2019 (2) TMI 2120 - AT - Income Tax

Addition being entire sale receipts deposited in cash in bank account by treating as unexplained income - As argued the said receipts are not income but are the sale proceeds hence, the said addition should have been deleted - HELD THAT - The assessee has failed to produce necessary documentary evidence before the lower authorities to substantiate its claim that cash deposits represented the sale proceeds of its business income. However, on the same time, the entire cash deposits could not be subjected to tax as the assessee explanation of the assessee is unsatisfactory. The learned Counsel fairly conceded that only peak credit at Rs. 2, 56, 590 as appearing as on 18. 03. 2008 can be considered for addition as the assessee has failed to explain the cash deposits appearing in the bank accounts maintained by him with various banks. AO is directed to consider the peak credits of Rs.2, 56, 590 for additions as against the entire cash deposits of Rs. 19, 90 400 appearing in various bank accounts. Our above view is also supported by decision of President Industries 1999 (4) TMI 8 - GUJARAT HIGH COURT wherein it was held that in the absence of any finding of the material that there was suppression of investment in acquiring the goods which are subject of undisclosed sales, Tribunal was justified in holding that entire undisclosed sales could not be treated as income of the assessee but addition could be made only to the extent of estimated profits and embedded in sales for which the net profit rate was adopted, no referable question of law arises. Similarly, in the case of Principal Commissioner of Income Tax v. Shri Inderjeet Zandusingh Tomar 2016 (1) TMI 182 - GUJARAT HIGH COURT has observed that in our opinion, the CIT(A) and Tribunal committed no error. There was nothing with the Department to suggest that entire deposit of Rs. 2.46 crores represents the income of the assessee. CIT(A) instead of adding 1% of Rs. 2.46 crores adopted peak credit of theory, which was also upheld by the Tribunal - this ground of appeal is partly allowed. Estimation of profit element in respect of sale proceeds of shares - We find that the profit element in share transaction is not static and fluctuating on the market conditions. Therefore, taking a holistic view , we are of the considered opinion that the share transaction profit be restricted to 10% which worked out to Rs. 1,37,730, hence, addition is restricted to this extent and balance is deleted. This ground of appeal is therefore, partly allowed.

Summary

Issues:
1. Addition of entire sale receipts as unexplained income.
2. Estimation of addition in respect of sale proceeds of shares.

Analysis:

Issue 1:
The appeal was against the addition of Rs. 19,90,438 as unexplained income by treating entire sale receipts deposited in cash in the bank account. The Assessing Officer (AO) made the addition as the assessee failed to explain the source of cash deposits despite multiple opportunities. The Commissioner of Income Tax (Appeals) upheld the addition stating that the cash deposits were not supported by evidence as business turnover. The Tribunal noted that the assessee withdrew and deposited cash in the same bank account, suggesting only unexplained deposits could be taxed. The Tribunal directed the AO to consider only the peak credit of Rs. 2,56,590 for addition, citing precedents where additions were limited to estimated profits. The Tribunal partially allowed the appeal on this ground.

Issue 2:
The second ground involved the estimation of addition in respect of sale proceeds of shares. The AO alleged unexplained transactions in shares and estimated profit at 20% of sale proceeds. The CIT (A) upheld the estimation as the appellant did not address the issue of enhanced profit in the reply. The Tribunal considered the fluctuating nature of share transaction profits and reduced the addition to 10% of the sale proceeds, resulting in an addition of Rs. 1,37,730. The Tribunal partially allowed the appeal on this ground as well.

In conclusion, the Tribunal partially allowed the appeal, directing the AO to consider only the peak credit for addition in the first issue and reducing the addition in respect of sale proceeds of shares in the second issue.