2019 (3) TMI 227 - HC - Income Tax

Court Upholds Income Tax Act Application on Appellant with Unexplained Cash Credits

The court upheld the application of Sections 68, 69, and 69A of the Income Tax Act to the appellant, determining the substantial deposits in various bank ... Addition u/s 68, 69 and 69A - incremental peak credit - money launderer or hawala operator - assessee maintained a stoic silence insofar as the source of the amounts deposited in the accounts as also the destination of the said amounts - HELD THAT:- We cannot but observe that since there is no explanation offered as to the source or destination of the amounts which came into the bank account there is no illegality in making addition of the peak credit. Of course the same has to be confined to the peak credit in the respective years and not on each of the accounts. This is the only concession possible on the assertion of the Department that the deposits were for money laundering. The destination of the amounts which were deposited and later withdrawn having not been disclosed or substantiated; it is not reasonable to assume that the entire amounts would have been disbursed, with only the commission appropriated. Virtue among thieves is an adage which cannot be imported, as a principle, to statutory assessment of income to tax. Department having not filed an appeal from the order reversing it and maintaining that at incremental peak credit; we would not interfere. In the other years the Assessing Officer himself adopted the peak credit in each year, which again was modified to incremental peak credit. Despite our above observations, we find no way in the present appeal to import these principles into the assessment impugned. Nor is it warranted in an appeal u/s 260A filed by the assessee. The adoption of incremental peak credit as income to be quite a plausible view, presuming at least that, to be the income of the assessee. The assessee cannot dissociate himself from the various accounts in view of the overwhelming evidence unearthed by the Department connecting him to the various accounts maintained in the Centurion Bank, Kozhikode Branch and the depositions of the various witnesses summoned. Despite the fact that the ED had found the assessee to be a hawala operator or money launderer, we find the assessment under Section 68, 69 and 69A of the incremental peak credit of the respective years, in the subject assessment years, taken from all the accounts to be perfectly in order. There can be a reasonable assumption that the incremental credit would be the income of the assessee, the remittances being found in favour of the assessee and the disbursal not having been proved or even admitted. Addition of commission - assessee's contention shoul be based on one another agent - HELD THAT:- We cannot find any inconsistency in the AO having not adopted the commission as adopted by another officer in a different location. At the outset it cannot be pleaded that the commission adopted in a case should be adopted in the case of another without reference to the various factors regulating a hawala transaction; which perse is illegal. Evidently the other person was an agent operating in Tamil Nadu. The assessee herein belongs to the State of Kerala which has the maximum expatriates insofar as the Middle East is concerned. We do not find any patent error or inconsistency in the assessment made against the appellant herein and hence we reject the appeal finding the questions of law in favour of the revenue and against the assessee. We however notice that when incremental peak credits are taken as the income of the assessee for a particular year the said quantum shall not be treated for the purpose of 2% commission and no addition shall be made on that count. Hence the commission shall be only on the amounts deposited, other than the incremental peak credit adopted for each year Issues Involved:1. Applicability of Sections 68, 69, and 69A of the Income Tax Act to the appellant.2. Legality of treating the money received as the appellant's undisclosed income.3. Internal inconsistency and error of law in the ITAT's order.4. Disparity in the rate of commission added to the income of the appellant and another individual.5. Perversity, arbitrariness, and unreasonableness of the ITAT's order.Issue-wise Detailed Analysis:1. Applicability of Sections 68, 69, and 69A:The court examined whether Sections 68, 69, and 69A of the Income Tax Act could be applied to the appellant, who was alleged to be a money launderer or hawala operator. The court noted that substantial amounts were deposited in various bank accounts opened in the names of partnership firms constituted by the appellant's relatives and employees. The deposits were immediately withdrawn, and the appellant refused to own up to these accounts or file a return in response to the notice under Section 148. The assessments were completed based on the peak credit in the accounts, which were treated as unexplained cash credits and investments under Sections 68, 69, and 69A. The court upheld the application of these sections, finding no infirmity in the lower authorities' appreciation of the facts.2. Legality of Treating Money Received as Undisclosed Income:The court addressed whether it was lawful to treat the money received as the appellant's undisclosed income while also adding a 2% commission to the appellant's income. The court reasoned that the appellant's refusal to divulge details about the transactions and the overwhelming evidence linking the appellant to the accounts justified the assessment of the peak credit as the appellant's income. The court also held that the appellant failed to discharge the initial burden of proof under Sections 68, 69, and 69A, making the addition justified.3. Internal Inconsistency and Error of Law in ITAT's Order:The appellant argued that the ITAT's order was inconsistent and erroneous because it treated the appellant as both a money launderer and the owner of the laundered money. The court rejected this argument, stating that money laundering can be for oneself and there is no presumption that it is for others. The court found that the incremental peak credit adopted by the Tribunal was a plausible view, considering the appellant's refusal to disclose details about the transactions.4. Disparity in Commission Rate:The appellant contended that the commission rate should be confined to 1%, as applied to another individual implicated in similar allegations. The court found no inconsistency in the Assessing Officer adopting a 2% commission rate for the appellant, noting that different factors might regulate hawala transactions in different locations. The court observed that the appellant operated in Kerala, which has a high number of expatriates in the Middle East, justifying the higher commission rate.5. Perversity, Arbitrariness, and Unreasonableness of ITAT's Order:The appellant argued that the ITAT's order was perverse, arbitrary, and unreasonable. The court rejected this argument, finding no perversity in the lower authorities' fact-finding and no substantial question of law arising. The court held that the incremental peak credit adopted by the Tribunal was reasonable and that the commission should only be on the amounts deposited, excluding the incremental peak credit.Conclusion:The court rejected the appeals, finding the questions of law in favor of the revenue and against the appellant. The court upheld the assessment of the incremental peak credit as the appellant's income and the 2% commission rate, with the condition that the commission should not be applied to the incremental peak credit. No order as to costs was made.