2020 (5) TMI 435 - AT - Income Tax

Addition u/s 69A - Unexplained deposits in the bank account - alternate contention of assessee that only the peak credit should be added and not the entire deposits in the bank account since the corresponding withdrawals from the said bank account have not been considered - HELD THAT - A perusal of the deposit and withdrawals in the said bank account filed by the assessee shows that there are systematic deposits as well as withdrawals. The assessee is engaged in the business of readymade garments, therefore, taxing only the deposits without giving corresponding credits to the withdrawals, in my opinion, will be not justified in the instant case especially when the assessee is a small trader. Since the peak credit comes to ₹ 7,70,390/-, therefore, modify the order of the CIT(A) and restrict the addition to ₹ 7,70,390/-. The grounds raised by the assessee are accordingly partly allowed.

Issues:
1. Assessment order and appellate order legality.
2. Addition under Section 69A of the Act.
3. Trading activities being considered bogus.
4. Failure to furnish source of cash deposits.
5. Justification of additions made under Section 69A.
6. Appellant's plea for treating all credits as sales.
7. Confirmation of AO's findings by CIT(A).
8. Appeal before the Tribunal.

Issue 1: Assessment Order and Appellate Order Legality
The appeal challenged the assessment order and appellate order as illegal and not tenable under the law due to allegedly not considering written submissions and evidence. The appellant contended that the orders were passed without proper consideration, leading to the appeal against the order dated 28th February, 2019 of the CIT(A)-19, New Delhi, for the A.Y. 2015-16.

Issue 2: Addition under Section 69A of the Act
The AO noted cash deposits in the assessee's bank account, questioned the source, and made an addition of &8377; 22,16,710 under Section 69A of the Act. The CIT(A) upheld this addition, stating that the appellant failed to substantiate the source of deposits, leading to the confirmation of the AO's findings.

Issue 3: Trading Activities Being Considered Bogus
The AO deemed the trading activities of the assessee as bogus due to the inability to provide supporting bills and vouchers. The appellant's declaration under Section 44 AD of the Act, along with furnished DVAT returns and bank statements, were not considered sufficient by the AO, resulting in the trading activities being labeled as bogus.

Issue 4: Failure to Furnish Source of Cash Deposits
The appellant was unable to provide supporting bills and vouchers to explain the source of cash deposits in the bank account, leading to doubts regarding the genuineness of purchases and sales. This failure to furnish adequate documentation resulted in the AO questioning the legitimacy of the transactions.

Issue 5: Justification of Additions Made under Section 69A
The appellant argued against the addition made under Section 69A, claiming it was in violation of the Real Income Theory of taxation. The AO justified the addition based on the unexplained cash deposits, leading to the dispute over the legitimacy of the additions made under this section.

Issue 6: Appellant's Plea for Treating All Credits as Sales
The appellant requested treating all credits in the bank account as sales proceeds, suggesting a gross profit rate of 20.89% be applied to determine income. However, the inability to produce bills and vouchers for verification raised doubts about the legitimacy of this plea.

Issue 7: Confirmation of AO's Findings by CIT(A)
The CIT(A) confirmed the AO's findings, noting the lack of evidence regarding purchases or sales presented by the appellant. The appellant's failure to substantiate the source of deposits led to the confirmation of the addition made by the AO.

Issue 8: Appeal Before the Tribunal
The Tribunal partially allowed the appeal, modifying the order of the CIT(A) and restricting the addition to &8377; 7,70,390, considering the peak credit in the bank account. The Tribunal found taxing only the deposits without corresponding credits to withdrawals unjustified, especially for a small trader engaged in the business of readymade garments.

This detailed analysis covers the various issues involved in the legal judgment, addressing the challenges raised by the appellant, the reasoning behind the AO and CIT(A) decisions, and the final outcome determined by the Tribunal.

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