2022 (7) TMI 592 - AT - Income Tax

Unexplained cash Deposits - persons who had given the money to the Assessee to book the flats and only because the confirmations were not received from respective builders they were disallowed - HELD THAT - Where the Assessee claims to be inter-mediatory between the investors and the builders and some part of the admitted payments made by these investors were confirmed, then remaining amounts not confirmed by builder, can be explained, by assessee, if these unconfirmed amounts totaling 11.01,371, were deposited by way of cheques to the respective builders M/s. Gaursons Hi-Tech Infrastructure Pvt. Ltd and Supertech Ltd failed to confirm. Thus, it will be appropriate to allow this ground with a direction to the ld CIT(A) to give opportunity to the Assessee to establish that amount paid to these two builders was by way of cheques or other banking mode and if assessee succeeds to establish the fact, the remaining addition of Rs. 11,01,317/- as sustained by the ld CIT(A) shall stand deleted. Enhancement of income - Assessee argued that addition has been made without giving any opportunity of hearing - HELD THAT - DR could not controvert this arguments. In the light of the aforesaid irregularity and violation of mandate of law, the issue is restored to the files of Ld. CIT(A) to give opportunity of hearing to the Assessee. Disallowance of 10% of total expenses - HELD THAT - As based on the business activity carried on by the Assessee the ld CIT(A) had upheld disallowance of 10% of total expenses on adhoc basis. The same being without any reason to distinguish how remaining 90% is allowed, the same cannot be sustained. Hence, this ground is decided in favour of the Assessee.

Summary

Issues:
1. Unexplained cash deposit in bank account.
2. Disallowance of expenses.
3. Addition of income without proper notice.

Analysis:

Issue 1: Unexplained cash deposit in bank account
The Assessee filed a return of income and was later selected for scrutiny due to a cash deposit of Rs. 62,09,900 in a bank account without explaining the source. The Assessing Officer (AO) considered it as unexplained income. The Commissioner of Income Tax (Appeals) found that part of the deposit was explained by the Assessee, but Rs. 11,01,317 remained unexplained. The CIT(A) added 10% of the total turnover as income due to lack of maintained accounts. The Assessee appealed against the CIT(A)'s decision, arguing that the unexplained amount was confirmed by persons who paid for property bookings. The Tribunal directed the CIT(A) to allow the Assessee to prove the payments to builders by cheques, potentially leading to the deletion of the unexplained amount.

Issue 2: Disallowance of expenses
The AO disallowed 10% of the total expenses as unverifiable. The CIT(A) upheld this disallowance without providing a reason for distinguishing the remaining 90% of expenses. The Tribunal ruled in favor of the Assessee, stating that without justification, the ad hoc disallowance cannot be sustained.

Issue 3: Addition of income without proper notice
The Assessee contested the addition of Rs. 16,82,836 as income, claiming that no opportunity for a hearing was given before the enhancement. The Tribunal found this irregularity and violation of law, ordering the issue to be sent back to the CIT(A) for a proper hearing.

In conclusion, the Tribunal partly allowed the Assessee's appeal, favoring the Assessee on the issue of disallowance of expenses and directing a reevaluation of the unexplained cash deposit and income addition issues. The judgment highlighted the importance of proper justification and opportunities for hearings in income tax assessments.