2015 (8) TMI 262 - AT - Income Tax

Cash deposits made in ING Vysya Bank as unexplained cash credits u/s. 68 - Assessee stated that the cash is deposited by customers in ING Vysya Bank account and those funds were utilized for purchase of bitumen for his customers. - Held that - It transpires from the rejoinder to the remand report that the deposits could be categorised into three categories viz., deposits made by the parties and for which they have got supply of material amounting to ₹ 55,83,000 in the first place. In the second place deposits made by the parties and for which they have got the money back amounting to ₹ 11,25,000 and in the third category cheques deposited by the parties and which are dishonoured by the bank amounted to ₹ 10,00,000. Thus, insofar as the cheques were dishonoured, no element of income could be attributed. In the first and second category of deposits, it could be said that the deposits were in the course of transactions and could be held that some business advantage accrued as such monies were there with the assessee for some considerable time. Hence the contentions of the AR that in the first category materials were supplied and in the second category the parties got back the monies deposited and as such no business advantage accrued is not tenable. It is an undisputed fact that cash deposits were available to the assessee for considerable period whose turnover is the total of first and second items amounting to ₹ 67,08,000 on which a reasonable return could be around 6% - We do not find any infirmity in the order of the CIT(A) and the same is confirmed. - Decided against revenue

Summary

Issues:
Assessment of unexplained cash credits under section 68 of the Income Tax Act, 1961 based on cash deposits made in a bank account.

Analysis:
The appeal by the Revenue was against the order of the CIT(A), Vijayawada for the assessment year 2005-06 concerning unexplained cash credits. The assessee, a transport contractor, allowed customers to deposit cash in an ING Vysya Bank account for bitumen purchases. The Assessing Officer treated these deposits as unexplained cash credits under section 68. The CIT(A) categorized the deposits into three groups: deposits for material supply, deposits returned to parties, and dishonored cheques. The CIT(A) held that deposits for material supply and returned deposits provided a business advantage to the assessee, justifying a reasonable return of around 6% on the turnover. The Assessing Officer verified all deposits and confirmed their authenticity, except for a minor amount. The CIT(A) upheld the decision, emphasizing the business advantage accrued from the deposits and the reasonable return expected. The appeal by the Revenue was dismissed, confirming the CIT(A)'s order.

This case involved a detailed examination of the nature of cash deposits made by customers in the assessee's bank account. The CIT(A) differentiated between deposits for material supply, returned deposits, and dishonored cheques. The CIT(A) considered the business advantage gained by the assessee from these deposits and directed the Assessing Officer to calculate a reasonable return on the turnover. The authenticity of the deposits was verified through confirmations, affidavits, and correspondence with parties and entities like Indian Oil Corporation. The CIT(A) confirmed the order based on the business advantage derived from the deposits and the expected return percentage. The decision highlighted the importance of substantiating claims and the need for reasonable estimations in such cases.