2024 (4) TMI 1159 - AT - Income Tax

Unexplained/unaccounted income u/s 68 - cash deposited by assessee in a high denomination bank notes - taxing the addition by taking the rate @77.25% by attracting Sec 115BBE - as argued assessee has deposited sale proceed of their business in their disclosed bank accounts - HELD THAT - When the nature and activities of assessee was not in dispute nor against the explanation and the evidences furnished by assessee, AO has brought any adverse material to justify in his action in treating the entire cash deposit as unaccounted income. We find merit in the submission of assessee that business and state of accounts and dealing of assessee is justified, reasonable inference that for smooth and convenience, the assessee could kept the part of sale proceed in a high denomination notes. We further find that by furnishing all the details, the assessee has prima facie discharged their initial burden. AO while making additions made a general observation that required details were not furnished. in our view that once the assessee has discharged their initial burden, the onus shifts on the Assessing officer to prove it otherwise. AO has not investigated the facts and only doubted the cash deposited. In our considered view, when the purchase of assessee was of the Act doubted and books of assessee was of the Act rejected, the component of sales in cash cannot be rejected. However, in order to avoid the possibility of revenue leakage, in our view, a reasonable disallowance out of total cash deposits would meet the ends of justice, therefore, taking a consistent view as has been taken in other cases, in our view, 10% of alleged cash deposit/addition would be reasonable to avoid the possibility of revenue leakage. In the result, ground No. 1 of appeal is partly allowed. Taxing the addition at a rate of 77.25% under Section 115BBE - As we have deleted the substantial part of addition by treating the cash generated on business transactions, therefore, the additions sustained by assessee would not be liable to tax at the enhanced rate under Section 115BBE. Grounds No. 2 and 3 of appeal are allowed.

Summary

Issues Involved:
1. Addition of Rs. 29,66,983/- as unexplained/unaccounted income under Section 68 of the Income Tax Act.
2. Taxing the addition at a rate of 77.25% under Section 115BBE instead of the normal tax slab.
3. Retroactive application of Section 115BBE for taxing the income at 77.25%.

Detailed Analysis:

1. Addition of Rs. 29,66,983/- as unexplained/unaccounted income under Section 68 of the Income Tax Act:

The assessee, a company engaged in the trading of diamonds, filed its return of income for AY 2017-18. During the scrutiny, the Assessing Officer (AO) noted cash deposits in various bank accounts during the demonetization period. The AO issued a show-cause notice to the assessee, who responded with detailed explanations and documents. The assessee clarified that some bank accounts mentioned in the notice did not belong to them, reducing the disputed amount to Rs. 33,09,333/-. The assessee provided purchase and sales details, cash summaries, and invoices, asserting that the cash deposits were from legitimate business sales. The AO, however, rejected these explanations, citing a lack of detailed purchase and sales documentation, and added Rs. 29,66,983/- as unexplained income under Section 68, taxing it at 60% under Section 115BBE.

The CIT(A) upheld the AO's decision, stating that the assessee failed to explain the nature and source of the deposits satisfactorily. However, upon appeal, the Tribunal found that the assessee had provided sufficient documentation and that the AO did not conduct an independent investigation. The Tribunal noted the business nature and the high turnover of the assessee, concluding that the cash deposits were reasonably explained. To avoid revenue leakage, the Tribunal allowed a 10% disallowance of the cash deposits, partly allowing the appeal on this ground.

2. Taxing the addition at a rate of 77.25% under Section 115BBE instead of the normal tax slab:

The assessee argued that the AO erred in taxing the addition at 77.25% under Section 115BBE, which was applicable retrospectively. The Tribunal, having deleted the substantial part of the addition by recognizing the cash deposits as business transactions, directed the AO to tax the sustained addition at the normal tax rate applicable to the assessee, thus allowing the appeal on this ground.

3. Retroactive application of Section 115BBE for taxing the income at 77.25%:

The Tribunal referenced various case laws and decisions, including the Supreme Court's ruling in Sreelekha Banerjee Vs CIT, which emphasized that a reasonable explanation for high denomination notes should not be unreasonably rejected. The Tribunal concluded that the retrospective application of Section 115BBE at an enhanced rate was not justified in this case, supporting the assessee's contention.

Conclusion:

The Tribunal partly allowed the appeal, reducing the addition to 10% of the cash deposits to prevent revenue leakage and directing the AO to tax the sustained addition at the normal rate. The decision emphasized the need for a reasonable and fair assessment based on the business nature and provided documentation, rather than solely on the cash deposits during the demonetization period.