2015 (8) TMI 458 - AT - Income Tax

Addition on account of deposits made in undisclosed bank account with Prime Coop. Bank Ltd. (PCBL) without allowing set off of loss made in purchase of sale of shares and future option - Held that - Copy of the statement of account of bank in question was filed by the assessee before us which shows that deposit of Rs. 37.75 lakhs was not made in the said bank account at a time but the same amount represents the aggregate amount of deposit which was made in the said bank account during previous year. A perusal of the bank account shows that there were regular withdrawals from the said bank account itself. No material has been brought on record by the revenue to show why the withdrawals made from the same bank account could not have been available with assessee for making subsequent deposits in the bank account. In above facts in our considered view adoption of entire aggregate deposits during the year of Rs. 37.75 lakhs as income by ignoring the withdrawals was not justified. We find that the peak deposits in the said bank was Rs. 12, 31, 169.88 on 17.1.2008. Further the frequency of deposit and withdrawal indicates that the assessee was carrying on certain undisclosed deposits. Therefore it would be reasonable to estimate the said business income and also to treat the same as business income of the assessee. We therefore estimate the assessee s profit from such business at the rate of 5% of Rs. 37.75 lakhs which comes to Rs. 1, 88, 750/-. Therefore in our considered opinion it would be just and fair to treat Rs. 14, 19, 919.88 (Rs.12, 31, 169.88 plus Rs. 1, 88, 750/-) as income of the assessee in respect of the bank account in question. We therefore delete the addition to the extent of Rs. 23, 55, 080.12 (Rs.37, 75, 000/- minus Rs. 14, 19, 919.88) and confirm the addition to the extent of Rs. 14, 19, 919.88 accordingly - Decided partly in favour of assessee.

Summary

Issues:
1. Delay in serving order affecting validity of proceedings under sec.143(3)
2. Addition of cash deposits in undisclosed bank account without allowing set off of losses in shares and future options

Issue 1: Delay in serving order affecting validity of proceedings under sec.143(3)
The appellant raised concern regarding the delay in serving the order, arguing that it was not served within the time limit prescribed by law. However, since no arguments were presented by the appellant's representative during the hearing, this ground was dismissed.

Issue 2: Addition of cash deposits in undisclosed bank account without allowing set off of losses in shares and future options
The Assessing Officer (AO) noted cash deposits of &8377; 37.75 lakhs in an undisclosed bank account of the appellant. The appellant claimed the funds were from friends, relatives, and money lenders, and that losses of &8377; 56,99,495 were incurred in shares and future options trading through the same account. The AO rejected the explanation, treating the cash deposits as undisclosed income under section 69A of the Act.

On appeal, the Commissioner of Income Tax (Appeals) upheld the AO's decision. The appellant argued that the losses should be set off against the undisclosed income, citing a High Court decision. The appellant failed to provide evidence supporting the sources of deposits or the claimed losses.

The Tribunal found that the appellant did not substantiate the source of deposits or the trading losses. It noted that the total deposits were accumulated over time, not in a single transaction. Considering the pattern of deposits and withdrawals, the Tribunal estimated the appellant's business income at 5% of the total deposits, resulting in a reduced addition to the appellant's income.

Therefore, the Tribunal partially allowed the appeal, reducing the addition to the appellant's income and confirming a lower amount based on the estimated business income.