2018 (2) TMI 2092 - AT - Income Tax

Unexplained Cash deposited in RCC Bank account - income from undisclosed sources - set off of loss from share transaction of income - CIT(A) observed that there was no nexus between profit earned through the job work and the cash deposit in RCC bank - CIT(A) has computed the undisclosed income from the RCC bank and total income of the assessee was computed - He has also allowed to set off the loss from share transactions. HELD THAT - As per provisions of section 70 of the act loss from one source against income from another source under the same can be set off. As per provisions of section 80 of the act such loss is allowed to set off even if the return is not filed in time. Therefore, we consider that ld. CIT(A) has correctly allowed set off of loss from share transaction of income in the case of the assessee. Assessee failed to controvert with any relevant evidences that the findings of CIT(A) is not correct. After considering the above facts and circumstances, we do not find any reason to interfere in the decision of the ld. CIT(A), therefore, the appeal of the assessee is dismissed. Levy of penalty u/s 271B - assessee had not got his account audited u/s. 44AB of the act as the turn-over of the assessee was exceeding Rs. 40 lacs during the previous year - assessee has filed revised return of income disclosing net profit after taking into account the undisclosed cash deposit found in the ICICI bank a/c. - HELD THAT - We observe that separate penalty has been provided as per the provisions of section 271A for failure to keep, maintain or retain books of account, documents, etc. as required by section 44AA of the act. In view of the above, the assessee has violated the provision of section 44AA by not maintaining books of accounts and the assessing officer has not initiated any penalty as prescribed u/s. 271A of the act. We observe that section 271B is not attracted in a case where no account has been maintained and instead an recourse u/s. 271A can be taken. Therefore, we consider that in the case of the assessee the imposition of penalty u/s. 271B is not justified. Accordingly, the appeal of the assessee is allowed

Summary

Issues Involved:

1. Enhancement of income due to cash deposits in undisclosed bank accounts.
2. Set-off of share trading losses against other business income.
3. Levy of penalty under Section 271B for failure to get accounts audited.

Detailed Analysis:

1. Enhancement of Income Due to Cash Deposits in Undisclosed Bank Accounts:

The assessee filed a return declaring an income of Rs. 1,47,590/- and agricultural income of Rs. 1,87,400/-. During scrutiny, the Assessing Officer (AO) discovered an undisclosed bank account with ICICI Bank containing cash deposits of Rs. 40,04,610/-. Additionally, another account with Rajkot Commercial Co-operative Bank (RCC Bank) showed cash deposits of Rs. 38,57,000/-. The assessee revised the financial statement, declaring job work income of Rs. 36,04,880/- and share trading losses of Rs. 36,34,642/-. The AO added Rs. 36,04,879/- as net profit from undisclosed sources and an additional Rs. 2,52,121/- for unexplained cash deposits in RCC Bank.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] enhanced the addition by treating the entire cash deposits in RCC Bank as undisclosed income, totaling Rs. 36,04,879/-, resulting in a total assessed income of Rs. 76,58,669/-. The CIT(A) reasoned that the deposits in RCC Bank could not be justified as profits from job work already accounted for in the ICICI Bank.

2. Set-off of Share Trading Losses Against Other Business Income:

The assessee claimed a set-off of share trading losses amounting to Rs. 36,34,642/- against the job work income. The AO initially denied this set-off, citing the failure to file the return within the stipulated time under Section 139(1). However, the CIT(A) allowed the set-off, noting that the losses were detected during assessment proceedings and did not require adherence to Section 80 for carry forward and set-off of losses. The CIT(A) verified the transactions and confirmed the losses were from non-speculative business activities, thus eligible for set-off against other income.

3. Levy of Penalty Under Section 271B for Failure to Get Accounts Audited:

The AO levied a penalty of Rs. 1,00,000/- under Section 271B for not getting the accounts audited, as the turnover exceeded Rs. 40 lakhs. The assessee contended that no books of accounts were maintained, making it impossible to conduct an audit. The CIT(A) upheld the penalty, asserting that the turnover was evident and could have been audited if proper records were maintained.

Upon further appeal, it was noted that the failure to maintain books of accounts should attract penalties under Section 271A, not Section 271B. Since the AO did not initiate action under Section 271A, the imposition of the penalty under Section 271B was deemed unjustified. Consequently, the penalty was deleted, and the appeal on this ground was allowed.

Conclusion:

The appeal regarding the enhancement of income due to cash deposits was dismissed, upholding the CIT(A)'s decision to treat the entire cash deposits in RCC Bank as undisclosed income. The appeal for the set-off of share trading losses was allowed, recognizing the losses as non-speculative and eligible for set-off against other business income. The penalty under Section 271B was deleted, considering the appropriate penalty should have been under Section 271A for failure to maintain books of accounts.