2023 (2) TMI 260 - AT - Income Tax

Unexplained cash deposits - GP estimation - not considering the plea of assessee for 8% gross profit addition and in restricting the addition to the peak credit - HELD THAT - Pattern of deposits in bank account shows that there are certain cheque deposits, deposits in cash and regular withdrawal of amount. The lower authorities have confirmed the entire aggregate of deposits and have not considered the withdrawal - entire amount of deposits cannot be considered for addition. The frequent deposit and withdrawal shows that the bank account in dispute was used for unreported business transactions. As recorded above the assessee claimed that the assessee was doing a small business of mobile, accessories and recharge coupons etc. Thus, after considering the submissions of assessee, find merit in his submission that the assessee was doing some business activity, though it was not disclosed to the department. In CIT Vs Pradeep Shantilal Patel 2013 (11) TMI 1646 - GUJARAT HIGH COURT held that where assessee admitted that cash deposit pertains to his retail business but details and nature of business were not forthcoming from record, considering the total turnover of assessee, net income had to be determined under Section 44AF As decided in this Tribunal in Smt. Krushangi Keyur Bhagat 2018 (9) TMI 2093 - ITAT SURAT assessee claimed that only peak credit appearing in the bank account should be considered which was not accepted and the amount after reducing the cheque deposits, remaining was treated as unexplained - on appeal before Tribunal, the plea of assessee that amount credited in the bank was a part of textile business and only profit element @ 5% of total deposit including of credit by way of cheque was considered as a profit element on the total deposits. Thus taxing the entire credit or restricting the addition on peak basis is not justified, and it would be justified if only profit element in such business activities from where the assessee generated the credit found in the bank account to avoid the possibility of revenue leakage. Therefore, 8% of total addition is considered as profit from such business activities. Accordingly, the Assessing Officer is directed to consider 8% of total deposit. We direct the Assessing Officer to restrict the addition @ 8% of credit in the bank account of assessee. In the result, ground No. 2 and 3 of appeal raised by assessee are allowed.

Summary

Issues:
1. Validity of reopening assessment under Section 147 and notice under Section 148.
2. Consideration of plea for 8% gross profit amount from bank account transaction.
3. Addition of peak credit balance of bank account treated as income.

Issue 1: Validity of Reopening Assessment:
The appeal challenged the action of the Assessing Officer in reopening the assessment under Section 147 and issuing notice under Section 148 of the Income Tax Act, 1961. The case was reopened based on AIR information regarding cash deposits in the assessee's bank account. The Assessing Officer issued notices and obtained bank details. The assessee failed to respond adequately, leading to the conclusion that income had escaped assessment. The ld. CIT(A) upheld the reopening, prompting the appeal to the Tribunal. During the hearing, the AR of the assessee withdrew the challenge to the reopening, which was dismissed as not pressed.

Issue 2: Consideration of 8% Gross Profit Plea:
The assessee contended that the Assessing Officer erred in not considering the plea for 8% gross profit amount from bank account transactions. The assessee operated a small business selling mobile products and accessories, offering a taxable income under Section 44AD. The Assessing Officer treated the cash and cheque deposits as unexplained money, disregarding the business nature of the transactions. The ld. AR argued that the profit margin in the business was low, and relied on case laws to support a reasonable estimation of income from the deposits. The ld. Sr. DR for the revenue argued that the entire deposits constituted the assessee's net profit. The Tribunal found merit in the assessee's submissions, acknowledging the undisclosed business activity and directed the Assessing Officer to consider 8% of the total deposit as profit from the business activities.

Issue 3: Addition of Peak Credit Balance as Income:
The ld. CIT(A) confirmed the addition of the peak credit balance of the bank account as income but restricted it to a certain amount. The Tribunal considered judicial decisions on undisclosed bank deposits and peak credit, noting that adding back the entire deposits would be arbitrary. The Tribunal found that taxing the entire credit or restricting the addition to peak basis was not justified. Following legal precedents, the Tribunal directed the Assessing Officer to consider 8% of the total deposit as profit from the business activities, thereby allowing the appeal partially.

In conclusion, the Tribunal partly allowed the appeal, directing the Assessing Officer to restrict the addition to 8% of the credit in the bank account. The judgment provided detailed analysis on the issues of reopening assessment validity, consideration of gross profit plea, and addition of peak credit balance as income, aligning with legal principles and precedents.