2021 (6) TMI 418 - AT - Income Tax

Unexplained cash deposited in the bank account - gifts receipt from parents - HELD THAT - AO himself has accepted the receipt from supply of building materials at ₹ 7,08,320/-. So far as the other items are concerned, however, they are not fully substantiated in absence of maintenance of any regular books of account as assessee has opted for the presumptive taxation scheme u/s 44AF. The opening cash balance of ₹ 2,50,256/- in my opinion cannot be accepted in toto. At the same time, it cannot be said that there is no opening cash balance. Therefore, adoption of opening cash balance at ₹ 2 lakh on estimate basis may be adopted for explaining the source of deposit in the bank account. Although the parents have filed the confirmations of gifts and they are very senior citizens and the father is deriving income from agriculture, at the same time, the gift was received in cash and, therefore, in absence of any other documentary evidence, the source of the parents to extend gift of ₹ 2,50,000/- to the assessee remains doubtful. However, some funds must be available with the parents who are very senior citizens to extend gift to their son. Therefore, gift of ₹ 1 lakh each by both the parents to the assessee under the facts and circumstances may be considered as reasonable to be explained as available to the assessee for deposit. Therefore, the claim of the assessee that he has received gifts from parents to the tune of ₹ 2,50,000/- is not accepted in full and gifts only to the tune of ₹ 2 lakh is accepted as explained for depositing in the bank account. So far as the cash available for deposit in the bank out of earlier withdrawals is concerned, here also the same is on estimation basis. An amount of ₹ 3,50,000/- may be accepted for earlier cash withdrawals eligible for re-deposit in the bank account as against ₹ 3,92,330/- since the assessee has estimated his personal withdrawals only for eight months. Thus, in effect, an amount of ₹ 1,42,330/- remains unexplained to be deposited in the bank account. Therefore, considering the totality of the facts of the case, I am of the considered opinion that an amount of ₹ 1,50,000/- on estimate basis is the unexplained cash deposited in the bank account which requires addition. Accordingly, the order of the CIT(A) is modified and the AO is directed to restrict the addition to ₹ 1,50,000/- to the returned income. The grounds raised by the assessee are partly allowed.

Summary

Issues Involved:
1. Addition of unexplained cash deposits in the bank account.
2. Enhancement of income by the CIT(A) beyond the scope of powers vested under section 251 of the Act.
3. Acceptance of turnover and applicability of section 44AF for presumptive taxation.
4. Adequacy of evidence provided by the assessee to explain the sources of cash deposits.

Detailed Analysis:

1. Addition of Unexplained Cash Deposits in the Bank Account:
The Assessing Officer (AO) noted significant cash deposits of ?10,19,000/- in the assessee's bank account and added ?4,79,369/- as income from unexplained sources, adopting the peak balance method. The CIT(A) further enhanced this addition to ?7,98,770/-. The Tribunal found that the assessee had explained the deposits as arising from business receipts, earlier cash withdrawals, gifts from parents, and an opening cash balance. However, the Tribunal partially accepted these explanations, estimating an unexplained cash deposit of ?1,50,000/-.

2. Enhancement of Income by the CIT(A) Beyond the Scope of Powers:
The CIT(A) enhanced the income by ?3,70,403/- without issuing a show-cause notice, which the assessee argued was beyond the jurisdiction and violated principles of natural justice. The Tribunal considered the enhancement and found that the CIT(A) had not fully substantiated the increase in unexplained deposits. Therefore, the Tribunal modified the CIT(A)'s order, reducing the addition to ?1,50,000/-.

3. Acceptance of Turnover and Applicability of Section 44AF:
The assessee initially declared a gross receipt of ?1,80,560/- and later revised it to ?7,08,320/-, claiming a profit under section 44AF. The AO and CIT(A) did not fully accept the revised turnover due to a lack of independent evidence. The Tribunal noted that the AO had accepted the business receipts at ?7,08,320/- but disallowed the benefit of section 44AF. The Tribunal found that the assessee's claim of turnover and profit under section 44AF was not fully substantiated but partially accepted the business receipts.

4. Adequacy of Evidence Provided by the Assessee:
The assessee provided a cash flow statement, confirmations of gifts from parents, and an opening cash balance to explain the deposits. The Tribunal found that while the explanations were partially credible, they were not fully substantiated. The Tribunal accepted an estimated opening cash balance of ?2,00,000/- and gifts amounting to ?2,00,000/- from parents, reducing the unexplained amount to ?1,50,000/-.

Conclusion:
The Tribunal partially allowed the appeal, modifying the CIT(A)'s order and directing the AO to restrict the addition to ?1,50,000/-. The Tribunal emphasized the need for credible evidence to substantiate claims of cash deposits and the proper application of section 44AF for presumptive taxation. The decision was pronounced in the open court on 10.06.2021.