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TMI Blog2020 (1) TMI 963X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, the AO conducted a survey u/s 133A of the Act on 06.12.2012 and issued notice u/s 148 of the Income Tax Act, 1961 (in short 'Act') reopening the assessment for the assessment year under consideration. In response to the notice issued u/s 148, the assessee filed the return of income admitting total income of Rs. 3,42,000/- and subsequently, the AO had issued the notices u/s 143(2) and 142(1) and completed the assessment on total income of Rs. 1,90,87,260/-. As stated earlier, the assessee was in the business of purchase and sale of 'liberty reserves' or digital points from the third party and sells to other party at a higher rate, thereby receiving some commission. To purchase the liberty reserves, the assessee pays to the concerned person i.e. seller of liberty reserves through banking channels. He further submitted before the AO that he deposits cash in the bank accounts and the person in whose account the cash was deposited, credits the liberty reserves to his liberty reserve account No.U0137810(lade). The entire transactions for purchase and sale of liberty reserves were routed through the website www.libertyreserve. com. The AO also observed that the assessee was receivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... digital points. The AO asked the assessee to explain the source for making the deposits in respect of other accounts which the assessee could not explain. Therefore, the AO called for explanation as to why the entire amount of Rs. 2,33,82,260 (18745260 + 4637000) should not be assessed to tax. 3.1. In response to notice, the assessee explained that his clients who were residing in different places of India had deposited the amounts in his bank account either in cash or by cheque for buying and selling the digital dollars or digital points through the assessee. He had transferred the amounts to the persons who were ready to sell the liberty reserves. After the transactions were finalized the 'Liberty reserve' which was the service provider for allotting digital dollars would send an e-mail to the assessee for incoming and outgoing digital dollars, furnishing the details of dollars allotted vide their account numbers, amount of dollars and date of transaction. All the transactions were evidenced by emails. He submitted before the AO that he is only doing mediation towards his client for purchase and sale of digital dollars. All the deposits made in the bank account were deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase of dollars was to be taxed in the hands of the assessee. 4. The next issue is with regard to the amount of Rs. 46,37,000/- which was deposited by the assessee in various accounts of different persons. The same was brought to tax as income in his hands. For taxing both the sums of Rs. 1,41,08,260/- and the amount of Rs. 46,37,000/-, the AO did not invoke any of sections of the Act. 5. Against the order of the AO, the assessee filed appeal before the CIT(A) and furnished some additional evidence in the form of confirmation letters from six parties which were forwarded to the AO by the Ld.CIT(A). The AO examined the confirmation letters and submitted the remand report stating that out of six persons, five transactions were admitted as correct and five transactions were not admitted by the respective persons. Accordingly, the AO submitted the remand report stating that the additional evidence in the form of confirmation letters filed by the assessee were related to earlier year or subsequent year but not related to the impugned assessment year, hence, not relevant to the impugned assessment year. Copy of the remand report was given to the assessee by the Ld.CIT(A) and the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the transactions name to name or person to person. The Ld.DR further argued that depositing cash into clients' account is unusual as the entire transactions in this line of business should be routed through account transfer. Thus, the Ld.DR argued that the AO has rightly made the addition and requested to set aside the order of the Ld.CIT(A) and allow the appeal of the revenue. 7. On the other hand, the Ld.AR submitted that the assessee is engaged in the liberty reserves, purchase and sale of digital dollars which is evidenced by e-mails submitted before the AO as well as before the CIT(A). The assessee was receiving only commission to the extent of 2% of the transactions, therefore submitted that estimation of turnover at Rs. 2,50,00,000/- or taxing the entire receipts is unjustified. With regard to deposits made in the bank accounts of other persons it is unjustified to hold that the assessee could not explain the source, since the assessee has sufficient cash withdrawals to meet the payments made in different accounts of the persons. Therefore, argued that since there were sufficient withdrawals in the bank accounts, the deposits made in the bank account of others needs t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unable to correlate the transactions due to shut down of liberty reserves www.libertyreserves which was banned. The only reason for making the addition of Rs. 1,41,08,260/- by the AO was the assessee's inability to establish that he has purchased the liberty reserves and viewed that he had diverted the funds for other than business purposes. From plain reading of the assessment order page No.18 and 19, it is observed that the AO made the addition of Rs. 1,41,08,260/- (18745260-14108260) due to assessee's inability to establish the purchase of digital dollars and the AO did not suspect the nature and source of deposits made in the bank account. There is no provision to tax the withdrawals made from the bank account for assessee's inability to explain the application of funds. However, in the instant case, the assessee had explained that the amounts were received from various clients throughout India for purchase and sale of digital dollars through www.libertyreserves.com. The assessee also filed identity proofs in page No.189 to 201 in paper book with confirmation letters from various persons having purchased digital dollars from the assessee. The assessee also furnished copies of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y conducted in the case of 133A also, no evidence was found by the AO to hold that the assessee has acquired the assets equivalent to the difference amount taxed by the AO as observed by the Ld.CIT(A). Therefore, we hold that the amount of Rs. 1,87,45,260/- is turnover of the assessee for purchase and sale of digital dollars and income is to be estimated on the turnover. Accordingly, we hold that Rs. 1,87,45,360/- represent the turnover of the assessee in purchase and sale of digital dollars. 8.2. The next issue is addition of Rs. 46,37,000/- relating to the deposits made in various accounts. This is the exact amount which the AO considered as purchase of digital dollars. The assessee deposited various amounts in different persons accounts for purchase of digital dollars which was accepted by the AO. However, the AO has made the addition since the assessee could not explain the source of deposits made in the different accounts. The Ld.AR during the appeal hearing submitted that there were sufficient withdrawals in the various bank accounts to make the deposits in the different accounts. Therefore, the source of deposit cannot be disputed. On examination of the bank accounts furn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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