ITA No. 106/Pat/2010. IN INCOME TAX APPELLATE TRIBUNAL, PATNA BENCH, PATNA. BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. No. 106/PAT/2010. Assessment Year :2004-05. Mr. Mumtazul Hasan, Dy. Commissioner of Income-tax, Patna. Vs. Central Circle-2, Patna. Appellant. Respondent. Appellant by : Shri N.K. Lal. Respondent by : Shri S.K. Verma. Date of Hearing : 01-08-2016 Date of Pronouncement : 29th Sept., 2016 ORDER This appeal by assessee is directed against order of learned CIT(Appeals)-I, Patna dated 25-03-2010 and pertains to assessment year 2004- 05. grounds of appeal read as under : 1. For that order of ld. CIT(A) is bad as well as well as in law. 2. For that ld. CIT(A) has mechanically confirmed all additions made in course of assessment proceedings without appreciating and/or considering explanation and/or evidences filed in course of either appellate or assessment proceedings. 3. For that additions under sec. 68 have been confirmed without conditions for making such additions being satisfied more particularly in view of Patna High Court judgment reported in 150 ITR 150 and 150 ITR 571. 4. For that confirmation of addition of Rs.1,00,000.00 from profession is arbitrary and based on no materials when in past losses shown were accepted by Assessing Officer. It is well settled that assessment accepting losses in past years is good evidence for purpose of estimating income. [Refer 8 STC 770 and 175 Taxman page 56]. 2 ITA No. 106/Pat/2010. 5. For that additions have been confirmed on basis of conjectures and surmises. 2. In this case assessee derives income from salary, house property and business. In computation of income AO made following additions : i) Income from Profession : Rs.1,56,566/- ii) Income from undisclosed sources on account unexplained gift. : Rs.10,95,189/- iii) Addition u/s 68 unexplained credit of Rs.2,25,000/- claimed as rent advance. : Rs. 2,25,000/- iv) Unexplained deposit in bank : Rs. 5,75,000/- 3. As regards gifts, assessee s submissions were as under : That assessee has received sum of Rs.10,95,189/- as gifts from following persons : Name of donor Amount Relationship with assessee. 3.1 Tauzeen Afrin, USA 4,75,000 Niece 3.2 Safdar Imam, UAE 1,35,000 Nephew 3.3 Samina Almas, Qatar 1,50,000 Neice 3.4 Safdar Ima, UAE 45,000 Nephew 3.5 Safdar Imam, UAE 40,000 Nephew 3.6 Samina Almas 1,00,000 Neice. 4. After some further discussion, AO observed that he was not convinced with claim of gifts. Hence he treated sum of Rs.10,95,189/- as assessee s unexplained income. 5. Upon assessee s appeal in this regard learned CIT(Appeals) confirmed action of AO by concluding as under : As held in judicial pronouncements cited above, mere fact that transaction was conducted through banking channels is no proof 3 ITA No. 106/Pat/2010. of genuineness of gift. assessee is required to prove, apart from genuineness of transaction, also financial capacity of donor to make gifts as claimed, before transaction can be accepted as genuine case of gift, in terms of he provisions of section 68 of Act. In instant case, AO has pointed out several discrepancies in papers produced by appellant to substantiate claim; for instance, purpose indicated as family maintenance on two of cheques, discrepancy in names of remitters in one cheque, and so on. These have not been controverted by appellant during appellant proceedings. Most important of all, creditworthiness of donors, which is critical ingredient of onus under section 68 remained entirely unsubstantiated. Particularly in case of donors who are not assessable to tax in India, there is heavy onus on assessee to establish their financial capacity by production of credible evidence, since same is not verifiable from records of Department, unlike in case of Indian residents who file returns of income in India. However, no evidence at all to substantiate creditworthiness of three NRI persons was adduced before AO. onus mandated by section 68 of Act having remained undischarged, treatment of Rs.10,95,189 as appellant s unexplained income is held to be in accordance with provisions of section 68 and is, hereby, confirmed. 6. Against above order assessee is in appeal before ITAT. 7. I have heard both counsel and perused records. I find that assessee in this case has claimed that he has received gifts from his close relatives who reside abroad. gifts have also been received through banking channel from abroad. All donors have independently confirmed to AO of having made gifts. It is further noted that authorities below have drawn adverse inference on ground that assessee has not proved creditworthiness of donors. In this regard I find that donors are residing abroad and gifts have been received from abroad. What evidences AO required to prove creditworthiness of donors is not on record. authorities below are making presumption that assessee s own money has come from abroad in guise of gifs. In my considered opinion, this is mere surmise and needs to be cogently proved to hilt. There cannot be any presumption in this regard. Drawing adverse inference that these donors who 4 ITA No. 106/Pat/2010. were non resident Indians were not produced is not sustainable. necessary provisions in Income-tax Act for taxing sum received without consideration is contained u/s 56(v) of I.T. Act from Finance Act, 2004 with effect from 01-04-2005. assessment year in appeal is prior to introduction of aforesaid section and assessee s case also does not fall under ambit of aforesaid section. Hence in facts and circumstances of case in my considered opinion assessee has discharged his onus and claim of gift has been disallowed merely on surmises which is not sustainable. Hence I set aside orders of authorities below on this issue and decide issue in favour of assessee. 8. Apropos issue of unexplained credit of Rs.2,25,000/-. On this issue assessee explained as under : That assessee has received sum of Rs. 2,25,000/- from his tenant at Calcutta shop. rent received from shop is duly reflected in return of income of assessee. details of tenant are as under : Shri Prabhat Gadhyan 1054, Metro Plaza No. 1, Ho Chi Minh sarani, Kolkata 700071. This advance rent is refundable at time when tenant will vacate premises. However, AO was not convinced. He held as under : letter dated 4/12/2006 was also written to alleged tenant Shri Prabhat Gadhyan of Kolkata at address reported by assessee, asking him to furnish details as under, in matter of payment of rent advance: ....... In this connection, you are request to please furnish following details. 1. Cheque no. and date of cheque and name of bank. 5 ITA No. 106/Pat/2010. 2. Your bank account number. 3. source of amount of Rs.2,25,000/- in your hand. 4. details about Assessing Officer, in whose jurisdiction you are being assessed to income tax. 5. Copy of account of my assessee as reflected in your books in respect of financial year 2003-04. 6. Copy of agreement of rent entered in to with my assessee. Compliance date was fixed on 14/12/2006. But no compliance was received from him on 14/12/2006 or even till today. photocopy of reply letter dated nil purported to have been written by Shri Prabhat Gadhyan has however been received through A.R. of assessee, on 19/12/2006. But this can not be regarded as sufficient evidence as said letter did not contain any reply as per poins raised under (1) to (6) above. Therefore inspite of sufficient opportunity given, assessee ultimately failed to discharge his primary onus o prove genuineness of claim of advance receipt of rent amounting to Rs.2,25,000/-. Hence addition of Rs.2,25,000/- is made in assessment order in view of section 68. 9. Before learned CIT(Appeals) assessee produced confirmation letter from said party who has confirmed that he has given sum of Rs.2,25,000/- by cheque to assessee. learned CIT(Appeals) noted assessee s submission as under : I have perused confirmation letter from Sh, Prabhat Kumar Gadhyan, wherein he has certified to have given Rs.2,25,000 by cheque to appellant as security deposit (advance rent) against rental of shop No. 1039, Metro Plaza, Kolkata. appellant was asked to furnish copies of rental agreement signed with tenant, and income tax return of tenant. In response, AR furnished return of HUF named Prem Chand Gandhyan, and submitted that tenant, being one of coparceners of his father s HUF, had taken shop on rent by depositing security of Rs.2,25,000. It was also submitted that HUF was regular assessee and continued to be in occupation of shop and was paying rent regularly. 10. However, learned CIT(Appeals) was not convinced. He held as under: copy of return of HUF was perused. It was observed that return of HUF filed before me pertained to A.Y. 2001-02. nature of business in return, which was filed in Dhanbad, was shown 6 ITA No. 106/Pat/2010. as Hard Coke Manufacturer . No return of either HUF or Sh. Prabhat Kumar Gadhyan has been furnished for relevant period i.e. A.Y. 2004-05. It was also noted that in confirmation signed by Sh. Prabhat Kumar Gadhyan, there is no mention of shop having been rented by HUF. No rental agreement between appellant and tenant has been filed either. While it is true that appellant had disclosed rental income of Rs.6,00,000 during year, that by itself cannot prove receipt of advance, in absence of rental agreement or corroboration by way of income-tax records of tenant. Taking into account totality of circumstances, I am inclined to agree with AO that appellant failed to discharge primary onus of providing genuineness of claim. addition of Rs.2,25,000 is confirmed. 11. Against above order assessee is in appeal before ITAT. 12. I have heard both counsel and perused records. I find that in this case assessee has received security deposit (advance rent) from his tenant at Kolkata. This has been received by cheque. assessee has also submitted confirmation. assessee has also disclosed rental income of Rs.6 lakhs. Hence in my considered opinion assessee has discharged his onus. Mere absence of written rental agreement cannot be reason to ignore all evidences submitted. In these circumstances I have no hesitation in setting aside orders of authorities below and deciding issue in favour of assessee. 13. Apropos issue of unexplained deposit of Rs.5,75,000 in bank account: On this issue AO himself made disallowance holding as under : assessee is found to have made cash deposit of Rs.5,75,000/- on 28/7/2007 in bank account no. 01190/0138737 maintained with State Bank of India, Branch Vasant Kunj, New Delhi. As to sources of deposit, assessee vide his written reply dated 12/12/2016, stated that cash deposit of Rs.5,75,000/- in aforesaid bank account was made out of money withdrawn in cash on different dates from following bank accounts maintained by him in Patna : 7 ITA No. 106/Pat/2010. Date Bank A/c Name of Bank Amount. 08/05/2003 01198093 State Bank of India, 7,00,000/- Patliputra Society, Patna. 12/07/2003 13596 Bank of Baroda, S.K. Puri 50,000/- Branch, Patna. 11/07/2003 10214 Central Bank of India, 2,25,000/- Boring Road, Patna. 9,75,000/- assessee s explanation is not found to be convincing. There is big time lag between cash withdrawals from banks at Patna and cash deposit made by assessee in his bank account maintained at Delhi. No prudent business man can take risk of withdrawing cash money to e kept with him for such long time. assessee maintained so many bank accounts at Patna and also at Delhi. Therefore, he could have conveniently operate his bank accounts, whenever necessity of cash emerged to him thereby avoiding risk of keeping cash money with him for long period. Again, no one can take risk of carrying so much cash from Patna to Delhi just for depositing in bank account maintained at Delhi. assessee failed to given any explanation as to why he could not restored to banking channel for transferring amount which could have been rather more convenient and safe. Therefore, assessee s explanation regarding sources of cash deposit of Rs.5,75,000/- in State Bank of India, Account no. 01190/0138737 of Vasant Kunj, New Delhi Branch is not found to be plausible in view of surrounding circumstantial evidences emerged in this case. cash deposit of Rs.5,75,000/- in said bank account on 28/7/2007 is held to be unexplained deposit in bank account. 14. Upon assessee s appeal learned CIT(Appeals) affirmed addition holding as under : I have considered submissions of appellant. I have also gone through case law cited in support, but find that it concerns different issue altogether, and can in no way come to appellant s aid as regards cash deposits in bank. appellant has not been able to establish any direct nexus between credit in Delhi bank account and withdrawals from Patna bank accounts. It is also observed that appellant is attributing deposits made on 28.7.2003 to withdrawal of Rs.2,75,000 made on 11.7.2003/12.7.2003, and Rs.7,00,000 on 8.5.2003, thus claiming that he kept cash of Rs.3,00,000 from 8.5.2003 to 8 ITA No. 106/Pat/2010. 28.7.2003, and Rs.2,75,000 from 11/12.7.2003 to 28.7.2002, and then transported it to Delhi for depositing into bank account. This kind of behaviour is anti-thetical to prudent human conduct and militates against preponderance of probability, particularly when there are very convenient risk-free banking channels available for transferring cash through different bank accounts. In this background, there was very heavy onus on appellant to establish direct nexus between deposit in Delhi bank account and withdrawals from Patna bank accounts. appellant has, however, not attempted to provide any plausible explanation, but only relied on bland submission that deposits were made out of withdrawals as claimed. In absence of any evidence brought on record by appellant to establish direct linkage between said withdrawal and deposit, no interference with AO s order on this issue is warranted. addition of Rs.5,75,000 is confirmed. 15. Against above order assessee is in appeal before ITAT. 16. I have heard both counsel and perused records. I find that assessee s claim is that he has withdrawn substantial sums from his Patna Bank accounts occasionally and stored same. Thereafter occasionally he transported same to Delhi and deposited in his Delhi Bank account. This is beyond preponderance of probability. No prudent person will draw cash from Patna and thereafter carry it to Delhi to deposit in bank account. In these circumstances, in my considered opinion, learned CIT(Appeals) is correct in holding that assessee has failed to discharge his onus of establishing direct nexus between cash deposits in Delhi bank account and withdrawals from Patna bank accounts. In these circumstances I do not find any infirmity in well reasoned order of learned CIT(Appeals). Hence I affirm same. 17. Apropos issue of income from profession of Rs.56,566/-. On this issue AO made addition holding as under : Vide income expenditure account annexed to return, assessee has disclosed professional receipt of Rs.2,22,600/-. After claiming expenses relatable to business such as Salary to staff, Bank charge, Interest to bank, Depreciation and processing and legal charges, net result of loss of Rs.56,566.11 was returned under head 9 ITA No. 106/Pat/2010. income from profession . basis of disclosing gross professional receipt of Rs.2,22,600/- in no where available in return. assessee was therefore asked vide order sheet entry dated 3/11/2006, to produce books of account for professional income on 22/11/2006. On 22/11/2006, however, no books of account was produced. assessee, vide order sheet entry dated 22/11/2006, once again asked to produce books of accounts on 29/11/2006. On 29/11/2006 or even till today no compliance was made. Under circumstances, result of profession as disclosed by assessee in return remained unverifiable. Therefore loss in profession declared by assessee amounting to Rs.56,566.11 is disallowed and in place of it, income of Rs.1,00,000/- is estimated under head profession. 18. Upon assessee s appeal learned CIT(Appeals) held as under : appellant submitted on this point that during A.Y. 2002-03, income of Rs.17,412 had been disclosed from profession and in A.Y. 2003-04, loss of Rs.1,02,737 had been shown, which was accepted by Department. However, no books of accounts or any other evidence o substantiate results as far as professional income is concerned, were produced before me either. Once return is taken up for scrutiny, assessee is required to produce material and evidence to substantiate income/loss shown under different heads of income. In this case, appellant claimed to have incurred loss from profession, but failed to adduce any evidence to corroborate genuineness of expenses claimed, which resulted in loss vis-a-vis receipts which were shown as Rs.2,22,600. While in normal circumstances, AOs should not resort to estimation of income or expenses, when assessee does not produce any supporting evidence, resort to estimation cannot be faulted. AO has estimated income of Rs.1,00,000 on receipts of Rs.2,22,600, which cannot be considered unreasonable or excessive. disallowance of loss and estimation of income from profession as Rs.1,00,000 is confirmed. 19. Against above order assessee is in appeal before ITAT. 20. I have heard both counsel and perused records. I find that on professional receipt of Rs.2,22,600/- assessee has shown loss of Rs.56,566/-. No books of accounts and evidences in this regard has been produced for claim of loss. I find that assessee s claim of loss has been 10 ITA No. 106/Pat/2010. rejected by AO on ground that no books of accounts or supporting documents have been furnished in support of loss shown. In these circumstances against claim of loss AO has estimated profit at Rs.1 lakh. 21. In my considered opinion there is no basis for this action of AO. It is only statement of account of assessee which contained receipt of Rs.2,26,000/- and claim of expenses which was before AO. As per common law maxim of approbate and reprobate if document is to be relied upon it has to be relied upon as whole. If AO in this case is not accepting claim of expense there is no basis for accepting receipt contained in said statement of accounts. Hence in my considered opinion when if AO is not accepting said statement of account same should be rejected as whole. Hence there cannot be any estimate of income on basis of said statement. Hence I hold that there cannot be any addition on this account. Hence I modify AO s order and hold that addition of Rs. 1 lakh is not justified. 22. In result, this appeal filed by assessee stands partly allowed. Order pronounced in Open Court on this 29th day of Sept., 2016. Sd/- ( SHAMIM YAHYA) ACCOUNTANT MEMBER. Dated: 29th Sept., 2016. 11 ITA No. 106/Pat/2010. Copy forwarded to : 1. Mr. Mumtazul Hasan, C/o Intrnational School, New Patlipura, Patna. 2. D.C.I.T., Central Circle-2, Patna. 3. C.I.T.- , Patna. 4. CIT(Appeals), - I, Patna. 5. D.R., ITAT, Patna. 6. Guard File True Copy By Order Assistant Registrar, Income Tax Appellate Tribunal, Patna Bench, Patna. Wakode. Mumtazul Hasan v. Dy. Commissioner of Income-tax, Central Circle-2, Patna