2014 (3) TMI 1011 - AT - Income Tax

Unexplained income under section 68 & 69 - Held that - Similar issue of addition under section 68 of the Act on account of cash deposits in the bank account of the assessee arose before the Tribunal in Sudhir Kumar Sharma case 2014 (2) TMI 418 - ITAT CHANDIGARH The modus-operandi explained during the course of survey was that the assessee was receiving the amount in cash and the same were being returned vide cheques through bank accounts - the assessee failed to produce the books of account nor give any explanation vis- -vis the source of cash deposits in the bank account - In the absence of any explanation or any evidence being produced by the assessee - The onus cast upon the assessee not being discharged, the said cash credits are to be included as income of the assessee in view of the provisions of section 68 of the Act. The assessee failed to file any confirmation in respect of the said cash credits nor any of the persons were produced for examination before the Assessing Officer, though specific direction in this regard was given by the Assessing Officer within the course of recording of statement of the assessee, during assessment proceedings - The assessee even failed to produce the books of account - In the absence of the assessee having discharged his onus of proving the identity, credit worthiness and genuineness of the cash transaction of the cash credits in the bank account, there was no merit in the plea of the assessee - the provisions of section 68 of the Act are applicable. - Decided against assessee. Applicability of peak credit theory Held that - The peak credit theory is not applicable as the assessee had deposited cash in the bank account and thereafter, cheques were issued to different parties - there are deposits in cash but as against the said cash deposited, various cheques were issued and the assessee was unable to explain the source of cash deposited in his bank account Decided against Assessee Addition made on account of low household expenses - Held that - The family of the assessee consisted of father, mother and three brothers and total withdrawal of ₹ 1,08,000/- was made for household expenses during the year under consideration. In addition, the assessee had incurred expenses on electricity and telephone expenses. The assessee was a bachelor and was living with his parents in their self owned house. The Assessing Officer had estimated the household expenses at ₹ 2 lacs for the year resulting in addition of ₹ 72,000/-. In the totality of the facts and circumstances, we restrict the addition to ₹ 36,000/- - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 5,98,82,294/- as unexplained income under sections 68 and 69 of the Income Tax Act, 1961.
2. Consideration of bank deposits and withdrawals.
3. Nature of the assessee's business and whether it involves providing accommodation entries.
4. Estimation of household expenses and the addition of Rs. 72,000/- for low household expenses.

Issue-wise Detailed Analysis:

1. Addition of Rs. 5,98,82,294/- as Unexplained Income:
The assessee contested the addition of Rs. 5,98,82,294/- made by the Assessing Officer (AO) as unexplained income under sections 68 and 69 of the Income Tax Act, 1961. The AO noted substantial cash deposits in the assessee's bank accounts and demanded an explanation for these deposits. The assessee claimed these were cash receipts from customers as advances for commodity purchases but failed to provide adequate details, including names and addresses of the brokers or customers. Consequently, the AO concluded that the identity, creditworthiness, and genuineness of the transactions were unverifiable and added the amount as unexplained income. The CIT(A) upheld this addition.

2. Consideration of Bank Deposits and Withdrawals:
The assessee argued that the CIT(A) only considered the credit side of the bank transactions and ignored the debit side, which is against the settled law that requires considering the material in totality. The assessee maintained that the deposits and immediate issuance of cheques indicated the provision of accommodation entries rather than the assessee's own money. The Tribunal found that the assessee failed to substantiate the cash deposits with evidence or produce the relevant books of accounts. The Tribunal also noted that the peak credit theory was not applicable as the deposits were followed by cheque issuances, not cash withdrawals.

3. Nature of Business - Accommodation Entries:
The assessee claimed that it was engaged in providing accommodation entries and only earned a commission on these transactions. However, during the assessment proceedings, this claim was not substantiated with evidence. The Tribunal noted that the assessee did not raise this argument during the assessment proceedings and failed to provide any supporting evidence. The Tribunal upheld the CIT(A)'s decision, rejecting the plea that only the commission income should be taxed.

4. Estimation of Household Expenses:
The AO estimated the household expenses at Rs. 2,00,000/- for the year, leading to an addition of Rs. 72,000/- for low household expenses. The assessee argued that the total withdrawal of Rs. 1,08,000/- along with expenses on electricity and telephone was sufficient. The Tribunal considered the family size and circumstances, concluding that the addition should be restricted to Rs. 36,000/- instead of Rs. 72,000/-.

Conclusion:
The Tribunal dismissed the grounds related to the addition of Rs. 5,98,82,294/- as unexplained income, upholding the AO and CIT(A)'s findings. The plea for considering the nature of business as providing accommodation entries was also rejected. However, the Tribunal partly allowed the appeal concerning household expenses, reducing the addition to Rs. 36,000/-.

Order Pronouncement:
The appeal filed by the assessee was partly allowed, with the order pronounced in the open court on March 20, 2014.