2023 (9) TMI 214 - AT - Income Tax

Unexplained income u/s 68 - addition of entire credit in the bank account of assessee by taking view that no response or explanation was furnished by assessee despite services of various notices - assessee has categorically contended that he has in the business in contract and carting - AO has made addition @ 8% on contract receipts - HELD THAT - The Hon'ble jurisdictional High Court in the case of Pradeep Shantilal Patel 2013 (11) TMI 1646 - GUJARAT HIGH COURT while considering the issue of cash credit / deposits in savings bank account when the nature of business was not forthcoming from the record, held that when the assessee admitted the cash deposits pertaining to his retail business and nature of business was not forthcoming on record, the net income has to be determined on the basis of turnover of assessee. Thus,keeping in view that the total deposits in bank account of assessee, therefore deem it fit and proper to estimate the income of assessee @ 10% of credit / deposits in assessee s bank account.

Summary

Issues Involved:
The issues involved in the judgment include the validity of re-opening assessment, passing of an ex-parte order, addition of unexplained income under section 68 of the Income Tax Act, and addition of 8% of contract income under section 44AD.

Validity of Re-opening Assessment:
The appeal was directed against the order of the National Faceless Appeal Centre, Delhi, for the assessment year 2011-12. The Assessing Officer re-opened the assessment based on the belief that income had escaped assessment due to cash deposits and contract receipts. The notice under section 148 was issued, but the assessee did not file a return of income. The Ld. CIT(A) upheld the validity of re-opening, stating that a reasonable belief is required for re-opening and that it was based on valid information of cash deposit.

Passing of Ex-parte Order:
The Assessing Officer passed an ex-parte order under section 144 of the Income Tax Act, 1961, as the assessee did not respond to notices. The Ld. CIT(A) confirmed this action, noting that the assessee failed to explain the nature and source of the credit in the bank account. The Ld. CIT(A) also rejected the contention that the assessment order was passed beyond the limitation period, stating it was completed within nine months of serving the notice under section 148.

Addition of Unexplained Income under Section 68:
The Assessing Officer made an addition of Rs. 14,29,763 as unexplained income under section 68 of the Income Tax Act. The Ld. CIT(A) upheld this addition, as the assessee failed to provide a satisfactory explanation for the credit in the bank account. However, the Tribunal decided to estimate the income at 10% of the credit/deposits in the bank account, partially allowing the ground of appeal and directing the assessing officer accordingly.

Addition of 8% of Contract Income under Section 44AD:
Additionally, the Assessing Officer added Rs. 8,064 as 8% of contract income under section 44AD. The Ld. CIT(A) confirmed this action. The Tribunal considered the precedent set by the jurisdictional High Court and estimated the income at 10% of the credit/deposits in the bank account, partially allowing the appeal.

Conclusion:
The Tribunal partially allowed the appeal, directing the assessing officer to make adjustments based on the estimated income. The judgment was pronounced on August 30, 2023.