2020 (4) TMI 584 - AT - Income Tax

Reopening of assessment u/s 147 - no return of income was filed within 30 days as provided in the notice under section 148 - cash deposits in saving bank account - HELD THAT - As assessee has not filed return of income within statutory period of notice under section 148 of the Act hence the assessee was debarred from taking objection to issue of jurisdiction specifically when she has not complied with proceeding and not raised any objection to issue of notice under section 148 of the Act during the course of assessment proceedings. In view of these facts and circumstances we uphold the reopening of assessment as valid and in accordance with law. In view of this matter this ground of appeal is therefore dismissed. Addition of cash deposit in bank account - HELD 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 44AF of the Act 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 44AF AO is directed to estimate net profit @ 5% of total turnover of 15, 11, 906 being cash deposits in bank account. - AO will allow set off the amount of 75, 000 disclosed in her income-tax return. In other way the set off and telescoping would be allowed of 75, 000 disclosed in return of income and considered by the AO in assessment order. This grounds of appeal is therefore partly allowed.

Summary

Issues Involved:
1. Reopening of assessment under section 147 and issuance of notice under section 148 of the Income Tax Act.
2. Addition of ?15,11,906 as unexplained cash deposits in the bank account.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 and Issuance of Notice under Section 148:

The Assessee's appeal contested the reopening of the assessment under section 147 and the issuance of notice under section 148. The AO had reason to believe that cash deposits of ?14,82,000 in the assessee's bank account were unexplained, leading to the issuance of notice under section 148. The assessee failed to file a return within the prescribed period, leading to the reopening of the assessment.

The CIT (A) observed that the appellant did not object to the reopening during the assessment proceedings and filed a return only after the statutory period had expired, making the return nonest. The CIT (A) cited various judicial precedents, including the ITAT decision in Mohd. Ayyub v. ITO, supporting the view that returns filed after the stipulated time are nonest, and objections to jurisdiction cannot be raised post-assessment.

The Tribunal upheld the CIT (A)'s decision, agreeing that the reopening was valid as the assessee did not file the return within the statutory period, thus losing the right to challenge the jurisdiction. The Tribunal distinguished the cases relied upon by the assessee, noting that in those cases, the facts were different, and the reasons for reopening were not recorded before issuing the notice.

2. Addition of ?15,11,906 as Unexplained Cash Deposits:

The AO added ?15,11,906, including cash deposits of ?14,82,000, as unexplained income, rejecting the assessee's explanation of conducting a jari business without proper documentation. The CIT (A) upheld this addition, finding the assessee's evidence fabricated and unconvincing.

Before the Tribunal, the assessee reiterated the jari business explanation, claiming illiteracy and lack of formal business documentation. The Tribunal noted that while the assessee's explanation lacked supporting evidence, the bank statements showed regular cash deposits and withdrawals indicative of business activity.

The Tribunal, considering the holistic view and the absence of books of accounts, directed the AO to estimate the net profit at 5% of the total turnover of ?15,11,906 under section 44AF, allowing set-off for the ?75,000 disclosed in the return. This approach aligns with the Gujarat High Court's decision in CIT v. Pradeep Shantilal Patel, which mandates estimating net profit for unaccounted business transactions.

Conclusion:

The Tribunal partly allowed the assessee's appeal, upholding the reopening of the assessment while directing the AO to estimate the net profit at 5% of the total turnover, allowing set-off for the disclosed income. The order was pronounced in open court on 10.02.2020.