2018 (7) TMI 2326 - AT - Income Tax

Unexplained cash deposit in the bank account - As claimed total turnover of the assessee may be considered as total cash deposits made during the year on which net profit may be estimated as per provisions of section 44AD - HELD THAT - We find that the assessee has shown total turnover of Rs.7,42,213/- for the year under consideration and therefore the claim that cash deposit corresponding to this sale should be set off from total deposits of Rs.16,06,700/- made during the year is not found convincing Further set off on account of amount from debtors and unsecured loan from relatives respectively should be given only if the estimation of income have been made only on the balance amount. Therefore, the claim that cash deposit of Rs.6,39,567/- should be considered and for set off against opening cash balance available with the assessee and after allowing set off of Rs.1,06,429/-, the balance figure comes to Rs.5,33,138/- only and this amount the profit should have been estimated by the AO. Assessee has shown cash sales amounting Rs.7.42 lakhs only for which bills have been produced during the course of assessment proceedings. Therefore, we are not persuaded with the contention that the set off of Rs.7.42 lakhs being cash sales should be given against the cash deposits of Rs.16.06 lakhs. It is further noticed from the pattern of cash deposits, as reflected in the bank account of the assessee, which are made during the month of December 2010 and January 2011 only. Therefore, it cannot be said that these cash deposits are representing unaccounted cash sales of the assessee. Considering the totality of facts and taking a harmonious construction and considering the fact that the assessee has filed Return of income under the provision of section 44AD. Therefore, it would be reasonable to restrict the addition of cash deposit to the extent of peak credit balance as appearing on 23.12.2010 in the bank account - Addition made on account of cash deposits is restricted to Rs.3,51,042/-. Accordingly, ground no.2 of the appeal is partly allowed. Treating income shown in the Return of income as income from other source - Set off shown in the Return of income while making the above addition as unexplained cash deposit in the bank account - As we are of the view that this cannot be allowed as the deposits are not found to be linked with the sale proceeds of the assessee - income as been shown @ 20% of total turnover the same relates to business transaction, therefore, AO is directed to treat the said income as income from business instead of income from other source treated by the AO - ground no.1 is allowed. Question of set off - we find that the same cannot be allowed as the same represent business income as interest income on bank deposits under other source. Therefore, ground no.3 of appeal is dismissed.

Summary

Issues:
1. Treatment of income from other sources.
2. Addition of unexplained cash deposit in bank account.
3. Set off of income shown in the Return of income.

Issue 1: Treatment of income from other sources
The assessee's appeal was against the confirmation of treating income of Rs.2,13,700/- shown in the Return of income as income from other sources. The AO considered total cash deposits of Rs.16,06,700/- as unexplained under section 68 of the Income Tax Act. The CIT(A) dismissed the appeal, stating that the explanation regarding cash deposits was not substantiated with proper evidence. The Tribunal partially allowed the appeal, directing the AO to treat the income as business income instead of income from other sources.

Issue 2: Addition of unexplained cash deposit in bank account
The AO made an addition of Rs.15,00,271/- as unexplained cash deposit in the bank account. The assessee claimed that the cash deposits were from various sources including cash sales and loans. The CIT(A) observed the transactions as make-believe and dismissed the appeal. The Tribunal restricted the addition to the peak credit balance of Rs.3,51,042/-, considering the cash deposits pattern and the assessee's filing under section 44AD.

Issue 3: Set off of income shown in the Return of income
The assessee sought set off of Rs.2,13,700/- shown in the Return of income against the addition of unexplained cash deposits. The Tribunal found that the deposits were not linked to sales proceeds, but directed the AO to treat the income as business income instead of other sources. The set off was allowed only for the business income portion, not for the interest income on bank deposits.

In conclusion, the Tribunal partly allowed the appeal, directing the AO to treat the income as business income and restricting the addition of unexplained cash deposits. The set off was allowed only for the business income portion, resulting in a partial allowance of the assessee's appeal.