2020 (11) TMI 765 - AT - Income Tax

Scope of limited scrutiny - cash deposits in the Bank accounts being more than the turnover - Profit earned on undisclosed turnover - undisclosed bank accounts - HELD THAT - Huge deposits were made in the said Bank accounts and since the said Bank accounts were found to be not reflected in the accounts of the assessee, the same were treated by him as the undisclosed turnover of the assessee s business and estimated profit thereon was added by him to the total income of the assessee. The impugned addition made by the AO on account of profit allegedly earned by the assessee on undisclosed turnover was directly related to the ground on which the case of the assessee was selected for limited scrutiny and the same being fall-out of the verification made by the AO on the issue on which the case of the assessee was selected for limited scrutiny, we do not find merit in the contention raised by assessee that the impugned addition made by the Assessing officer is beyond the scope of limited scrutiny. Deposits found to be made in the two Bank accounts maintained with Paschim Banga Gramin Bank and UCO Bank - Serious discrepancies were found in the books of account of the assessee, inasmuch as, the substantial balances in the two accounts maintained by the assessee with Paschim Banga Gramin Bank and UCO Bank were not reflected in the audited balance-sheet of the assessee. Similarly the interest earned by the assessee in one Bank account as well as interest charged in the other Bank account was also not reflected in the accounts of the assessee. Keeping in view these serious discrepancies seriously doubting the reliability of the audited accounts of the assessee, the onus, in our opinion, was greater on the assessee to establish by furnishing cash flow statement duly supported by the relevant books of account that the deposits found to be made in the Bank accounts maintained with Paschim Banga Gramin Bank and UCO Bank represented the sale proceeds of his business, which were duly reflected in the books of account and included in the total turnover finally declared in the return of income. Since this exercise was not specifically done by the assessee either during the course of assessment proceedings before the Assessing Officer or during the course of appellate proceedings before the ld. CIT(Appeals), we consider it fair and proper and in the interest of justice to set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter back to the file of the Assessing Officer for deciding the same afresh - Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues:
Addition of undisclosed turnover profit

Analysis:
The appeal was against the addition of profit earned on undisclosed turnover. The assessee, engaged in food distribution and cement dealing, filed a return declaring income. The Assessing Officer found discrepancies in bank accounts not reflected in the balance sheet. He added the deposits in these accounts as undisclosed turnover, resulting in a profit addition of ?51,63,531. The assessee argued that these deposits were part of disclosed sales and purchases. The CIT(A) upheld the addition, noting the lack of correlation between cash deposits and sales in the books. The Tribunal found the addition related to the limited scrutiny issue of cash deposits exceeding turnover. As the accounts were not reflected in the balance sheet, the Tribunal set aside the CIT(A)'s order, directing the Assessing Officer to re-examine the issue with a cash flow statement supported by relevant books of account.

The first contention was that the addition was beyond the limited scrutiny scope. The Tribunal disagreed, as the addition stemmed from discrepancies found during the limited scrutiny. The second contention was that the deposits were part of disclosed turnover. The Tribunal noted serious discrepancies in the accounts, emphasizing the onus on the assessee to prove the deposits were part of disclosed turnover. As the assessee failed to provide sufficient evidence during assessment or appeal, the matter was remanded to the Assessing Officer for a fresh decision with proper substantiation from the assessee.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s order and directing a fresh examination by the Assessing Officer with proper evidence from the assessee.