2021 (7) TMI 414 - AT - Income Tax

Rejection of books of accounts - estimation of income - Unexplained Investment in Purchases - HELD THAT - Once the income of the assessee is estimated by G.P rate no further addition can be made on account of expenditure which is part of the trading account. As far as the unexplained investment is concerned the source of payment is not in dispute as it is clearly made through bank account of one Sikha Jaisawal and the assessee has explained the reasons for such payment through bank account of Sikha Jaisawal. It is pertinent to note that it is not the isolated transaction of payment for purchases through bank account of Sikha Jaisawal but all the transactions from January, 2012 to February, 2012 were made from the bank account of Sikha Jaisawal A.O has accepted all other transactions of purchases and payment made through bank account of Sikha Jaisawal but pick up this transaction due to the reasons that the same is not recorded in the books of accounts of the assessee. Once, the source of the payment of the purchases is not in dispute then the same cannot be treated as unexplained investment. Accordingly, in view of the fact that the income of the assessee was estimated by the A.O by applying G.P rate after rejection of books of accounts u/s 145(3) of the Act the addition made by the A.O on account unexplained/unaccounted purchases is not sustainable and the same is liable to be deleted. - Decided in favour of assessee. Reassessment proceedings - addition on account of unexplained deposits made in the bank account - HELD THAT - As manifest from the details and explanation furnished by the assessee that the assessee has shown the deposits made in the bank account on various dates and also the corresponding payment through cheques and demand draft which were subsequently cancelled in some instance. It is pertinent to note that if the sale proceeds of the assessee are not deposits in any other bank account then the explanation of the assessee that the deposits made by the assessee in the bank account maintained with Bank of Baroda cannot be rejected without verifying these details. Accordingly, in the facts and circumstances of the case and in the interest of justice this issue is set aside to the record of A.O for proper verification of the details as well as facts regarding the source of the deposits and then adjudicate the same afresh, after affording an opportunity of hearing to the assessee.

Summary

Issues Involved:
1. Addition of ?1,51,386/- as unexplained investment in purchases.
2. Addition of ?11,05,000/- as unexplained investment in bank deposits.

Issue 1: Addition of ?1,51,386/- as Unexplained Investment in Purchases

The assessee, running a liquor shop, filed a return of income declaring ?3,50,336/-. During scrutiny assessment, the Assessing Officer (A.O) found discrepancies in the books of account and rejected them under Sec. 145(3) of the Income Tax Act. The A.O estimated the income by applying a G.P Rate of 18.33%, the same as the previous year, and made a trading addition of ?69,710/-. Additionally, the A.O added ?1,51,386/- as unexplained investment for purchases made on 22nd February 2012, which were not disclosed in the audit report. The assessee's explanation that the payment was made through the bank account of Ms. Sikha Jaisawal due to personal circumstances was not accepted by the A.O, leading to the addition being upheld by the CIT(A).

Before the Tribunal, the assessee argued that once the books of accounts were rejected and income estimated by applying the G.P Rate, no further addition should be made for unexplained purchases. The payment source was not disputed, as it was made through Sikha Jaisawal's bank account. The Tribunal noted that the A.O did not dispute the sales, which included the alleged unexplained purchases. Therefore, no further addition could be made once the income was estimated by applying the G.P Rate. The Tribunal held that the addition of ?1,51,386/- was not sustainable and deleted it.

Conclusion: The appeal concerning the addition of ?1,51,386/- as unexplained investment in purchases was allowed, and the addition was deleted.

Issue 2: Addition of ?11,05,000/- as Unexplained Investment in Bank Deposits

After the initial scrutiny assessment, the A.O reopened the assessment under Sec. 147 r.w.s. 143(3) due to unexplained deposits of ?11,05,000/- in the assessee's Bank of Baroda account. The A.O made the addition as the assessee failed to explain the source of these deposits and did not produce supporting evidence. The CIT(A) upheld this addition despite the assessee's detailed explanation and submission of relevant documents.

Before the Tribunal, the assessee contended that the deposits were sale proceeds used for payments to the excise department and were reflected in the books of accounts and balance sheet. The Tribunal noted that the assessee provided a detailed explanation, including bank statements and transactions, showing that the deposits were business receipts and not unexplained investments. The Tribunal found that the A.O did not verify these details properly. Therefore, in the interest of justice, the Tribunal set aside the issue to the A.O for proper verification of the source of deposits and adjudication afresh.

Conclusion: The appeal concerning the addition of ?11,05,000/- as unexplained investment in bank deposits was allowed for statistical purposes, and the issue was remanded to the A.O for re-examination.

Final Order:

The appeal in ITA No. 30/Alld/2020 was allowed, and the addition of ?1,51,386/- was deleted. The appeal in ITA No. 31/Alld/2020 was allowed for statistical purposes, and the issue of ?11,05,000/- was remanded to the A.O for fresh adjudication.