2015 (9) TMI 653 - AT - Income Tax

Unexplained cash credits and payments of credit cards from undisclosed sources - CIT(A) deleted the addition - reopening of assessment - Treating the unexplained cash credits as business receipt and determining income from business by applying net profit @ 5% of the business receipts - Held that - CIT(A) has correctly mentioned that the income of the assessee s wife has to be excluded from the income tax assessment of the assessee, as the wife of the assessee is filing her returns with the respective ITO. The CIT(A) has correctly directed the Assessing Officer to compute the assessee s income from salary and income from small business under Section 44AF at 5% of turnover and recomputed the same. The Assessing Officer has failed to establish that the Income of the wife is not separate from the assessee s income along with his salary income. - Decided against revenue.

Summary

Issues:
1. Addition of unexplained cash credits and credit card payments from undisclosed sources.
2. Treatment of unexplained cash credits as business receipts and determination of income from business.
3. Validity of proceedings initiated under section 147 of the Income Tax Act.

Analysis:
1. The appellant, a salaried individual, declared an income of Rs. 1,82,610, which was accepted under Section 143(1) of the Income Tax Act. However, the Assessing Officer found discrepancies in bank deposits totaling Rs. 11,58,033 during the financial year 2005-06. The appellant challenged the initiation of proceedings under section 147, arguing that the deposits were from disclosed sources, including salary and a maturity amount from UTI. The appellant's wife's bank account deposits were also disputed. The Assessing Officer rejected the objections, leading to a legal challenge by the appellant against the validity of the proceedings.

2. Regarding the deposits of Rs. 2,61,800 in a CITI Bank account, the appellant explained that they were proceeds from selling electronic items, with a profit of 5% amounting to Rs. 13,090. The appellant provided purchase bills and credit card statements as evidence. The CIT(A) considered the appellant's submissions, excluded the wife's income, and directed the computation of the appellant's income from salary and business at 5% of turnover, resulting in a revised income of Rs. 1,97,692 for the relevant assessment year.

3. During the appeal, the Department argued against the acceptance of the appellant's explanations, claiming lack of documentary evidence and disputing the possibility of the appellant running a business as an employed individual. The Appellate Tribunal reviewed the records and proceedings, upholding the CIT(A)'s decision to exclude the wife's income and recomputed the appellant's income accordingly. The Tribunal found that the Assessing Officer failed to prove that the wife's income should be included in the appellant's assessment, leading to the dismissal of the Department's appeal.

In conclusion, the Appellate Tribunal upheld the CIT(A)'s order, emphasizing the separation of the wife's income from the appellant's assessment and directing the computation of income from salary and business as per the provisions of the Income Tax Act. The Department's appeal was dismissed, and the decision was pronounced on August 31, 2015.