2018 (4) TMI 312 - AT - Income Tax

Unexplained cash deposits in bank account - Held that - We find force in the arguments advanced by Ld. AR for the assessee that entire cash deposit cannot be treated as undisclosed income of the assessee without giving the benefit to the drawing of cash made by the assessee during the year. Moreover the AO should have also verified the amount withdrawn through credit card and its repayment during the year. In case the assessee is able to establish the nexus between the cash deposited and the amount withdrawn during the year then the benefit for the same should be extended to the assessee. Thus, we are of the considered view the entire amount of cash deposit cannot be treated the income of assessee without adjusting the amount of withdrawals from the said bank accounts. Similarly the benefit of the money withdrawn through the credit card should also be given to the assessee if he is able to establish the nexus between them. It was also observed that Ld. CIT(A) has given the finding that personal expense were also incurred by assessee through credit card but no details of such expense was brought on record. But this aspect also needs to be considered. Therefore, we are inclined remit the matter back to the file of AO for fresh adjudication - Decided in favour of assessee for statistical purposes. Penalty u/s 271(1)(c) - Held that - Addition has been made by the AO on account of unexplained money and cessation of liability on basis of lack of evidence. Though the assessee s explanation in respect of the credit card transactions and cessation of liability in the absence of sufficient proof was not accepted, that would not mean that the assessee made any deliberate attempt towards concealment of particulars of income. Mere sustaining of addition on the basis of entries in the credit card account would not warrant a conclusion that the assessee had concealed certain particulars of income. It was lack of sufficient evidence for which the addition was sustained in part. We are of the considered opinion that this is not a fit case for levy of penalty u/s 271(1)(c) of the Act, we therefore, set aside the order of Ld. CIT(A) and direct the Assessing Officer to delete the penalty. - Decided in favour of assessee

Summary

Issues Involved:
1. Treatment of cash deposits in undisclosed bank accounts as undisclosed income.
2. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Treatment of Cash Deposits in Undisclosed Bank Accounts as Undisclosed Income:

Facts:
The assessee, engaged in the distributorship business of herbal cosmetic items, failed to disclose certain bank accounts in his income tax return where cash deposits were made. The total undisclosed cash deposits amounted to ?17,01,100 across various bank accounts. The assessee claimed that these deposits were sourced from cash withdrawals made through credit cards.

Assessment by AO:
The AO treated ?11,01,549 out of the total cash deposits as unexplained cash credit after reducing the outstanding balance on credit cards amounting to ?5,99,551. The AO did not consider the withdrawals made during the year for repayment of credit card dues.

Appeal before CIT(A):
The assessee argued that the cash deposits were a result of circulating money through credit cards and that the peak credit theory should be applied. The CIT(A) upheld the AO's decision, rejecting the application of the gross profit (GP) rate on the cash deposits, stating that the deposits were not proven to be sale proceeds.

Tribunal's Decision:
The Tribunal found that the AO had applied a contradictory approach by considering the outstanding credit card balance but not the withdrawals during the year. The Tribunal held that the entire cash deposit could not be treated as undisclosed income without adjusting for withdrawals. The matter was remitted back to the AO for fresh adjudication, directing the AO to verify the nexus between cash deposits and withdrawals and to provide a reasonable opportunity for the assessee to be heard.

2. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:

Facts:
The AO imposed a penalty of ?2,81,550 under Section 271(1)(c) for the assessment year 2008-09 on the grounds of concealment of income, which included additions for interest on undisclosed bank accounts, unexplained money, and cessation of liability.

Appeal before CIT(A):
The CIT(A) confirmed the penalty imposed by the AO.

Tribunal's Decision:
The Tribunal noted that the additions were made on an estimated basis due to lack of evidence and not due to deliberate concealment of income. The Tribunal cited various judicial precedents indicating that penalty under Section 271(1)(c) is not justified for estimated additions or when the assessee agrees to additions to avoid litigation. The Tribunal held that the sustained additions were a result of estimated disallowances and not due to concealment or furnishing of inaccurate particulars. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the penalty.

Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes regarding the treatment of cash deposits and deleted the penalty imposed under Section 271(1)(c), emphasizing the need for a fair reassessment and proper consideration of the facts.