2019 (9) TMI 154 - HC - Income Tax

Unexplained income of the assessee u/s 69 - HELD THAT - Explanation offered by the assessee was found to be not satisfactory by the AO. CIT(A) re-examined the factual matrix, considered the sufficiency of the explanation and held that in the absence of verifiable evidence, the bank deposits could not be presumed to be a part of sales turnover. Tribunal also took into consideration the facts and held that the entire unaccounted deposits were to be considered as unexplained income of the assessee under Section 69 of the Act. A thorough fact finding exercise has been done by both the CIT(A) as well as the Tribunal. While exercising power under Section 260A we cannot consider ourselves as the Third Appellate Authority and reexamine the facts. We find that no substantial question of law arises for consideration in this appeal.

Summary

Issues:
1. Interpretation of Section 69 of the Income Tax Act regarding cash deposits as income from business.
2. Assessment of net profit ratio and consideration of purchases and expenses in determining income.

Analysis:

Issue 1: Interpretation of Section 69 of the Income Tax Act regarding cash deposits as income from business.
The appellant, an individual running a snack bar and trading in edible essences, filed an appeal challenging the order of the Income Tax Appellate Tribunal regarding the assessment year 2009-10. The primary contention raised was whether the entire cash deposit should be considered as income under Section 69 of the Income Tax Act, or only the profit margin. The Assessing Officer noted significant cash deposits made by the appellant in various bank accounts without corresponding withdrawals, leading to an addition to the total income. The appellant argued that the deposits were from business collections and should be treated as profit margin. However, the CIT(A) and the Tribunal found the explanation unsatisfactory, emphasizing the lack of verifiable evidence linking the deposits to sales turnover. Ultimately, the Tribunal held that the unaccounted deposits constituted unexplained income under Section 69 of the Act.

Issue 2: Assessment of net profit ratio and consideration of purchases and expenses in determining income.
The appellant's appeal also raised the question of whether the Tribunal's finding that purchases and expenses were already recorded in the books, negating the need to consider the net profit ratio, was correct. The Assessing Officer observed that the appellant failed to disclose details regarding significant cash deposits, leading to additional income assessment. The CIT(A) and the Tribunal upheld this assessment, highlighting the inadequacy of the appellant's explanation and the necessity of verifiable evidence. The Tribunal's decision to treat unaccounted deposits as unexplained income was based on a thorough fact-finding exercise, emphasizing the importance of evidence in determining the tax liability. The High Court, while dismissing the appeal, reiterated that it could not act as a third appellate authority and reexamine the facts, concluding that no substantial question of law merited consideration in this case.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of verifiable evidence in establishing the source of income and rejecting the appellant's arguments regarding the treatment of cash deposits and net profit ratio.