2018 (8) TMI 1909 - AT - Income Tax

Addition on account of cash deposits in bank account - HELD THAT - We find that there are cash withdrawals of ₹ 9,92,000 from this bank account therefore; the entire cash deposits cannot be considered as undisclosed income of the assessee hence, benefit of cash withdrawal is required to be considered. Therefore, the claim of the assessee that the Gross Profit Rate of 5.57% disclosed in respect of proprietary concern of Naresh Silk Mill be applied to total cash deposits has also force therein. In view of this matter, we are of the considered opinion that net profit rate of 8% as per provisions of section 44AD would be reasonable to total cash deposits of ₹ 14,30,000 which worked out to ₹ 1,14,400 and consequently, this much addition being net profit of business is sustained, considering fact that this bank account stands disclosed from A.Y. 2006-07 and therefore, these cash depo sits could be linked to outside sales being carried out in the name of M/s. Naresh Silk Mill. Therefore, considering the entirety of facts and taking a holistic approach in the matter, we are of the considered view that addition of net profit at ₹ 1, 14,400 is upheld and balance addition of ₹ 13, 15,600 is deleted. - Appeal of the assessee is partly allowed.

Summary

Issues:
Confirmation of addition of ?14,30,000 made on account of cash deposits in bank account.

Analysis:
The appeal was directed against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2009-10. The primary issue revolved around the confirmation of the addition of ?14,30,000 due to cash deposits in a bank account. The Assessee contended that the bank account had been disclosed in personal accounts and reflected in the return of income for several years. It was explained that the cash deposits were sourced from cash in hand, a gift from the husband, and cash back from debtors. The Assessee argued that the bank account was not included in the ITR-4 return as only proprietorship accounts were required to be disclosed. The Assessee maintained personal and business accounts voluntarily despite not being required to do so. The Assessee also highlighted cash withdrawals from the bank account, indicating the availability of funds for deposits. The Assessee further argued that even if the total deposit was considered as business receipts, the addition should be restricted to a specific amount based on profit rate.

The Revenue, on the other hand, supported the lower authorities' decision, stating that the bank account was not disclosed in the return of income. The Revenue challenged the legitimacy of the cash in hand and the explanation for the cash gift. It was contended that the addition of cash deposits was justified.

Upon review, it was noted that the bank account was not reflected in the return of income as only the proprietary concern account was required to be disclosed in the ITR-4. However, interest income from the account had been declared in previous years. The source of cash deposits was explained by the Assessee, including cash in hand, a gift, and cash receipts from debtors. The Tribunal found that the cash withdrawals from the bank account needed to be considered, and the net profit rate applied to the total cash deposits. Ultimately, a net profit addition of ?1,14,400 was upheld, while the balance addition was deleted. The appeal was partly allowed based on a holistic assessment of the facts.

In conclusion, the Tribunal partially allowed the Assessee's appeal, upholding a net profit addition while removing the remaining amount. The decision was based on a detailed analysis of the sources of cash deposits, the nature of the bank account disclosures, and the overall business operations of the Assessee.