2015 (12) TMI 1367 - AT - Income Tax

Additions of Bank deposits made u/s 68 - applicability of provisions of sec. 44AF - Held that - In view of the fact that the deposits were found to have been made into the bank account from various cities, the theory of unexplained cash credit may not be applicable in view of the explanations furnished by the assessee. Hence, inclined to accept the claim of the assessee that the same represents business receipts. Accordingly, in my view, the provisions of sec. 68 do not have application to the facts of the present case. Once it is held that the impugned deposits may represent sales collection, then the question of estimation of profit would arise. The assessee s claim is that the provisions of sec. 44AF should be applied. However, in my view, the said provisions can be applied only if the assessee maintains some record to show that the business was actually carried on and further he satisfies about the quantum of sales. In the instant case, the assessee has failed to show any record and hence, in my view, the provisions of sec. 44AF shall not have application in the facts and circumstances of the case. Peak credit amount taken as income of the assessee - Held that - As in the instant case, the assessee has not come out with details of actual sales and hence it cannot be said that the amount of ₹ 11,51,953/- represents the actual sales. The possibility of higher sales cannot be altogether ruled out. The assessee has also not furnished any details about the profit range earned by him. Further, these business transactions have not been disclosed to the revenue also in the income tax return filed by the assessee. Hence, taking into consideration all possible lapses, in my view, the present issue would meet the ends of justice, if the net profit from the alleged business activities is estimated at 25% of the aggregate amount of deposits of ₹ 11,51,953/-. Accordingly, the order passed by the Ld CIT(A) is set aside and the assessing officer is directed to sustain the addition to the extent stated above.In the result, the appeal filed by the assessee is partly allowed.

Summary

Issues:
Assessment of bank deposits under section 68 of the Income Tax Act, 1961 for the assessment year 2009-10.

Analysis:
The appellant, an assessee, contested the assessment of Rs. 11,51,913/- as income from bank deposits made under section 68 of the Act. The Assessing Officer (AO) received information about the deposits made by the assessee in a bank account not disclosed to the department. The assessee claimed the deposits were business receipts from dealing in Soaps and FMCG products. However, the AO rejected this claim due to lack of supporting documentation and non-maintenance of books of accounts. The AO assessed the entire deposit amount as the assessee's income.

Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee reiterated the business receipts claim, but failed to provide adequate details. The CIT(A) upheld the AO's decision, rejecting the claim and dismissed the appeal. The appellant then argued before the ITAT that the deposits represented sales collections from a partnership firm's customers, but due to insufficient documentation, the AO's decision was justified.

The ITAT analyzed the deposits made into the bank account and observed they were from various cities, indicating a connection to the assessee's activities. While the nature of the deposits couldn't be definitively proven, considering the lack of evidence on the funds' source, the ITAT accepted the claim that the deposits were business receipts. The ITAT also rejected the application of section 44AF for profit estimation due to the absence of records supporting the business operations.

Regarding the alternative claim of assessing the peak credit amount, the ITAT found insufficient evidence to determine the actual sales, leading to an estimation of net profit at 25% of the deposit amount. Consequently, the ITAT partially allowed the appeal, setting aside the CIT(A)'s order and directing the AO to sustain the addition based on the estimated profit.

In conclusion, the ITAT's judgment clarified the nature of the deposits as business receipts despite insufficient documentation, rejected the application of section 44AF for profit estimation, and directed the assessment based on a 25% estimated profit.