2016 (6) TMI 286 - AT - Income Tax

Addition on account of cash deposit in various bank accounts and profit estimated thereon - Held that - Transactions cannot be considered for estimating the business income of the assessee. Furthermore assessee has given a reconciliation of the amount of cash deposited of Rs. 1, 49, 27, 029/- in ICICI Bank stating that Rs. 82, 54, 580/- is cash deposit out of cash withdrawals from various banks. It was further stated that Rs. 5, 50, 000/- is received in cash from debtor s outstanding. The AO has not verified these claims specifically made before the AO vide letter dated 17.2.2014. Furthermore the Ld. CIT(A) has also not considered this aspect but has merely stating that cash book prepared by the assessee is not reliable cannot lead to the addition of the whole cash deposit as gross sales of the assessee. Furthermore assessee has shown opening balance as on 1.4.2010 in the cash book of Rs. 2, 03, 550/- which assessee could not explain how it has come into the hands of the assessee when it has only salary income and interest income. Therefore it is apparent that Ld. AO has considered the total cash deposit as turn over incorrectly. Further before us the AR of the appellant has submitted a CBDT instruction dated 8th September 2010 which also says that the scrutiny in cases selected through AIR would be restricted to that information only. In case the escapement of total income of more than Rs. 10 lacs then only the case may be taken up for wider scrutiny after the approval of the administrative Commissioner. In the present case the addition made by the AO u/s 44AD on undisclosed turnover is Rs. 10, 47, 947/-. Therefore it satisfied the first condition of potential escapement of income exceeding Rs. 10 lacs. However it is not clear whether the approval of the administrative Commissioner has been obtained or not. Ld. DR also could not submit that such approval is taken. In view of above facts in the interest of justice the whole issue of addition of Rs. 6, 54, 967/- is set aside to the file of the AO with the following direction - a) To determine the exact turnover of the assessee based on the letter dated 27.1.2014 and 17.2.2014 with respect to the cash book submitted by the assessee and cash deposited in bank accounts and then estimate profit thereon @ 5% not exceeding Rs. 654967/- b) In case approval of the administrative Commissioner has not been taken in terms of instruction dated 8th September 2010 to restrict the addition with respect to turn over contained in ICICI bank account of the assessee wherein total cash deposit is Rs. 1, 49, 27, 092/-. While determining the total income of the assessee the Ld. AO shall provide adequate opportunity to the assessee to substantiate it business receipt in cash which is deposited in bank and also interbank cash deposit and cash withdrawals. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
Single addition to total income on account of cash deposit in bank accounts and profit estimated thereon.

Detailed Analysis:
1. The appeal was filed against the order of Ld. CIT(A) confirming the Assessing Officer's order, which provided only partial relief. The grounds of appeal included challenges to the assessment process, application of deeming provisions, rejection of turnover under Sec. 44AD, and failure to consider statutory provisions. The appellant argued that the entire proceedings were in violation of Sec.119 of the Income-tax Act and constitutional provisions, rendering them void ab initio.

2. The brief facts revealed that the assessee declared income in the return, which was revised later to include business income under Sec. 44AD. The Assessing Officer found significant cash deposits in various bank accounts, estimating profits and making additions to the total income. The CIT(A) reduced the profit percentage but confirmed a portion of the addition. The appellant contended that the AO's addition was unsustainable, as all transactions were reflected in the books of accounts.

3. The appellant relied on AIR information and CBDT instructions to argue that the scrutiny should be limited to information received through AIR. The appellant maintained that the cash deposits were part of sales turnover and not unaccounted income. The appellant provided a detailed reconciliation of cash deposits, explaining interbank transactions and sources of cash, which the AO and CIT(A) failed to consider adequately.

4. The Tribunal carefully considered the contentions and evidence presented by the appellant. It noted discrepancies in the AO's treatment of cash deposits as turnover and emphasized the importance of restricting scrutiny to AIR information as per CBDT instructions. The Tribunal set aside the addition to the total income, directing the AO to determine turnover based on the appellant's submissions and estimate profit accordingly. The Tribunal also highlighted the need for the AO to provide the appellant with an opportunity to substantiate business receipts deposited in banks.

5. The appeal was allowed with the specified directions, emphasizing adherence to procedural fairness and proper application of tax laws. The Tribunal's decision aimed to ensure a thorough assessment based on accurate information and statutory provisions, ultimately providing relief to the appellant.

Conclusion:
The Tribunal's judgment addressed the issues raised by the appellant regarding the addition to total income due to cash deposits and profit estimation. By considering the evidence, legal provisions, and procedural aspects, the Tribunal provided detailed directions for the Assessing Officer to reevaluate the turnover and profit estimation, emphasizing the importance of following CBDT instructions and ensuring a fair assessment process.