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TMI Blog2025 (1) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... in absence of any cogent evidence. [2] On the facts and law on the subject, the Learned CIT(A)-4, Surat ought to have deleted the entire addition of Rs. 36,17,00,112/- made by the learned Asst. Commissioner of Income Tax Central Circle - 2, instead of retaining the addition of Rs. 4,00,00,000/- on the basis of PEAK AMOUNT found from the bank of M/s. Nirav & Co. treating as unexplained deposit made by the appellant and Mr. Nirav Shah in collusion with each other. [3] On the facts and law on the subject, the Learned CIT(A)-4, Surat failed to appreciate the fact that the appellant has not made any sort of use of the bank account pertaining to Nirav R Shah. [4] On the facts and law on the subject, the Learned CIT(A)-4, Surat erred in dismissing the following grounds raised before him: (a) On the facts and in the circumstances of the case, as well as law on the subject, the learned Asst. Commissioner of Income Tax Central Circle - 2, erred in treating the appellant as 'BENIFICIAL OWNER' without any cogent evidence. [Ground No. 10 of Form 31 (b) On the facts and in the circumstances of the case, as well as law on the subject, the learned Asst. Commissioner of Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that mere payments made by cheque or RTGS to wholesale bullion dealers does not establish that the gold bars were received immediately by the assessee-firm and the same was serially sold to unknown purchasers against the demonetized currency and, therefore, the pattern of entries reflected in the bank account of M/s. Nirav & Co. and that of the assessee was nothing but an attempt to convert the hoarded undisclosed income of the assessee into stock of gold for future sales. [iv] On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition of Rs. 36,17,00,112/- made by the Assessing Officer on account of receipts from M/s. Nirav & Co. under Sec.69 of the Act to Rs. 4,00,00,000/- ignoring the admissions of the partner of the assessee in the statement recorded on oath as well as his own findings that the bank account of M/s. Nirav & Co was controlled by the partner of the assessee-firm viz., Shri Himanshu Shah and the same was used for depositing substantial amount of cash from sources which remained unexplained. [v] On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through RTGS, without considering the fact that an ex-parte order under Sec.144 of the Act has been passed in the case of Shri Sunil Rupani, Prop. Of S. R. Traders and the substantive addition made in that case has not yet reached its finality. [x] On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs. 76,00,000/- made by the Assessing Officer on account of disallowances of claim of purchases from M/s. Marshi Traders without appreciating the fact that the partner of the assessee has failed to explain the details of purchase of Silver from M/s. Maharshi Traders and its sale to Nirav & Co., with supporting documents even during the course of survey proceedings or during the course of assessment/appellate proceedings. [xi] On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs. 76,00,000/- made by the Assessing Officer on account of disallowances of claim of purchases from Ms. Marshi Traders by observing that this amount also covers the total amount of Rs. 36.17 Cr. being the sales made to M/s. Nirav & Co and considered while deciding the issue of addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t during demonetization period (10.11.2016 to 05.12.2016) in old high denomination notes of Rs. 500/- and Rs. 1,000/-. The AO issued show-cause notice to the assessee on 21.11.2019 wherein it was mentioned that Shri Nirav Rashmikant Shah, proprietor of M/s Nirav & Co., is a small time employee of Shri Maharishi Chokkas who provided essential documents of Shri Nirav R. Shah to Shri Himanshu R Shah for opening the bank account. Shri Nirav R Shah filed police complaint that his bank account was fraudulently used by someone else. In view of the above, assessee was asked to explain the nature and source of cash deposit in the bank account of M/s Nirav & Co. The assessee was also asked to explain about purchase of 176 kgs. silver worth Rs. 76 lakh from M/s Maharishi Traders. The assessee was also asked to explain entries in the impounded books A/1 to A/3 found from the assessee's premises. The show-cause and reply of the assessee are reproduced at 2.3 and 2.4 of the assessment order. In the reply, the assessee stated that the bank account of M/s Nirav & Co. was opened at least two years before the demonetization period. The bank account was opened and operated by Shri Nirav R Shah, propr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two addresses found from the ITD database. The invoices prepared by assessee giving address of M/s Nirav & CO as "M/s Nirav & Co. Nanpura, Surat" is a vague address. The AO at para-4.7 has summarized the findings which are as follows: (i) all cash transaction were during demonetization period, (ii) there are no substantial transactions before and after demonetization period and (iii) the only account to which funds were transferred is that of the assessee. In view of the above, the assessee was held to be beneficiary owner of the cash of Rs. 36,17,00,000/- which was added u/s 69 of the Act to the total income of assessee. 7. The AO also noted that the assessee had received funds of Rs. 13,36,00,000/- during the year from the bank account of M/s S.R. Traders which was opened during the demonetization period on 15.11.2016. The total deposits in the said account was Rs. 24,35,98,500/- out of which Rs. 13,36,00,000/- was transferred to the assessee. The AO issued show-cause notice in response to which assessee made submission which is at para-4.2 and 5.3 in assessment order. The assessee submitted that it had sold gold to M/s S.R. Traders against the payment received from its ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils or evidences were produced during appellate proceedings, the ground was dismissed by CIT(A). 10.1 Regarding addition of Rs. 36,17,00,112/-, the CIT(A) observed that the appellant sold bullion during demonetization period and demonitized currencies were deposited in the bank account of M/s Nirav & Co. The funds in the bank account of M/s Nirav & Co. were transferred by RTGS/cheques to bank account of appellant and such funds in the bank account of appellant were used to purchase bullion. This cycle of purchase and sale of bullion continued during the period of demonetization till the date of survey. The CIT(A) has reproduced the findings of Special Judge CBI Court No.5 Ahmedabad at para 8.4 and he observed that the bank account was operated by Shri Nirav R Shah since 2014 but he lodged complaint with the police on 26.12.2016, after the date of survey u/s 133A of the Act in the premises of assessee on 23.12.2016. The CIT(A) held that deposit of cash in the bank account of M/s Nirav & Co by Shri Himanshu Shah was in connivance with Shri Nirav R Shah. He noted that there were 17 transactions over a period of 25 days where cash deposited was first used to buy bullion, the said bull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), assessee as well as revenue filed appeal before the Tribunal. 12. Learned Commissioner of Income-tax - Departmental Representative (Ld. CIT-DR) has strongly supported the order of AO and argued that the order of CIT(A) is not correct. The Ld.CIT-DR submitted that the partner of assessee firm, Shri Himanshu R. Shah, admitted on oath in reply to question No. 3 of his statement that he deposited an aggregate sum of Rs. 34 crore in the bank account of M/s Nirav & Co on various dates post-demonetization in old high denomination notes of Rs. 500/ - & 1000/-. He also submitted that there was not a single cash deposit in the bank account of M/s Nirav & Co after demonetization period. This clearly shows that the assessee firm was either having undisclosed income/money as on 08.11.2016 or accepted and deposited unaccounted old notes of Rs. 1000/Rs.500 beyond the prescribed time limit which otherwise was not allowable as per Law. The assessee failed to explain as to how almost all the cash deposited in the bank account of M/s Nirav & Co were immediately transferred to bank of the assessee firm. Also, Shri Nirav R. Shah has no capacity to deposit and transfer such huge sums to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Without prejudice to above, it was argued that even if the addition based on peak credit is upheld by ITAT, then also the peak credit should be shown as not highest balance but as the highest single day deposit, which in this case is higher than highest balance. It is also seen from assessee's paper book page no.201, which is the account opening form of M/s Nirav & Co., that account was introduced by Himanshu Shah; hence, it clearly establishes link between these parties. The account of M/s Nirav & Co has been opened by Shri Himanshu Shah acting as an introducer. The cash was handled as well as deposited by Mr. Himanshu Shah, as admitted in his statement. Almost all of the cash from M/s Nirav & Co and majority of the cash from M/s SR traders were immediately transferred to the account of the assessee firm. The Ld. CIT-DR submitted that, as admitted by Mr. Maharishi Chokas in his statement, the account was opened in the name of M/s Nirav & Co for the purposes of Mr. Himanshu Shah and his firm. Besides the money transferred from M/s Nirav & Co to the assessee firm Rs. 1 crore rupee was also routed through M/s DN Traders into the balance sheet of assessee firm. The Ld. DR submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee has deposited close to Rs. 50,00,00,000/- in SBN through two accounts of M/s Nirav & Co. and M/s S.R Traders and no source of such cash has been explained by the assessee. The theory of selling it to the retail customers (about 2200 customers) in cash is practically impossible to execute, as has been explained earlier. Further, admittedly assessee had only 2.6 kg. of gold worth Rs. 75 lakhs on 8th November 2016, while on 10th of November, more than Rs. 10 crore of cash has been deposited. The cycle of such transactions would take at least 3 to 4 days but total of almost Rs. 20 crore have been deposited in first four days in the account of M/s Nirav & Co which is not possible. The whole amount deposited in the accounts of M/s Nirav & Co and M/s S.R Traders, were immediately transferred to the account of assessee firm which represents the unaccounted income of the assessee firm and needs to be taxed as unexplained investment u/s 69 r.w.s. 115BBE of the Act in absence of any further details submitted by the assessee. Reliance was placed on the decision in case of Vaishnavi Bullion (P) Ltd. vs. ACIT, [2022] 145 taxmann.com 197 (Hyderabad). The ld. CIT-DR submitted that f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h that he used the bank account of Nirav & Co., it is submitted that the statement of assessee was recorded under coercion and duress. The assessee has correctly shown the income on sales made to M/s Nirav Co. in his return of income. Shri Nirav R Shah filed the police complaint against Shri Maharishi Chokas against the unauthorized opening of his bank account by the accused. So, at best, it can be said that the transaction in the bank account of the M/s Nirav & Co. was made under connivance. The bank account of M/s Nirav & Co. was already in existence since 06.06.2014 and assessee had given only the introduction and nothing more for last 2 years. The Investigation Team recorded the statement of bank official, Shri Jyotindra Gajiwala on 26.12.2016 and in reply to Q. No. 9 he stated that the account of M/s Nirav & Co. was operated on 15.09.2014 and 10.11.2014 and assessee was not concerned with the transactions on these dates. The Investigation Wing and the AO have not examined Mr. Nirav Shah on these credit entries. In the course of the proceedings before CIT(A), assessee filed the affidavit of Shri Himanshu R. Shah executed on 18.01.2020 retracting the admission made his statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ways low as there is no value addition. The assesses has included all the credits received from the M/s Nirav & Co. as part of the sale. The Ld.AR relied on the decision of Hon'ble Gujarat High Court in case of CIT vs. Vishal Exports Overseas Ltd. - Tax Appeal No. 2471 of 2009 (Guj.) where it was held that when the assessee had already offered sales realization and such income is accepted by AO to be the income of the assessee, addition of the same amount once again u/s 68 of the Act would tantamount to double taxation of the same income. 13.4 The ld. AR also submitted that AO in fact didn't make the addition u/s 68 of the Act but he invoked section 69 observing that that there are enough circumstantial evidences to suggest that the assessee was the actual beneficiary of the cash deposit made in the bank account of Nirav & Co. He submitted that the Section 69 is attracted only when the investments found are not recorded in the books of account, if any, maintained by the assessee and assessee doesn't offer explanation about nature and source of the investment. Here, the amount received from the Nirav & Co. was properly recorded in the books of account of the assessee firm a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Nirav & Co., on the ground that the assessee sold the bullion to the customers for cash for which he earned the abnormal profit because during demonetization, gold bullion was sold at the premium of 10 to 25%. In this connection, he submitted that that there is no unexplained investment involved as cash deposits are represented in the sales made by the assessee which is duly reflected in the assessee's books of account. In case of the bullion, it cannot be said that assessee would receive the abnormal profit as margin of profit involved in trading of bullion is very low of about 1% only. The assessee actually showed the overall gross profit of 1.57%. 13.9 In view of the above discussion, the ld. AR submitted that even if the statement of the assessee carries evidentiary value, the assessee has shown the correct affairs in its audited books of account regarding the income earned on sale of the bullions. The statement recorded u/s. 131 at the of the survey cannot be used partially and it should be accepted in toto meaning thereby that deposits in the bank account of M/s Nirav & Co. represented the sales made by the assessee or M/s Nirav & Co. In the course of the survey no e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s u/s. 69 of the Act as pointed earlier. As assessee has shown profit of Rs. 3,77,576/- on this transaction, the addition is required to be deleted. 13.12 Regarding invocation of section 115BBE, the ld. AR submitted that M/s. Shah Maganlal and Gulabchand Choksi is a partnership-firm which is engaged in the business of trading of gold bullion and silver bullion only and the assessee firm has not got any other source of income. The assesses-firm has always earned only business income and has always shown returned income from business u/s. 28 of the Act. Therefore, the amount deposited in the bank account is required to be considered as business income only and there is no question of presuming to have any other source of income and hence, provision of Section 115BBE cannot be attracted. For this, ld. AR relied on the following decisions: (i) J.K. Chokshi vs. ACIT Tax Appeal 149 of 2003 (Guj.); (ii) Green Associates vs. PCIT - Tax Appeal No. 1199 of 2018 (Guj.); (iii) DCIT v/s. Radhe Developers India Ltd. - 329 ITR 1 (Guj.) and (iv) CIT vs. Mhaskar General Hospital in Tax Appeal No. 1474 of 2009 (Guj.) 13.13 Without prejudice, the ld. AR submitted that the amendment to section 115BB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not under any coercion or duress. No specific details or evidences were given to the CIT(A) to support the above ground. 14.2 The next ground was addition of Rs. 36,17,00,000/- u/s 69A of the Act. The CIT(A) has discussed this issue at para 8 to 8.8 of his order. At para 8.7, the CIT(A) observed that sale proceeds recorded in the books of account in the name of M/s Nirav & Co. are false because no sales were actually made to Nirav & Co. The assessee sold bullion to customers in cash and the actual sales were never recorded. Sale invoices were raised in the name of Nirav & Co. because money was transferred to the bank account of assessee from Nirav & Co. Entire operation of sale in cash, collection of cash from customers, deposit of cash in the bank account of Nirav & Co. has been done by Shri Himanshu R. Shah, partners of the appellant firm. The CIT(A) has allowed relief of Rs. 32,17,00,112/- and sustained addition of Rs. 4,00,00,000/-, being peak credit as unexplained investment in bank deposit. 14.3 Ground No.4 was addition of Rs. 13,36,00,000/- u/s 68 on protective basis. The addition was deleted because substantive addition was made in case of M/s S. R. Trader in whose ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for subsequent deposit. The determination of peak credit cannot be applied in case of the appellant because of the following reasons: (i) where there are cash deposits but withdrawals are through cheques then benefit of peak credit cannot be allowed for the cash deposit so made in the bank account. In assessee's case, against cash deposits cheques were issued to some other entities. For above view, reliance is placed on the decisions of Hon'ble Allahabad High Court in case of CIT vs. Vijay Agricultural Industries 294 ITR 610 (All) and Hon'ble Delhi High Court in case CIT vs. D.K.Garg ITA No.115/2005 dated 04.08.2017. (ii) As the amount of cash credits were standing in the names of different persons which all along the assessee had been claiming as genuine deposit, withdrawal / payment of amount to different set of persons would not at all entitle the applicant to claim benefit of peak credits. It has been so held in the case of Bhaiyalal Shyam Behari vs. CIT, 276 ITR 38 (All.). 15.2 While determining the peak credit, the withdrawal of cash, if not utilized elsewhere, is considered as available for making deposits. The highest unexplained cash deposit is considered as the pea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow almost all the cash deposited in the bank account of M/s Nirav & Co. were immediately transferred to the bank account of the assessee. 15.6 The CIT(A), whose powers are co-terminus with that of the AO should have examined the facts of the case, which he failed to do. Considering the totality of the facts and circumstances of the case and once it is established that the assessee cannot be allowed benefit of peak credit, the cash deposited in the bank account of the assessee remains unexplained as the assessee has not been able to explain the nature and source of such cash deposits along with documentary evidence either before the AO or CIT(A). 16. The assessee has been changing his stand with respect to the cash deposits in the impugned bank account so as to shift the onus of ownership. The assessee has claimed that cash deposits represent cash from bullion business. The assessee's cash deposits of a single day is huge and as per the extant rules, purchase/sales of golds above Rs. 2,00,000/- have to be accompanied with a valid PAN. The assessee has not furnished the details of the parties from whom it has made the so called purchases and the corresponding sales. Neither the req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regards, the transaction with M/s S. R. Traders, it may be mentioned that its bank account with Bank of India was opened during the demonetization period on 15.11.2016. In a very short period of only 7 days, i.e., 23.11.2016 to 30.11.2016, cash of Rs. 24,35,98,500/- was deposited out of which Rs. 13,36,00,000/- (almost 55%) was transferred to the account of the assessee. Thus, assessee was the major beneficiary of the cash deposited in the newly opened bank account. The AO has given a categorical finding that the said firm i.e., M/s S. R. Trader was a non-existent party and there was no shop/ establishment in the address provided by the said firm in the bank KYC. Hence, genuineness of the transaction is not established. Therefore, the finding of fact of CIT(A) at para 8.7 of his order i.e., falsification of sales is equally applicable for transactions with M/s S. R. Traders. The sale proceeds recorded in the name of M/s S. R. Traders are false and no sales were actually made to M/s S. R. Traders. The assessee sold bullions to other customers and actual sales were never recorded in the books of assessee. 20. From the facts discussed above, it is clear that assessee had deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Courts, in construing a statute, will give much weight to the interpretation put upon it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it. Hence, the AO was bound to frame the assessment based on the SOP, guidelines and instructions etc. issued by the CBDT cited supra, which he failed to do. 21. As stated earlier, the AO has made various additions primarily on the basis of statement of Shri Himanshu R. Shah, one of the partners of the assessee-firm, and the survey/inquiry report of the Investigation Wing. He has not followed the SOP / Instruction / Guidelines issued by CBDT. In order to ensure uniformity in approach of AOs in handling OCM cases, it was incumbent upon the AO to follow such SOP/Instruction etc. The Co-ordinate Bench of ITAT, Bangalore in case of M/s Bhavana Co-operative Credit Society Niyamita vs. ITO, in ITA No.739/Bang/2021, dated 16.09.2022 has, under similar circumstances, set aside the matter to the AO for verification and to pass fresh assessment after hearing the assessee. The relevant part of the said order is reproduced below for ready reference: "9.1 We have carefully gone through the various st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntiate its claim in line with the above applicable instructions. We are aware of the fact that not every deposit during the demonetisation period would fall under category of unaccounted cash. However the burden is on the assessee to establish the genuineness of the deposit in order to fall outside the scope of unaccounted cash. The Ld.AO shall verify all the details / evidences filed by the assessee based on the above direction and to consider the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to the assessee. The assessee may be granted physical hearing in order to justify its claim. Accordingly, the appeal in ITA No.739/Bang/2021 stands allowed for statistical purposes." 22. Similar decisions have been given in cases of M/s Bhoopalam Marketing Services Pvt. Ltd. vs. ACIT, ITA No.375/Bang/2022, dated 15.09.2022 and Sasanur Hospital vs. PCIT, ITA No.415/Bang/2022, dated 27.09.2022. Since the AO has not followed the SOP, Guidelines etc. issued by the CBDT while passing the impugned assessment order, we deem it proper to set aside the order of CIT(A) and restore the matter to the file of AO for verification of all the details ..... X X X X Extracts X X X X X X X X Extracts X X X X
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