2017 (1) TMI 862 - AT - Income Tax

Net profit estimation - Income estimation - additional evidence submitted - Held that - The assessee has brought on record the additional evidence after a lapse of 2 years. The additional evidence submitted before us could have been submitted before the AO to substantiate his claim so that the department could have initiated proper proceeding in the case of Sri. S. Venkateswara Rao. At this juncture we find inappropriate to consider the additional evidence filed by the assessee before us and accordingly we reject the additional evidence filed by the assessee. Coming to the alternate submissions of the AR of the assessee we agree that only the income should be brought to tax and not the credits in the bank account. Considering the transactions in the bank account there are receipts as well as payments taken place hence it can be treated as business transactions and only the net profit alone can be brought to tax as held in various decisions of the Courts. Accordingly we direct the AO to estimate the profit on the gross receipts @ 8% or the profit %age as declared by the assessee in his own business for the AY under consideration whichever is higher. Accordingly the grounds raised in this regard by the assessee are treated as allowed for statistical purposes.

Issues Involved:
Assessment of undisclosed income based on cash deposits in bank accounts, rejection of additional evidence by CIT(A), treatment of deposits as income, consideration of business transactions for taxation.

Analysis:

Issue 1: Assessment of undisclosed income based on cash deposits in bank accounts
The appeal was filed against the CIT(A)'s order for the assessment year 2009-10 where the AO determined the total income significantly higher than what the assessee had declared. The AO added cash deposits made during the year in the savings bank accounts of the assessee in two banks, ING Vysya Bank and ICICI Bank, as income from undisclosed sources due to the assessee's failure to provide explanations despite multiple notices and opportunities. The AO considered the cash deposits as unexplained income, leading to the significant increase in the total income.

Issue 2: Rejection of additional evidence by CIT(A)
The assessee filed a petition before the CIT(A) requesting the admission of additional evidence in the form of an affidavit from a relative who supposedly used the bank accounts for real estate business, claiming that the deposits did not belong to the assessee. However, the CIT(A) rejected the additional evidence under Rule 46A, emphasizing that allowing another person to use the accounts was a serious offense and a violation of banking terms. The CIT(A) found the explanation lacking evidence and aimed at tax evasion, leading to the confirmation of the AO's addition.

Issue 3: Treatment of deposits as income
The CIT(A) confirmed the AO's addition, stating that the unaccounted amounts belonged to the appellant as the transactions were discovered by the AO, and the subsequent evidence provided was deemed self-serving and aimed at tax evasion. The CIT(A) highlighted the lack of evidence supporting the explanation provided by the appellant, leading to the conclusion that the entire conduct was intended for tax evasion.

Issue 4: Consideration of business transactions for taxation
In the appeal before the ITAT, the AR submitted that the deposits should not be treated entirely as income, suggesting that the subsequent withdrawals indicated business transactions. The ITAT agreed that only the income should be taxed, not the credits in the bank account, and directed the AO to estimate the profit based on the gross receipts or the profit percentage declared by the assessee in their business. The ITAT allowed the appeal for statistical purposes, emphasizing the treatment of business transactions for taxation purposes.

In conclusion, the ITAT allowed the appeal for statistical purposes, directing the AO to estimate the profit on the gross receipts for taxation, considering the nature of the transactions as business-related. The rejection of additional evidence by the CIT(A) and the confirmation of the addition by the AO were key factors in the decision, highlighting the importance of providing concrete explanations and evidence in tax assessments.

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