2020 (4) TMI 329 - AT - Income Tax

Cash deposits in bank account as unexplained cash deposits - cash deposits pertained to assessee's retail business - facts proved that cash deposits are out of sale proceeds of textile trading. - HELD THAT - The perusal of assessment order reveals that the assessee has not filed any details before the AO. Before CIT (A) the claim was made that the cash deposits in bank account pertained to textile business carried out by the assessee, though no books of accounts were maintained nor the bank account were disclosed in return of income. As discernible from bank account that cash deposits were made for various out stations like Delhi and UP. The bank account also reflects payments made to textile concerns. Therefore, it is clearly apparent that cash deposits are linked with business transaction of the assessee. Since the assessee has not maintained any books of accounts, hence, in such situation only net profit as per provisions of section 44AD is required to be estimated as net profit and not entire turnover or cash deposits reflected in the bank account. Following the ratio laid down in the case of CIT V. Pradeep Shantilal Patel 2013 (11) TMI 1646 - GUJARAT HIGH COURT wherein it was held that where assessee admitted that cash deposits pertained to his retail business but details and nature of business were not forthcoming from record, considering total turnover of assessee, net income to be determined under section 44AD of the Act, the AO is directed to estimate net profit @ 8% of total turnover of ₹ 53,32,345 being cash deposits in bank account. - Decided partly in favour of assessee.

Summary

Issues involved:
Interpretation of provisions of Income Tax Act regarding treatment of unexplained cash deposits in bank account as income for assessment year 2013-14.

Analysis:

Issue 1: Addition of unexplained cash deposits by AO and CIT (A)

The appeal by the Assessee was against the order of the Commissioner of Income Tax (Appeals) sustaining the addition of cash deposits in the bank account as unexplained. The Assessee argued that the deposits were sale proceeds and requested estimation of profit rate as a logical option. The Assessee contended that only the peak credit balance should be treated as net unexplained cash credit. The CIT (A) did not accept the Assessee's pleas due to lack of evidence regarding business transactions.

Issue 2: Estimation of profit rate and treatment of cash deposits

The Assessee submitted that most cash deposits were from locations outside Surat and were related to textile trading business. The Assessee argued that only estimated profit for such turnover should be added. The Assessee relied on a decision by the Gujarat High Court for supporting this argument. The Assessee proposed that net profit at 8% as per section 44AD should be sustained instead of the entire addition made by the AO.

Issue 3: Admissibility of additional evidence and lack of submissions

The Senior D.R. contended that no proper application was made for additional evidence and that the Assessee did not submit any details during the assessment proceedings. The CIT (A) upheld the AO's order based on this lack of submission. However, the Tribunal considered the Assessee's claim that the cash deposits were linked to business transactions based on the bank account activity.

Conclusion:

The Tribunal partially allowed the appeal, directing the AO to estimate net profit at 8% of the total turnover of the cash deposits in the bank account. The decision was based on the Assessee's claims regarding the nature of cash deposits and lack of maintained books of accounts. The Tribunal's ruling aligned with the interpretation of provisions under section 44AD of the Income Tax Act.