2016 (5) TMI 466 - AT - Income Tax

Turnover estimation - Application of 10.55% net profit rate on the total turnover shown in the bank account - whether the impugned bank account was actually used for running of textile business or running of cheque discounting business? - Held that - CIT(A) has rightly observed that the transactions in the bank account do not pertain to the cheque discounting business being carried out by the appellant; as we also find that assessee is maintaining a considerable bank balance in this bank account and, therefore, in the given circumstances, we cannot believe that assessee was carrying on cheque discounting business through this account. In the given circumstances, when appellant is unable to prove that he has conducted cheque discounting business and that too in a bank account which was not in his name and the same was revealed during survey proceedings, we are of the view that ld. CIT(A) has rightly sustained the addition by applying 10.55% net profit rate on the total turnover shown at ₹ 18,75,554/- in the bank account operated by assessee - Decided against assessee.

Summary

Issues:
1. Addition of estimated net profit on turnover not belonging to the assessee.
2. Challenge to the confirmation of the addition by the CIT(A).

Analysis:
1. The appeal was against the order of the CIT(A) confirming the addition of ?1,97,871 on an estimated basis of 10.55% of the turnover of ?18,75,554 not belonging to the assessee. The Assessing Officer applied the net profit rate based on the turnover found in a bank account not in the assessee's name, alleging it was related to the textile business. The assessee contended that the turnover was from the cheque discounting business conducted in that account, supported by affidavits and explanations. However, the CIT(A) partly allowed the appeal, deleting some additions but sustaining the ?1,97,871 addition.

2. During the appeal, the assessee argued that the bank account turnover belonged to the cheque discounting business, not textile business. The Assessing Officer's decision to apply a net profit rate instead of a commission income rate was challenged. The Tribunal analyzed the evidence, including affidavits and bank statements, to determine the nature of transactions in the account. The CIT(A) upheld the addition, emphasizing the lack of correlation between cheque deposits and cash withdrawals, indicating inconsistencies not typical of cheque discounting operations. The Tribunal concurred with the CIT(A) that the transactions did not align with cheque discounting practices, leading to the dismissal of the appeal.

3. The Tribunal found that the appellant failed to substantiate conducting cheque discounting business in the bank account under scrutiny. Despite the appellant's contentions and evidence presented, the CIT(A)'s decision to sustain the addition was upheld. The Tribunal concluded that the appellant's inability to prove the nature of transactions in the account and the inconsistencies observed supported the CIT(A)'s decision. Consequently, the appeal challenging the addition was dismissed, and no interference was warranted in the CIT(A)'s findings.

4. The Tribunal's decision highlighted the importance of substantiating business activities and transactions to support claims during assessments. The lack of evidence and inconsistencies in the transactions led to the dismissal of the appeal challenging the addition. The judgment emphasized the onus on the assessee to provide clear and consistent evidence to support their claims and the significance of maintaining accurate records to avoid disputes during assessments.