2013 (11) TMI 1235 - AT - Income Tax

Whether the money transactions carried out through the bank accounts opened in the name of various partnership firms constituted by the employees and relatives of the assessee, belong to the assessee or not? - Held that - the tax authorities have come to the conclusion, which was not rebutted at all by the assessee, that the partners are men of small means and further they are employees/relatives of the assessee. Hence, in our view, the tax authorities might have thought it not necessary to examine Mr. Kasim and the same, in our view, would not vitiate the conclusions reached by the tax authorities. The matters can be decided in income tax proceedings on preponderance of probabilities, surrounding circumstances, human conduct and circumstantial evidences. In the instant case, the various points listed out by Ld CIT(A), in our view, establishes the connection between the assessee and the bank accounts opened in the name of the partnership firms. In view of the foregoing discussions, in our view, the surrounding circumstances, preponderance of probabilities, conduct of the assessee herein and evidences gathered by the department show that the partnership firms do belong to the assessee and their bank accounts also belong to the assessee. - Decided against the assessee. Additions on the basis of peak credit - Held that - When the assessing officer has proposed to assess the peak credit amount in assessment years 2002-03, 2003-04 and 2005-06, in our view, it would not be correct on his part to assess the entire amount of deposits as income of the assessee in assessment year 2004-05 alone. In our view, the assessing officer should have assessed the peak credit amount only in the assessment year 2004-05 also. - AO to compute the peak credit amounts of each of the year in accordance with the method discussed supra and assess the peak credit amount in the initial year i.e.,in assessment year 2002-03 and only incremental peak credits in succeeding years. - Decided partly in favor of assessee.

Issues Involved:
1. Ownership of Money Transactions.
2. Quantum of Income Determination.
3. Validity of Re-opening of Assessments.

Detailed Analysis:

1. Ownership of Money Transactions:
The primary issue was whether the money transactions carried out through the bank accounts opened in the name of various partnership firms constituted by the employees and relatives of the assessee, belonged to the assessee or not.

The assessing officer (AO) conducted inquiries and found that the partnership firms were fronts for the assessee's operations. The AO noted that the firms had the same address as the assessee's residence, the phone numbers linked to the firms were registered in the name of the assessee's spouse, and the partners were employees or relatives of the assessee with no capacity to handle large financial transactions. Statements from partners and bank officials indicated that the firms were controlled by the assessee.

The tribunal upheld the AO's findings, emphasizing that the evidence, including circumstantial evidence and the preponderance of probabilities, supported the conclusion that the money transactions belonged to the assessee. The tribunal noted that the assessee's contradictory statements and failure to provide a satisfactory explanation further implicated him.

2. Quantum of Income Determination:
The next issue was whether the quantum of income determined by the AO and confirmed by the CIT(A) was correct.

The AO assessed the peak credits in the bank accounts as the income of the assessee for the respective years. However, the tribunal found merit in the assessee's contention that the peak credit should be computed by combining transactions from all bank accounts and considering only the incremental peak credits in subsequent years. The tribunal directed the AO to recompute the peak credits accordingly and assess only the incremental peak credits in the succeeding years.

Furthermore, the AO estimated the commission income at 2% of the aggregate deposits. The tribunal upheld this estimation, noting that the assessee failed to provide any credible evidence to challenge the AO's estimate.

3. Validity of Re-opening of Assessments:
The assessee also challenged the validity of the re-opening of assessments.

The tribunal noted that the AO had formed the belief about the escapement of income based on investigations by the Directorate of Enforcement and the DDI (Inv). The AO had reasons to believe that the bank accounts were operated on behalf of the assessee. The tribunal found that the AO's reasons for re-opening the assessments were justified and in line with the principles laid down by the Supreme Court, which state that the sufficiency of reasons for re-opening assessments cannot be questioned by the court.

Conclusion:
The tribunal concluded that the money transactions carried out through the bank accounts of the partnership firms belonged to the assessee. The tribunal directed the AO to recompute the peak credits by combining transactions from all bank accounts and considering only the incremental peak credits in subsequent years. The tribunal upheld the AO's estimation of commission income at 2% and found the re-opening of assessments to be valid. The appeals filed by the assessee were partly allowed for statistical purposes.

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