2018 (10) TMI 2012 - AT - Income Tax

Unexplained cash deposits in bank - assessee is a LIC Agent - HELD THAT - Where the assessee deposits cash amount to the bank account and failed to submit proper explanation to substantiate the amounts deposited by him then, the Revenue authorities have valid powers to pick up the issue for taxation purposes. At the same time, it is a well-accepted principle of tax jurisprudence that in such cases when the assessee is regularly depositing and withdrawing amounts to the alleged bank account for the purpose of his business or profession activity then, entire amount of deposit cannot be treated as income in the hands of the assessee keeping aside the amounts of withdrawal during the year. In the present case, assessee is a LIC Agent, who is claiming that he received cash amounts as premium from his clients and he deposited the same to the bank account and further made payment to LIC on the instructions of his clients. From the copy of bank account available it is also clear that the assessee is depositing cash and also making payments to LIC and other entities. In this situation, the entire cash deposits cannot be treated as income of the assessee and only peak amount credited to the bank of the assessee, can be treated as income in the hands of the assessee. Therefore, alternative prayer of the assessee is allowed and AO is directed to make the addition of peak amount to the returned income of the assessee on account of cash deposits to his bank account. Decided partly in favour of assessee.

Summary

Issues Involved:
1. Addition on account of alleged unexplained cash deposits in the bank.
2. Treatment of entire cash deposits as income of the assessee.
3. Validity of assessing officer's decision under section 69A of the Income Tax Act, 1961.
4. Consideration of peak amount for taxation purposes.

Analysis:

Issue 1: Addition on account of alleged unexplained cash deposits in the bank
The Assessee challenged the order of the Commissioner of Income Tax (Appeals) regarding the addition made on account of unexplained cash deposits in the bank. The Assessee argued that the addition should be deleted entirely. The Departmental Representative contended that the Assessee failed to provide a satisfactory explanation for the cash deposits, justifying the addition under section 69A of the Income Tax Act. The Tribunal observed that when an Assessee regularly deposits and withdraws amounts for business purposes, the entire deposit cannot be treated as income. In this case, the Assessee, a LIC Agent, received cash premiums from clients, deposited them in the bank, and made payments to LIC and other entities. The Tribunal allowed the Assessee's alternative prayer and directed the addition of the peak amount of Rs. 1,50,097 as income from cash deposits.

Issue 2: Treatment of entire cash deposits as income of the assessee
The Tribunal emphasized the principle that when an Assessee conducts regular banking transactions for business purposes, the entire cash deposit cannot be considered as income. In this case, the Assessee's activities as a LIC Agent involved receiving cash premiums from clients, depositing the amounts in the bank, and making payments to LIC and other entities. The Tribunal concluded that only the peak amount credited to the Assessee's bank account should be treated as income, not the entire cash deposits.

Issue 3: Validity of assessing officer's decision under section 69A of the Income Tax Act, 1961
The Departmental Representative supported the assessing officer's decision to make the addition under section 69A due to the lack of a satisfactory explanation from the Assessee regarding the cash deposits. The Tribunal acknowledged the authority of Revenue authorities to address such issues for taxation purposes when an Assessee fails to substantiate cash deposits adequately.

Issue 4: Consideration of peak amount for taxation purposes
The Tribunal directed the assessing officer to re-compute the addition and taxable income of the Assessee by considering the peak amount of Rs. 1,50,097 credited to the Assessee's bank account as income from cash deposits. The Tribunal partially allowed the Assessee's appeal based on this consideration.

In conclusion, the Tribunal partially allowed the Assessee's appeal by directing the addition of the peak amount of cash deposits as income, considering the nature of the Assessee's business activities and banking transactions.