2016 (1) TMI 72 - AT - Income Tax

Income from cash deposits - CIT(A) treated as assessee s business turnover in part and balance as income from other sources - Held that - CIT (A) was justified in treating ₹ 20 lakhs of cash deposits as assessee s business turnover since the assessee admitted income of ₹ 7,69,907/- is accepted by the Ld. Assessing Officer. On a turnover of ₹ 20 lakhs, if ₹ 7,69,907/- is treated as net profit, it amounts to Net Profit ratio of 38.5% (7,69,907 x 100 20,00,000) which is fairly acceptable. The Ld. Assessing Officer treatment of ₹ 10 lakhs turnover from the assessee s waste cotton business would mean that the assessee s Net Profit ratio is 77% (7,69,907 x 100 10,00,000) which is totally illogical because such profit cannot be derived from cotton waste business. Therefore, we hereby confirm the order of the Ld. CIT (A) on this issue. - Decided against revenue Depreciation claim on windmill - CIT(A) granting 80% deposit on WDV method instead of 7.69% on straight line method in accordance with Section-32(1) Explanation-2 read with Rules 5 (1A) - Held that - CIT (A) directed the Ld. Assessing Officer to grant depreciation to the assessee as claimed in his return of income filed on 25.05.2009 for the relevant assessment year by following the decision of the Chennai Bench of the Tribunal in the case of M/s.K.K.S.K. Leather Processes P Ltd. Vs. ITO (2009 (11) TMI 556 - ITAT MADRAS-D ) wherein it was held that option under Rule 5(1A) may be exercised in the income tax return filed within the due date and it is not necessary to file options separately, we do not find it necessary to interfere with the order of the Ld. CIT (A) because the Ld. CIT (A) has only followed the decision of the Chennai Bench of the Tribunal. Therefore, we hereby confirm the order of the Ld. CIT (A) on this issue. - Decided against revenue Penalty u/s 271(1)(c) r.w.s. 250 against the cash deposit - CIT(A) deleted penalty - Held that - In the assessment order the Assessing Officer could not bring any evidence on record to say that to cash deposits were from unexplained sources. It cannot be conclusively prove that the cash deposits were from undisclosed sources. It cannot be concluded as concealed income. In view of this the Assessing Officer is directed to delete the penalty levied on cash deposits. - Decided against revenue

Summary

Issues:
1. Treatment of income from cash deposits as business turnover and income from other sources.
2. Depreciation method for windmill investment.
3. Penalty levied on cash deposits.

Issue 1: Treatment of income from cash deposits:
The Revenue appealed against the orders of the Commissioner of Income Tax (Appeals) regarding the treatment of cash deposits as business turnover and income from other sources. The Assessing Officer found discrepancies in the cash deposits made by the assessee and treated a portion as undisclosed income. The CIT (A) upheld the treatment of a certain amount as business turnover and the rest as income from other sources. The ITAT concurred with the CIT (A) reasoning that the accepted income from the business should be considered while determining the nature of the cash deposits. The ITAT rejected the Assessing Officer's illogical turnover calculation and confirmed the CIT (A) order.

Issue 2: Depreciation method for windmill investment:
The assessee had invested in a windmill but did not opt for a specific depreciation method before the Assessing Officer. The Assessing Officer applied a straight-line method for depreciation. The CIT (A) directed the Assessing Officer to grant depreciation as per the assessee's claimed method, citing a Tribunal decision. The ITAT upheld the CIT (A) decision, stating that the CIT (A) correctly followed the Tribunal's ruling. Therefore, the ITAT confirmed the CIT (A) order on this issue.

Issue 3: Penalty levied on cash deposits:
In penalty proceedings, the Assessing Officer imposed a penalty on cash deposits made by the assessee, treating them as not genuine. The CIT (A) upheld the penalty on disclosed loan amount but deleted the penalty on cash deposits, noting that the Assessing Officer failed to prove conclusively that the deposits were from undisclosed sources. The ITAT agreed with the CIT (A) that the Assessing Officer could not establish that the cash deposits were not related to the assessee's waste cotton business. Therefore, the ITAT confirmed the CIT (A) order on this issue.

In conclusion, the ITAT dismissed both the quantum appeal and the penalty appeal of the Revenue, upholding the decisions of the CIT (A) on all the issues involved in the case.