Cash deposits -un-necessary litigation by ignoring ground realities causing harassment of small assesses and people having dealing with them.

[DEV KUMAR KOTHARI]

Case law about addition us.69A for cash deposits:

SHRI ASHISH NATVARLAL VASHI VERSUS THE ITO, WARD-1, NAVSARI. [2021 (5) TMI 439 - ITAT SURAT]

General discussion:

In some business, professional and even vocational and personal activities there is cash collection on sale of goods and / or services, sale of assets, some capital receipts like gifts etc.

Sometimes these collections are on own account and sometimes on account of other persons. For example, sale of goods at selling counters, collection of cash from clients for onward payments to others on behalf of person from whom cash is received.

Receipts can be from principals or agents.

Sometimes cash is received from others just for onward payments for which some commission may be charged or may not be charged.

All cash deposits are not income even if it is on own account because cash is collected against sale or service which costs for purchases and rendering of services and there may be some element of profit only. Cases can also be of loss if sale value is less than total cost of goods sold.

Cash collected on account of others for onward payments to concerned parties is not own cash and it received in trust or duty to pay to concerned parties.

There can be cash collection on account of capital receipts also like loan , subsidy, donation or gift.

These cash collections can be deposited in bank accounts or cash can be retained and used to meet costs and expenses.

Cash deposits in one bank can also be out of cash withdrawals from other bank and cash accumulated by past savings.

Therefore, there should not be presumption that cash deposited in bank or cash found with assesse represents his income. 

However, many times tax authorities initiate proceedings for assessment, or reassessment and in case of normal or regular initiation for scrutiny also make additions on account of cash found and or deposited. If there is any report or information about cash deposits, as a practice of ‘safe play’, Assessing officers make additions ignoring explanations filed by assesse. Then it leads to litigation before appellate forums.

Training about business aspects is required:

There are many basic aspects of businesses of various size and volumes and there are many business related aspects to specific business and size and operations. Extent of organized activity of business and parties with whom dealing  take place are  also an important aspect for consideration.

Ground reality about people who paid or deposited cash should also be considered for onward payment on their behalf. For example, cash received for onward payment of insurance premiums, water and electricity charges, purchasing of stamp duties or payment to government authorities etc. by registered or recognized professionals.

There can be cash deposit in one account out of cash withdrawals from another account.

Besides legal provisions, trade practices, customs and usages are also important in course of carrying business and profession.

It is felt that tax officers including tax inspectors must have some knowledge about business and its ground realities. They must work with open mind to realize and apply these ground realities and must not act with a bias and prejudice.

Objectivity must be applied:

Tax officers must also apply objectivity and try to improve their productivity and efficiency and should not indulge into un-necessary enquiries, collection of information and documents and then making additions. This way there is initiation and furtherance of litigation.  

Litigation:

We find litigation by tax authorities by way of initiation of un-necessary proceedings for assessment, reassessment, scrutiny, additions, revision , not proper disposal of appeals. Many such actions are based on some information collected through returns and information provided by others, information collected by mass enquiries from banks  and other institutions.

There should be enquiry, however, explanations given by assesse must be considered in a reasonable and rational manner considering ground realities. Additions should not be made based on presumption and bias.

Case of SHRI ASHISH NATVARLAL VASHI (supra):

In this case cash transactions of cash deposited in saving bank account above prescribed limit  were reported  by bank in annual information return. Based on the same proceedings were initiated and additions were made. Assessee had to approach up to ITAT to seek relief.

As per AIR information available with the assessing officer, the assessee has two bank accounts with ICICI Bank, Navsari in which cash of ₹ 26,77,200/- and ₹ 21,71,644/- was deposited during the year.

Based on information in AIR assessment proceedings were initiated for scrutiny of ROI

The assessee is a Senior Territory Manager who has worked for first ten months of the year with M/s Reliance Life Insurance Co. Ltd. and two months thereafter with M/s Bajaj Alliance Life Insurance Co. Ltd.

Assessee had collected cash from policy holders / investors for making payment to his principal insurance companies. The assesse had established links with cash collection, deposits and remittances made to insurance companies. This established that the cash collected and deposited were not his money but were money of policy holders/ investors which were remitted to insurance companies immediately / due course.

Assessee had furnished plethora of documentary evidences regarding transactions. However, the AO and CIT(A) did not accept them to be reasonable.

It appears that ground realities were overlooked and the AO and CIT(A)  wanted documents and evidences in  a manner and style which can be expected only from highly organized large organizations. Whereas the assesse was a salaried officer and worked with large  team of officers and agents all of whom were not so organized and could not be expected to furnish documents as expected by AO and CIT(A). This means that explanations and evidences were not examined by them in a reasonable and rational manner considering ground realities.

Fortunately honorable Tribunal has considered the material available in back ground of ground realities and with a test of reasonableness.

 Therefore, the orders of AO and CIT(A) were reversed and additions made were deleted by Tribunal keeping in mind facts found which are analyzed below:

1. The assessee had not deposited his own fund in the impugned bank accounts
2. Amount deposited were received from his clients to facilitate payment of premiums to the insurance company.
3. The insurance premium paid from the said bank for policies of clients  s was not unaccounted receipt or income of the assessee but the said deposits were clearly identifiable amount attributable to the premium of his clients.
4.  Detailed explanation of each deposits  with  sufficient details and evidences  suggest that the impugned deposits were not in the nature of income of the assessee.
5. Assessee had clearly identified the premium amount of his respective clients and also submitted their premium receipts issued in the names of respective insurers (not the assessee) wherein the details of banks drafts were also mentioned which were issued from the impugned bank account.
6.  Insurance premium receipts of different persons along with corresponding deposited amount in the bank account clearly established the nexus of source of deposits and their subsequent outflow in form of insurance premium.
7.  When all the corroborative evidence were clearly suggestive of the fact that the assessee had simply acted as a facilitator to make payment on behalf of the policy holders and where each entries were traceable and identifiable the addition should not be made in the hands of assessee.
8. The assessee had fully discharged his onus of explaining the source of deposits in the bank account particularly with evidences, hence there was no reason for the assessing officer to make addition under section 69A.
1.  The assessee was never found to be the owner of the impugned deposits in the said bank accounts particularly in view of the fact that all the said deposits were immediately transferred to the insurance company by wav of insurance premium in the names of the respective insurers and hence there was no question of not recording such investment in the books of accounts of the assessee in as much as there was no investment of the assessee himself.
10. Premium receipts shows the mode of payment i.e. demand draft numbers and bank details were mentioned in the premium receipts which showed that the premiums in the names of insurers were paid through the assessee's impugned bank accounts.
11. Therefore, the assessee was only facilitator and was not the owner of the money deposited in his bank accounts.
50.  AO has failed to bring any evidence on record to demonstrate that evidences and documents submitted by the assessee, which are mentioned in para Nos.8 and 9 of this order, are false and untrue.
1000. Thus, it is quite clear that the learned assessing officer wrongly invoked the provisions of section 69A.

About nature of assesse:

The Tribunal has noted that the assessee is a salaried employee and it is not possible for him to maintain full accounts department for his small business and clients.

This is also recognition about nature and size of assesses operation / activities. This is  a material aspect which Assessing Officers and first appellate authority had over looked.

Conclusions:

The tax officers must recognize ground realities, difficulties and limitations of assesse and people with whom assesse had dealing. AO should not expect perfect documentation from small assesses  as would be in case of his office even for petty transactions.

Small assesses like insurance officer in this case have to strive very hard to generate and improve business in highly competitive business.  In view of this it can be said that the Ld. AO and Ld. CIT(A) both adopted unreasonable approach causing harassment of assesse and un-necessary litigation.