2016 (11) TMI 434 - AT - Income Tax

Undisclosed bank account - Undisclosed transactions - Held that - The receipt of cash or funds from out-station parties may though perhaps explain the inordinate increase in the postage expenses claimed qua the undisclosed transactions. We are in this regard, however, not in agreement with the ld. counsel for a direction to the AO to adopt a particular percentage as a net profit, i.e., as claimed to have been accepted by him for other years. The assessment orders for those years are not on record. The AO, where he has issued definite findings upon examination/verification, would though be obliged to take guidance from the factual findings or inferences drawn for those years. He has to, we may though add, act in a reasonable, yet, cogent manner, taking a broad view of the matter in that the full details and evidences in respect of expenses, hitherto undisclosed, may not be forthcoming. That apart, even the assessee s undisclosed capital, i.e., the capital deployed in the assessee s undisclosed business, would have to be separately considered for addition. Toward this, in our view, the AO shall himself or cause the assessee to compile the consolidated balance sheet, incorporating the erstwhile undisclosed bank account also. This, on a comparison with the balance-sheet already furnished, would reveal the additional capital, so that the same, to the extent unexplained, would merit being separately added u/s.69/69A. The accounts, including the final accounts, compiled on the basis of the said account, are only the assessee s explanation toward the credits appearing therein, also enabling the determination of the correct income, i.e., liable to be brought to tax qua the said credits, which the Revenue has extended to the entire credit, disbelieving the assessee s explanation. The A.O. shall, accordingly, redo the assessment with reference to the assessee s undisclosed bank account, determining the amount that is in the facts and circumstances of the case properly assessable as income.

Summary

Issues:
- Delay in filing the appeal
- Non-disclosure of bank account and income
- Burden of proof on the assessee
- Verification of undisclosed transactions and expenses
- Treatment of undisclosed capital
- Reassessment by the Assessing Officer

Issue 1: Delay in filing the appeal
The appellant filed an appeal against the Order by the Commissioner of Income Tax (Appeals) dated 09.6.2014, which partially allowed the appeal contesting the assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2010-11. The appeal was delayed by one day, explained through an Affidavit by the appellant, citing engagement in identifying counsel for advice. The Tribunal found the explanation reasonable and admitted the appeal for hearing.

Issue 2: Non-disclosure of bank account and income
The appellant, a retailer in pharmaceuticals, was found to have an undisclosed bank account with substantial credits. The Revenue added and confirmed the entire amount credited to the ICICI bank account as unexplained income, as the appellant failed to provide sufficient evidence to support the nature and source of the credits. The burden of proof to explain the deposits in the bank account lies on the assessee, and in the absence of such proof, the amount is deemed unexplained income.

Issue 3: Burden of proof on the assessee
The Tribunal emphasized that the burden of proving the nature and source of credits in the bank account rests with the assessee. The appellant claimed the withdrawals were for purchasing traded goods, with credits representing sale proceeds. The Revenue's approach was deemed unreasonable as the appellant provided evidence supporting the undisclosed business transactions, although the possibility of credits from sources other than cash deposits was acknowledged.

Issue 4: Verification of undisclosed transactions and expenses
The Tribunal highlighted the need to verify the undisclosed transactions and expenses claimed by the appellant. The turnover in undisclosed transactions exceeded the total credit in the bank account, raising questions about the nature of withdrawals and expenses. The Tribunal recommended a detailed examination of the appellant's business profile, turnover, and expenses to justify the claims made.

Issue 5: Treatment of undisclosed capital
The Tribunal directed the Assessing Officer to consider the undisclosed capital separately for addition, requiring the compilation of a consolidated balance sheet to reveal any unexplained capital. The AO was instructed to redo the assessment based on the undisclosed bank account to determine the assessable income accurately.

Issue 6: Reassessment by the Assessing Officer
The Tribunal allowed the appellant's appeal for statistical purposes, directing the Assessing Officer to reassess the income based on the undisclosed bank account and credits. The decision was pronounced in an open court on September 21, 2016.