2022 (11) TMI 906 - AT - Income Tax

Estimation of net profit at the rate of 10% of sales - assessee during the assessment proceedings failed to furnish the documentary evidences for the expenses claimed in the return of income - HELD THAT - From the preceding discussion, we note that the assessee has already declared an income at the rate of 9.34% in his return of income. Even under the provisions of section 44AD of the Act, the presumptive rate specified therein is 8% of the turnover whereas the assessee has declared income more than 8 percent. There was no basis provided by the authorities below for estimating the income at the rate of 10% of the turnover. Accordingly, we are not convinced with the finding of the learned CIT(A) and reverse the same with the direction to the AO delete the addition made by him. Hence, the ground of appeal of the assessee is allowed. Addition being the peak credit of the amount shown in the bank accounts - amount of cash deposits which is supported by the subsequent withdrawals - HELD THAT - Admittedly the huge amount of cash was deposited and withdrawn from the bank account of the assessee. It is the onus upon the assessee to explain each and every transaction of the cash deposit and withdrawn. But the assessee failed to explain the same. It is also true that the entire amount of cash deposit cannot be treated as income of the assessee in a situation where there is a subsequent withdrawal and deposit in the bank account of the assessee. The amount withdrawn from the bank is available with the assessee for subsequent deposit in the bank account. In such facts and circumstances the Hon ble Courts in series of cases has held that the peak amount lying in the bank account should be treated as income of the assessee. No infirmity in the order of the authorities below. Before parting, we note that the assessee has not given his working for the amount of the peak credit. Accordingly, in the interest of justice and fair play we are inclined to give one opportunity to the assessee to work out the peak-credit and provide the same to the AO. Ground of appeal of the assessee is allowed for the statistical purposes. Addition of low household withdrawals - HELD THAT - It is the onus upon the assessee to furnish the necessary details as desired by the AO. From the preceding discussion we note that the assessee has not furnished the details of the family members Therefore the addition was made on account of low withdrawal of household expenses. However, we note that there is no basis of making the disallowance on ad-hoc basis. However in the interest of justice and fair play we restrict the disallowance to the tune of 25,000.00 only. Thus the ground of appeal of the assessee is partly allowed.

Summary

Issues:
1. Estimation of net profit at 10% of sales
2. Addition of unexplained cash deposits in bank accounts
3. Restriction of addition made for low household withdrawals

Issue 1: Estimation of Net Profit at 10% of Sales
The assessee challenged the addition of net profit estimated at 10% of sales, amounting to Rs. 1,31,376. The AO estimated income at Rs. 2,62,752, being 20% of turnover, due to lack of documentary evidence for expenses claimed. The CIT(A) confirmed the addition at 10% of turnover, resulting in Rs. 8,948. The ITAT noted the assessee declared income at 9.34% and that no basis was provided for estimating at 10%. The ITAT reversed the CIT(A)'s decision, directing the AO to delete the addition, as the presumptive rate under section 44AD is 8%. The ground of appeal was allowed.

Issue 2: Addition of Unexplained Cash Deposits in Bank Accounts
The AO added Rs. 31,06,594 as peak credit from cash deposits in the bank accounts, despite the assessee's explanation of depositing and withdrawing cash to show high turnover for obtaining contracts. The CIT(A) confirmed the addition under section 69A, holding the unexplained money as undisclosed and unaccounted. The ITAT observed the huge cash transactions, the assessee's failure to explain, and the peak balance theory application by the AO. The ITAT set aside the issue for fresh adjudication, giving the assessee an opportunity to provide the peak credit working to the AO.

Issue 3: Restriction of Addition for Low Household Withdrawals
The AO proposed a disallowance of Rs. 1 lakh towards household expenses due to lack of details, which was restricted to Rs. 50,000 by the CIT(A). The ITAT noted the absence of family members' details and upheld the disallowance on ad-hoc basis. However, in the interest of justice, the ITAT restricted the disallowance to Rs. 25,000. The ground of appeal was partly allowed.

In conclusion, the ITAT partially allowed the appeal, reversing the addition of estimated net profit, setting aside the addition of unexplained cash deposits for fresh adjudication, and restricting the addition for low household withdrawals.