2021 (7) TMI 795 - AT - Income Tax

Unexplained credits in the bank accounts - cash deposits found in these bank accounts on the basis of a cancelled sale agreement - HELD THAT - AO has assessed the entire amount of deposits as unexplained income of the assessee for want of evidences - it is quite natural that the assessee may not be keeping records, since the transactions were carried out on behalf of others. Hence, we are of the view that the explanation of the assessee that the transactions in these two bank accounts relate to his real estate business cannot be rejected altogether. On the contrary, the observations made by the AO, the replies given by the assessee would suggest that the explanations given by the assessee may be accepted. In that case, entire deposits could not assessed as income of the assessee. Only the income element involved in the deposits requires to be assessed as income of the assessee. In these business transactions, the assessee should be earning commission and brokerage income. Assessee has not stated anything about his rate of commission/brokerage. Considering the fact that the income element in the case of liaison works is usually high, we are of the view that the income of the assessee may be estimated @ 20% of the addition made by the AO relating to unexplained deposits. In our considered view, the same would be reasonable in the facts and circumstances of the case and further the same would also meet the ends of justice. Since we have held that the transactions found in the bank accounts may relate to the real estate business carried on by the assessee, the alternative contention of addition of peak credit need not be considered. We set aside the order passed by Ld. CIT(A) and direct the AO to compute income of the assessee @ 20% of the addition made and assess the same in the place of the addition made by him. Appeal filed by the assessee is partly allowed.

Summary

Issues:
Assessment of unexplained credits in bank accounts.

Analysis:
The appeal was filed against the order upholding the addition of ?6.07 Crores as unexplained credits in the bank accounts. The assessee, engaged in trading and real estate business, declared income of ?39.91 lakhs for the year. During a survey, undisclosed bank accounts were found with significant deposits. The Assessing Officer (AO) treated the deposits as unexplained income. The assessee's plea for assessing peak credit balance was rejected. The CIT(A) upheld the AO's decision, citing possible violations of tax provisions. The assessee argued that the deposits were related to real estate business liaison works, requesting peak credit assessment. The Department argued against peak credit, emphasizing the lack of proof for the source and purpose of deposits. The Tribunal noted the AO's acknowledgment of the assessee's real estate business and accepted that a portion of deposits was related to business activities. Consequently, the Tribunal directed the AO to assess 20% of the unexplained deposits as income, considering the nature of the business. The appeal was partly allowed, setting aside the CIT(A)'s order.

This case primarily dealt with assessing unexplained credits in the assessee's bank accounts. The Tribunal recognized the real estate business nature of the transactions, directing the assessment of only 20% of the deposits as income. The decision balanced the lack of detailed records with the nature of liaison works, ensuring a fair income assessment.