359 & 455/Rjt/2014 A.Y. 2009-10 Page No 4 Shri Rajeshbhai Hirabhai Patel vs. ITO the contention of the appellant. However, the differential amount of Rs.2,52,121/- (Rs.38,57,000) minus Rs.36,04,879) was added to the total income. The appellant had made a claim of loss of Rs.36,34,642/- from share trading activities and had asked for a set off of the same from the income of the appellant. The A.O. denied the set off holding that the appellant had not filed the return within time required to claim business loss. 8.3 During the course of appellate proceedings, the appellant contended that it was doing share trading in the nature of F&O. delivery basis and intra day trading. The appellant filed full details of the loss claimed by it of Rs.36,34,642/-. It was contended by the appellant that s.80 of the I. T. Act requires filing of return u/s. 139(3) for carry forward and set off of loss. The appellant is claiming set off of loss from the same year and hence the provisions of s.80 arc not applicable. The loss was detected by the department during assessment proceedings and hence it should be allowed. The details submitted by the appellant were sent to the A.O. for his comments by way of remand report, (he A.O. contended that this is speculative loss and thus the claim for set off of loss is not acceptable.
8.4 The details of the transactions entered into by the appellant were also independently called from Marwadi Shares & Finance. Rajkot. verified and found to be correct. 8.5 I have carefully considered the contention of the appellant, the assessment order, the remand report and the comments of the appellant. The main contention of the appellant is that it had incurred a loss of Rs.36,34,642/-from share trading and F&O transactions and hence the loss should be allowed to be set off against the income of the appellant. However, on careful perusal of the assessment order, the submissions and the case record, another issue has also cropped up. The issue is about incorrect computation of income by the A.O. This issue requires to be dealt with first. 8.6 Computation of income of the appellant:- The A.O. had computed the income of the appellant at Rs.40,53,788/- which included Rs.1,47,590/- as per return of income. Rs.36,04,879/- as income from undisclosed bank account and Rs.2,52,121/- as income from RCC Bank account. The main finding of the A.O. was that there were cash deposits of Rs.42,66,010/- in the ICICI Bank Account. The appellant had contended this to be income from job work and had offered an income of Rs.36,04,879/- from the same at the rate of 67.22%. The appellant had another bank account with RCC Bank in which there were cash’ deposits of Rs.38,57,000/-. The appellant contended that cash deposits were out of the profits of the income from job work. The A.O. accepted this contention. 8.7 On careful scrutiny. I find that the contention of the appellant and the acceptance of the same by the A.O. to be incorrect. This is because the appellant has already offered income from the cash deposits in the ICICI Bank being by way of income out of job work. In other words, the deposits in the ICICI Bank account were set off against the withdrawals from the same and the net profit offered for taxation. The question of the profit from the job work income being deposited in the RCC Bank account is like claiming a double deduction. The profit has already been computed by the appellant himself from the deposits and withdrawals in the ICICI Bank account. Again claiming that the profit was deposited by cash in the RCC Bank account has no base. Hence, the entire amount of cash deposits of Rs.38,57,000/- in RCC Bank account should be treated as undisclosed income of the appellant.
8.8 As this finding was resulting in enhancement of income of the appellant, a notice u/s.251 was issued to the appellant, vide No.CIT(A)-I/Rjt/251/RHP/2014-15, dt.26/3/2014 asking him to show cause as to why the entire cash deposits in RCC Bank account should not be treated as income from undisclosed sources. The appellant did not attend the hearing on 28/3/2014 nor did he submit any objections to the same. The said notice u/s.251 is reproduced hereunder:-
“To,
Shri Rajesh Patel,
22- Udhyognagar,
Mavadi Road,
I.T.A Nos. 359 & 455/Rjt/2014 A.Y. 2009-10 Page No 5
Shri Rajeshbhai Hirabhai Patel vs. ITO
Rajkot.
Sub : Notice u/s.251 for enhancement of income for A.Y. 2009-10 Please refer to your submissions filed during appellate proceedings.
I have carefully considered the submission and have also gone through the assessment order. There are two bank accounts in your case. The first one was with ICICI Bunk in which there was cash deposit of Rs. 40,04,610/-. This account was not disclosed to the department. The other account with Rajkot Commercial Coop. Bank which was shown deposits of Rs 38,57, 000/-. It has been contended by you that the deposits in ICICI bank were out of your business of miscellaneous job work and 67.22% of the same has been offered as profit. As regards the deposits in RCC Bank, it is contended that the deposits are out of profit earned earlier.
3. There is a major fallacy noticed by me. There are cash deposits in both accounts. The cash deposits in ICICI Bank are out of your miscellaneous job work. There are equivalent withdrawals also other words, the entire business transaction relating to the miscellaneous job work have been carried out through the ICICI Bank account which was not disclosed. There is no nexus between the profits earned through this business and the cash deposits in RCC Bank. This is because the profits from the job work were ploughed back and put in the ICICI Bank account only. Therefore, there appears to be no relation between the cash deposits in RCC Bank and profit from the job work. In light of these observations, you are requested to show cause as to why the entire cash deposits in RCC Bank account should not be treated as income from undisclosed sources. The hearing in your case is fixed on 28/3/2014 at 1:00 pm. In case no reply is submitted on the stipulated date, the appeal will be decided on merits. “
It is therefore held that the appellant had nothing to contend in this matter.
8.9 In light of the above findings, the entire cash deposits of Rs.38,57,000/- in the RCC Bank account are held as income of the appellant from undisclosed sources. The A.O. has already computed Rs.2,51,121/- as part of its income. Therefore, the undisclosed income from RCC Bank account is computed at Rs.36,04,879/-. The total assessed income of the appellant is Rs.40,53,788/-. This stands enhanced by Rs.36,04,879/-. The total income of the appellant is hereby computed at Rs.76,58,669/-.
8.10 The second issue now required to he considered is whether the loss from share and F & O trading can he set off against the income of the appellant computed as above. The appellant has incurred a loss of Rs.20,79,878/- from BSE trading transactions, loss of Rs. 15,87,159/- from Futures & Options. The appellant had claimed a net loss of Rs.36,14,642 to he set off against the income computed. The first point is the profit from share trading and F&O transactions is not a speculative transaction as held u/s. 43(D))(5). Therefore, this is held as loss from business of trading in shares. This loss can be set off against the other income of the appellant as it is no! in the nature of speculative loss. The second question required to be considered is whether the appellant is eligible for the set off when it has not made a claim in the return of income or the return of income was not filed u/s. 139(3). It is seen that the return u/s. 139(3) is required to be filed in order to claim earn forward and set off. If this return is not filed in time, the e/f and set off of loss cannot be allowed as per s.80 of the I. T. Act. However, there is no provision to disallow set off of loss in the same year if the return is not filed. In this case, the undisclosed income of the appellant as well as the undisclosed loss from share transactions has been detected during the course of assessment proceedings, thus, in my opinion, the appellant is entitled for set off of loss from the share transactions against the income computed. The A.O. is directed to allow set off of loss of Rs.36,34,642/-
I.T.A Nos. 359 & 455/Rjt/2014 A.Y. 2009-10 Page No 6 Shri Rajeshbhai Hirabhai Patel vs. ITOagainst the income of the appellant which is computed at Rs.76,58,669/-. These grounds of appeal are partly allowed.
9.0 Ground No.4 is regarding charging of interest and initiation of penalty proceedings. Since the charging of interest is consequential in nature, therefore, no interference is called for Regarding initiation of penalty proceedings, in view of the fact that the proceedings have not crystallized so far, no interference on this point is called for.”
5. During the course of appellate proceedings before us, the ld. counsel has submitted paper book containing written submission made before the ld. ld. CIT(A) and the copy of a/c. maintained with ICICI Bank Ltd. and Rajkot Commercial Co-operative Bank Ltd. He has also given the details of judicial pronouncements relied upon by him. He contended that ld. CIT(A) has erred in enhancing the addition of Rs. 36,04,879/- pertaining to the cash amount deposited in the RCC Bank a/c. On the other hand, the ld. departmental representative has supported the order of ld. CIT(A).
6. We have heard both the sides and perused the material on record carefully. During the course of assessment proceedings, the assessing officer noticed that cash was deposited in two bank accounts of the assessee as elaborated above in this order. During the course of assessment proceedings the assessing officer had detected aforesaid undisclosed bank account with the ICICI bank in which cash was deposited by the assessee. Consequently, the assessee has come forward and filed revised return of income by showing profit from job work of Rs. 36,04,879/-. He has also claimed share loss of Rs. 36,34,642/- and its set off against the income . After considering the above facts we observe that assessee had offered income of Rs. 36,04,879/- @ 67.22% as job work out of the undisclosed cash deposit of Rs. 42,66,010/- maintained with the ICICI bank a/c. During the course of appellate proceedings before he ld. CIT(A), the assessee explained that cash deposit of Rs. 38,57,000/- found in the Rajkot Commercial Co-operative Bank was out of the profit earned from job work. In this connection, the ld. CIT(A) noticed that assessing officer has incorrectly accepted the contention of the assesse because the assessee has already I.T.A Nos. 359 & 455/Rjt/2014 A.Y. 2009-10 Page No 7 Shri Rajeshbhai Hirabhai Patel vs. ITO offered income from cash deposit in the ICICI bank by way of income out of job work. Therefore, the ld. CIT(A) has concluded that the assessee could not explain how the income from job work was also deposited in RCC bank a/c because assessee has already computed such income from deposit and withdrawal of cash made in the ICICI bank a/c. After taking into consideration the above facts and circumstances, the ld. CIT(A) observed that there was no nexus between profit earned through the job work and the cash deposit in RCC bank. Therefore, the ld. CIT(A) has computed the undisclosed income from the RCC bank at Rs. 36,04,879/- and total income of the assessee was computed at Rs. 76,58,669/-. He has also allowed to set off the loss from share transactions to the amount of Rs. 3624642/-. As per provisions of section 70 of the act loss from one source against income from another source under the same can be set off. Further as per provisions of section 80 of the act such loss is allowed to set off even if the return is not filed in time. Therefore, we consider that ld. CIT(A) has correctly allowed set off of loss from share transaction of income in the case of the assessee. In view of the above mentioned facts and circumstances, we observed that the assessee failed to controvert with any relevant evidences that the findings of ld. CIT(A) is not correct. After considering the above facts and circumstances, we do not find any reason to interfere in the decision of the ld. CIT(A) , therefore, the appeal of the assessee is dismissed.
ITA No. 455/Rjt/2014 “1.0 The grounds of appeal mentioned hereunder are without prejudice to one another.
2.0 The learned Commissioner of Income-tax (Appeals)-l, Rajkot erred on facts as also in law in confirming the levy of penalty u/s 271B of the Act of Rs.1,00,000/-.The penalty u/s 271B of the Act may kindly be deleted.
3.0 The Id. CIT(A) ought to have deleted the penalty of Rs. 1,00,000/- levied u/s. 271B of the Act.”
7. The sole ground of appeal of the assessee is regarding levy of penalty u/s. 271B of Rs. 1,00,000/-. In this case, the assessment u/s. 143(3) of the act was finalized on 29th December, 2011 by determining the total income at Rs. 40,53,790/- and agricultural income of Rs. 1,87,400/- as against returned income I.T.A Nos. 359 & 455/Rjt/2014 A.Y. 2009-10 Page No 8 Shri Rajeshbhai Hirabhai Patel vs. ITO at Rs. 1,47,590/- and agricultural income of Rs. 1,87,400/-. The assessing officer initiated penalty proceedings u/s. 271B of the act on the ground that assessee had not got his account audited u/s. 44AB of the act as the turn-over of the assessee was exceeding Rs. 40 lacs during the previous yea. During the course of penalty proceedings, the assessee has explained that as no books of accounts were maintained therefore it was totally impossible to ask the auditor to audit the books and furnished audit report. The assessing officer has not accepted the explanation of the assessee on the ground that in his revised financial statement during the course of assessment proceedings, the asssessee has disclosed profit of Rs. 36,04,879/- and turnover of Rs. 6,98,58,295/- in share trading business. Consequently, the assessing officer has levied penalty of Rs. 1,00,000/- as per the provision of section 271B of the act for committing default u/s. 44AB of the act.
8. Aggrieved assessee filed appeal before the ld. CIT(A) who has sustained the penalty levied by the assessing officer by observing as under:-
”5.0 I have carefully considered the contention of the appellant, the assessment order and the penalty order. There is no dispute about the total turnover of the appellant which has been quantified by the A.O. correctly at Rs.7,43.14.480/-. The turnover includes job work income, undisclosed job work receipts and share trading transactions. As per the section 44AB, every person, carrying on business, whose total sales / turnover/gross receipts exceed Rs. 40 lakhs SHALL get its accounts of the previous year audited and the report filed by the prescribed date. I find no merit in the appellant’s contention that he had not maintained any books of accounts and therefore no audit was possible. The appellant was very well aware that his total turnover exceeded Rs.40 lakhs. The same was easily quantified by the A.O. from the details made available by the appellant during the course of assessment proceedings. I have no doubt that if these details were made available to a chartered accountant, he could have easily prepared the required audit report. The appellant has done nothing to ulfill this requirement. It is also seen that the job receipts and share transactions were not disclosed and were detected by the A.O. during the course of assessment proceedings. I do not find any merit in the appellant’s contention. The reliance placed by the A.O. on the decision of the Hon’ble ITAT “C” Bench Delhi is misplaced as that decision is in respect of income declared u/s.44AE and thus not applicable to the appellant’s case. The A.O. has, in my opinion, correctly levied the penalty u/s.271B for not getting the accounts audited in spite of the turnover being in excess of Rs. 40 lakhs. This penalty is hereby confirmed”
9. During the course of appellate proceedings before us, the ld. counsel has contended that assessee was not maintaining any accounts and books of I.T.A Nos. 359 & 455/Rjt/2014 A.Y. 2009-10 Page No 9 Shri Rajeshbhai Hirabhai Patel vs. ITO accounts. He further contended that It is very much evident from the assessment order that assessee has disclosed the revised income during the course of assessment proceedings, therefore, the decision of the ld. CIT(A) to sustain penalty levied u/s. 271B is not justified. On other hand, ld. departmental representative has relied on the order of the ld. CIT(A).
10. We have heard both the sides and perused the material on record carefully. It is undisputed facts that that in the original return of income the assessee has declared total income of Rs. 1,47,590/- and agricultural income of Rs. 1,87,400/-. During the course of assessment proceedings, the assessing officer had detected that there was cash deposit in the undisclosed bank a/c of the assessee as elaborated supra in this order., Thereafter, the assessee has filed revised return of income on 10th August, 2011 disclosing net profit after taking into account the undisclosed cash deposit found in the ICICI bank a/c. The income disclosed in the revised financial statement during the course of scrutiny assessment was not disclosed in the regular books of accounts. It is also undisputed fact that assessee has not maintained account in its books of accounts pertaining to share transactions carried out during the year under consideration. He has also not disclosed jot work income in the books of accounts. After considering the above facts and circumstances, we observe that separate penalty has been provided as per the provisions of section 271A for failure to keep, maintain or retain books of account, documents, etc. as required by section 44AA of the act. In view of the above, the assessee has violated the provision of section 44AA by not maintaining books of accounts and the assessing officer has not initiated any penalty as prescribed u/s. 271A of the act. We observe that section 271B is not attracted in a case where no account has been maintained and instead an recourse u/s. 271A can be taken. Therefore, we consider that in the case of the assessee the imposition of penalty u/s. 271B is not justified. Accordingly, the appeal of the assessee is allowed I.T.A Nos. 359 & 455/Rjt/2014 A.Y. 2009-10 Page No 10 Shri Rajeshbhai Hirabhai Patel vs. ITO
11. In the combined result, appeal ITA 359/Ahd/2014 is dismissed and appeal ITA 455/Ahd/2014 is allowed.
Order pronounced in the open court on 15-02-2018
Sd/- Sd/-
(RAJPAL YADAV) (AMARJIT SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad : Dated 15/02/2018
आदेश क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order,
Assistant Registrar,
Income Tax Appellate Tribunal,
Rajkot