2024 (5) TMI 1072 - AT - Income Tax

Unexplained credit u/s 68 - addition of entire credit entry by holding that the assessee failed to substantiate the transaction in any document - assessee received commission of 0.50% per Rs. 100/- - assessee failed to produce the details of any person for whom the assessee discounted cheque or given cash after receiving cheque or draftand no details were provided by the assessee, no bifurcation of amount was provided by the assessee - As assessee submits that the assessee used to earn commission in such manner from very small means of persons as nature of business does not require any capital to be invested. In the bank account, no huge balance ever remained at any point of time. Merely the assessee was unable to file party wise details, entire bank transaction cannot be taxed as income. HELD THAT - We find that no details of customer or persons to whom the assessee made transactions is given. Assessee in his submission explained that no details of such persons are maintained and the nature of business is peculiar. This Tribunal in various cases as relied by the ld. AR of the assessee has made/restricted the addition @ 0.125% to 0.35%, however, this combination in case of ITO Vs Shri Deepak Viothaldas Suchak 2021 (8) TMI 1028 - ITAT SURAT wherein the ld. CIT(A) restricted the addition on similar type of transaction @ Rs. 50 per lac on total turnover of Rs. 98.22 crores. However, on appeal before the Tribunal, this combination increased the disallowance to Rs. 75 per lac, therefore, taking a consistent view, the addition made in the assessment order in the case of assessee is restricted to Rs. 75/- per lakh i.e. 0.75% for Rs. 100/-. On perusal of details of entire transaction, we find that amount deposited through cheque is of Rs. 2.05 crore and cash deposited only Rs. 18.7 lacs. The cheque returns amount is aggregating Rs. 17.22 lacs. Thus, net credit in the bank account is only Rs. 2.07 crores. Hence, the assessing officer while giving effect of this order shall consider aggregate amount in bank account of Rs. 2.07 Crore. With this observation, the grounds of appeal raised by the assessee is allowed partly

Summary

Issues:
1. Addition of unexplained cash credit under Section 68 of the Income Tax Act for AY 2010-11 and 2012-13.
2. Estimation of reasonable profit on business activity of cheques/draft discounting.

Analysis:

Issue 1: Addition of unexplained cash credit under Section 68 of the Income Tax Act
The case involved two appeals by the assessee against separate orders for AY 2010-11 and 2012-13. The Assessing Officer reopened the case based on cash deposits and credit entries in the assessee's bank account. The AO believed that income had escaped assessment due to unexplained credit entries. The assessee claimed to earn commission income on demand drafts issued through the bank account. However, the Assessing Officer considered the explanation insufficient and treated the entire deposit amount as unexplained credit under Section 68. The ld. CIT(A) upheld this decision, leading to the appeal before ITAT Surat. The assessee argued that the business involved cheque/draft discounting, and commission income was earned on transactions. The Tribunal restricted the addition to Rs. 75 per lakh, considering similar cases and the nature of the business. The appeal was partly allowed based on this restriction.

Issue 2: Estimation of reasonable profit on business activity of cheques/draft discounting
The assessee contended that the business involved cheque/draft discounting and providing demand drafts to customers on a commission basis. The nature of the business was described as a Shroff business, where commission income was earned without the need for significant capital investment. The assessee's argument focused on the lack of party-wise details due to the peculiar nature of the business. The ld. CIT(A) and the Assessing Officer had not accepted the explanation provided by the assessee, leading to the addition of unexplained credit. However, the Tribunal considered the peculiar nature of the business, restricted the addition to Rs. 75 per lakh, and partially allowed the appeals for both AYs 2010-11 and 2012-13 based on consistency and similar set of facts.

In conclusion, the ITAT Surat partially allowed both appeals by restricting the addition of unexplained cash credit under Section 68 of the Income Tax Act to Rs. 75 per lakh, considering the peculiar nature of the business involving cheque/draft discounting and commission income earned by the assessee.