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2020 (1) TMI 963 - AT - Income TaxUnexplained cash deposits - CIT-A estimated the income @4% on total turnover - Estimation of income - turnover of the assessee in purchase and sale of digital dollars - HELD THAT - There is no provision in the Income Tax Act to tax the unutilized balance received from the customers. If the assessee fails to provide the digital dollars, it would remain as liability and the assessee is obliged to return the money to the depositor. Therefore, the same cannot be treated as income of the assessee. AO also did not invoke any provision of the Act to tax the difference amount. During the course of survey conducted in the case of 133A also, no evidence was found by the AO to hold that the assessee has acquired the assets equivalent to the difference amount taxed by the AO as observed by the Ld.CIT(A). Therefore, we hold that the amount of ₹ 1,87,45,260/- is turnover of the assessee for purchase and sale of digital dollars and income is to be estimated on the turnover. Accordingly, we hold that ₹ 1,87,45,360/- represent the turnover of the assessee in purchase and sale of digital dollars. Addition relating to the deposits made in various accounts - we observe that there were sufficient amount of cash withdrawals from the bank accounts for making deposits in different persons. Therefore, we do not see any reason to suspect the source of deposit when there were sufficient withdrawals in the bank account. Accordingly, we hold that having accepted by the AO that the assessee had purchased the dollars from different persons to the extent of ₹ 46,37,000/- out of total deposits of ₹ 1,87,45,260/-, there is no reason to suspect the source of deposits made in the different persons of the bank accounts. Hence, we uphold the order of the Ld.CIT(A). CIT(A) has estimated the turnover at ₹ 2,50,00,000/- and estimated the income @4%. The assessee in his statement recorded u/s 133A as well as in the return of income admitted the income @2%. The Ld.CIT(A) has not given any basis for estimating the turnover at ₹ 2,50,00,000/- when the turnover works out to sum of ₹ 2,32,82,260/-. Out of 2,33,82,260/-, A sum of ₹ 15,00,000/- was given as loan to Sri Andhavarapu Srinivasa Rao as discussed in page No.17 of the assessment order. Total turnover of the assessee works out to ₹ 2,33,82,260/- but not ₹ 2,50,00,000/- as held by the Ld.CIT(A). Accordingly, we set aside the order of the Ld.CIT(A) and direct the AO to estimate the income at 2% on total turnover of ₹ 2,33,82,260/- and dismiss the appeal of the revenue.
Issues Involved:
1. Addition related to unexplained bank deposits. 2. Estimation of income from turnover. 3. Source of deposits in various accounts. 4. Validity of additional evidence submitted by the assessee. Detailed Analysis: 1. Addition related to unexplained bank deposits: The primary issue revolves around the addition made by the Assessing Officer (AO) concerning deposits of ?1,87,45,260 in the assessee's bank account, which the AO deemed unexplained. The AO observed that the assessee, engaged in the business of purchase and sale of 'liberty reserves' (digital points), could not substantiate the source of these deposits with documentary evidence. The AO also noted that the assessee had deposited ?46,37,000 in various other accounts, which was also unexplained. Consequently, the AO proposed to tax the total amount of ?2,33,82,260 (?1,87,45,260 + ?46,37,000). 2. Estimation of income from turnover: The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed with the AO's approach of taxing the entire deposits as income. Instead, the CIT(A) estimated the total turnover at ?2,50,00,000 and determined that estimating the income at 4% of the turnover (?10,00,000) was fair and reasonable. The CIT(A) deleted the addition of ?46,37,000, holding that no separate addition was required once the income was estimated. 3. Source of deposits in various accounts: The AO's contention was that the assessee could not explain the source of ?46,37,000 deposited in various accounts. However, the assessee argued that sufficient cash withdrawals were available to meet these deposits. The Tribunal, upon examining the bank accounts, observed that there were indeed sufficient withdrawals to cover the deposits, thereby negating the AO's suspicion regarding the source of these deposits. 4. Validity of additional evidence submitted by the assessee: The assessee submitted confirmation letters from six parties as additional evidence before the CIT(A). The AO, in his remand report, stated that some transactions were not admitted by the respective parties and that the evidence was not relevant to the impugned assessment year. The CIT(A), however, considered the submissions and the nature of the business, noting that the assessee was engaged in the purchase and sale of liberty reserves. The Tribunal upheld the CIT(A)'s decision, recognizing the challenges faced by the assessee due to the shutdown of the liberty reserves website. Tribunal's Findings: The Tribunal found that the AO did not suspect the nature and source of the deposits but rather the application of funds. The Tribunal held that the amount of ?1,87,45,260 represented the turnover from the purchase and sale of digital dollars and should be treated as such. The Tribunal also noted that the AO did not provide evidence of the funds being used for personal purposes, except for a loan given to Andhavarapu Srinivasa Rao, which was already acknowledged by the assessee. Final Judgment: The Tribunal concluded that the total turnover of ?2,33,82,260 should be considered, and the income should be estimated at 2% of this turnover, as per the assessee's admission. The Tribunal dismissed the revenue's appeal and partly allowed the cross-objections filed by the assessee, directing the AO to estimate the income accordingly.
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