2015 (2) TMI 1237 - AT - Income Tax

Addition u/s 69A - cash deposits in the bank account - Held that - A.O. has not brought any evidence on record to prove that the assessee has spent the amount withdrawn somewhere else. The theory of peak credit is not applicable in the case of the assessee because the assessee never accepted it to be unexplained money. Therefore in the absence of complete details and considering the fact that the amount of cash was rotating in the bank account of the assessee with Kotak Mahindra Bank Rajpura by making cash deposits and immediately withdrawing the same would show that the entire cash deposits in the bank account may not be unexplained amount of the assessee. Therefore it would be reasonable and proper to give some substantial benefit to the assessee for the purpose of deleting part of addition on this issue. In view of the above discussion we are of the view that ends of justice would meet if the addition of 10 lacs is deleted. The addition may be restricted to 7, 35, 200/- only. We accordingly modify the orders of the authorities below and delete the addition of 10 lacs the addition would now be restricted to 7, 35, 000/- - Decided partly in favour of assessee. Addition on account of higher closing stock - return filed under section 44AF - Held that - The addition is wholly unjustified. Since the return is filed under section 44AF of the Act the assessee need not to maintain any books of account. Whatsoever cash book or ledger was prepared by the assessee was not believed by the Assessing Officer while making the addition on account of unexplained cash with Kotak Mahindra Bank Rajpura. In the balance sheet filed with the return of income lesser closing stock was shown but it appears that inadvertently the assessee has maintained wrong figure in the income tax return of the closing stock. Therefore on such basis the addition need not to be made against the assessee. Further when income is declared on presumptive basis under section 44AF of the Act no further trading addition should be made against the assessee. - Decided in favour of assessee. Interest under section 234B which is mandatory and consequential in nature. This ground of appeal of the assessee is therefore dismissed. Penalty proceedings u/s 271D - Held that - CIT (Appeals) has not discussed this issue in the appellate order as no such ground was raised before him. Since the Assessing Officer has not levied penalty against the assessee and merely initiated penalty proceedings would show this ground is premature and is liable to be dismissed. The penalty proceedings are distinct and separate which is noted by the Assessing Officer in the assessment order. Therefore no further interference is called for in the matter. This ground of appeal of the assessee is therefore dismissed.

Summary

Issues:
1. Addition of Rs. 17,35,200 under section 69A of the Act on account of cash deposits in the bank account.
2. Addition of Rs. 3,07,790 on account of higher closing stock.
3. Charging of interest under section 234B of the Act.
4. Penalty under section 271D of the Act.

Issue 1: Addition of Rs. 17,35,200 under section 69A of the Act on account of cash deposits in the bank account:

The assessee challenged the addition of Rs. 17,35,200 under section 69A of the Act due to cash deposits in the bank account. The Assessing Officer found multiple small cash deposits totaling the amount in question, with immediate withdrawals on the same or next day. The assessee explained that the cash was rotated between bank and books of accounts due to employees depositing and withdrawing the cash. The CIT (Appeals) rejected the explanation, stating non-disclosure to Revenue Department. The Tribunal noted that the assessee, a retailer, filed returns under section 44AF, not mandated to maintain regular books. Despite discrepancies in bank entries and cash book, the Tribunal found the deposits were part of a cash rotation system and allowed a partial deletion of the addition, reducing it to Rs. 7,35,000.

Issue 2: Addition of Rs. 3,07,790 on account of higher closing stock:

The Assessing Officer made an addition of Rs. 3,07,790 due to a difference in closing stock figures between the ITR-4 and balance sheet. The Tribunal deemed this addition unjustified, as the return was filed under section 44AF, where no formal books were required. The discrepancy was attributed to inadvertent errors, and the Tribunal set aside the addition, stating that when income is declared presumptively, no further trading addition should be made.

Issue 3: Charging of interest under section 234B of the Act:

The assessee challenged the charging of interest under section 234B, which the Tribunal deemed mandatory and consequential, dismissing the appeal on this ground.

Issue 4: Penalty under section 271D of the Act:

The Assessing Officer initiated penalty proceedings under section 271D, but no penalty was levied. The CIT (Appeals) did not address this issue, and the Tribunal noted that penalty proceedings were distinct and separate from the assessment. As no penalty was imposed, the Tribunal dismissed the appeal on this ground.

In conclusion, the Tribunal partly allowed the appeal, deleting the addition of Rs. 7,35,000 in the first issue and the addition of Rs. 3,07,790 in the second issue. The appeal was dismissed regarding the charging of interest under section 234B and the penalty under section 271D.