2017 (1) TMI 107 - AT - Income Tax

Reopening of assessment - addition towards unexplained cash deposits in bank account - Held that - We find that the assessee has withdrawn cash on various dates. Unless the A.O. proves that cash withdrawals has been utilized for personal expenditure or deployed for acquisition of assets, the sources available in the form of cash withdrawals cannot be ignored while considering credits in the bank account. Therefore, we are of the view that the A.O. was erred in making additions towards total credits found in the bank account. Hence, we direct the A.O. to work out peak credits found in the bank account and make additions to the peak credit instead of total credits found in the bank account. Undisclosed income out of additional unaccounted sales and estimation of net profit - Held that - The assessee has estimated additional turnover of ₹ 70 lakhs for the assessment year 2011-12. But the CIT(A) has enhanced the turnover to ₹ 1.40 crores without any basis. Therefore, we are of the view that the CIT(A) was incorrect in enhanced turnover from ₹ 70 lakhs to ₹ 1.40 crores, accordingly we direct the A.O. to accept turnover declared by the assessee. In so far as assessment year 2012-13, the assessee has admitted an unaccounted turnover of ₹ 1,45,76,675/- for the period of 4 months from Dec 11 to Mar 12 and further ₹ 60 lakhs for the period of 8 months from Apr 11 to Nov 11. As against this, the A.O. has estimated an additional turnover of ₹ 2,91,53,350/- for the period of 8 months based on the turnover of the period Dec 11 to Mar 12. Though the CIT(A) has reduced turnover estimated by the A.O. from ₹ 2,91,53,530/- to ₹ 80 lakhs, fails to give any reasons for estimating higher turnover of ₹ 80 lakhs. Therefore, we are of the view that the CIT(A) was incorrect in adopting higher turnover as against turnover declared by the assessee. Hence, we direct the A.O. to adopt turnover declared by the assessee in the revised return filed in response to notice u/s 148 of the Act. Estimation of net profit the assessee has declared a net profit of 12.99% to 16.74% for the year ended 31.3.2010 and 31.3.2011, we deem it appropriate to direct the A.O. to estimate net profit of 20% on total sales including unaccounted sales. Accordingly, we direct the A.O. to estimate net profit of 20% on total sales for the assessment year 2011-12 and 2012-13. Additions towards VAT component of unaccounted sales - Held that - We find force in the arguments of the assessee, for the reason that the turnover of the assessee has been determined on estimation basis. It is also fact that the assessee also not collected VAT separately in the sales bills. Since, the net profit of the assessee has been estimated on total turnover, there is no need for separate additions towards VAT component. The CIT(A) after considering the relevant details directed the A.O. to delete additions made towards VAT. We do not find any error or infirmity in the order of the CIT(A). Hence, we inclined to uphold the CIT(A) order and reject ground raised by the revenue. Interest u/s 234A & 234B of the Act is consequential and mandatory in nature and accordingly, the A.O. has rightly levied interest on total income determined, accordingly, we uphold interest charged u/s 234A & 234B of the Act.

Summary

Issues Involved:

1. Unexplained cash deposits in bank account.
2. Estimation of unaccounted sales and net profit.
3. Additions towards VAT payable u/s 43B of the Act.
4. Levy of interest u/s 234B of the Act.

Issue-wise Detailed Analysis:

1. Unexplained Cash Deposits in Bank Account:
During scrutiny proceedings, the assessee was asked to explain cash deposits in an Axis Bank account amounting to ?6,95,170/-. The A.O. noted that the assessee admitted the account belonged to him but claimed the deposits were partly from friends and partly from capital account withdrawals. The assessee failed to establish the nexus between these withdrawals and the deposits. Consequently, the A.O. added ?6,88,500/- as unexplained income. The Tribunal found that the A.O. erred in this approach, noting that there were both credits and withdrawals in the bank account. It was held that unless the A.O. could prove that withdrawals were used for personal expenses or asset acquisition, the sources of cash withdrawals should not be ignored. The Tribunal directed the A.O. to work out peak credits in the bank account and make additions based on peak credit instead of total credits.

2. Estimation of Unaccounted Sales and Net Profit:
The A.O. observed that the assessee admitted additional turnover of ?70 lakhs each for AY 2011-12 and 2012-13 and estimated a net profit of 17.5%. The A.O. estimated net profit of 60% on additional turnover, adding ?29,79,000/- to the total income for AY 2011-12 and estimated additional turnover of ?2,91,53,350/- for AY 2012-13. The CIT(A) reworked the estimation, scaling down net profit from 60% to 25% but enhancing turnover for AY 2011-12 to ?1.40 crores. The Tribunal found that the CIT(A) erred in estimating turnover for AY 2011-12 based on AY 2012-13 data and directed the A.O. to accept the turnover declared by the assessee. For AY 2012-13, the Tribunal directed the A.O. to adopt the turnover declared by the assessee in the revised return. Regarding net profit estimation, the Tribunal found the CIT(A) erred in adopting 25% without reasons and directed the A.O. to estimate net profit at 20% on total sales, considering the nature of the business and overheads.

3. Additions Towards VAT Payable u/s 43B of the Act:
The A.O. added ?21,13,618/- towards VAT payable, holding that the assessee did not disclose the additional turnover in the sales tax return and did not pay the corresponding VAT. The assessee contended that VAT was not collected separately in sales bills and the A.O. was not justified in making separate additions. The Tribunal found that since the net profit was estimated on total turnover, there was no need for separate additions towards VAT. The CIT(A) directed the deletion of these additions, and the Tribunal upheld this decision, finding no error.

4. Levy of Interest u/s 234A & 234B of the Act:
The Tribunal noted that the levy of interest u/s 234A and 234B of the Act is mandatory and consequential. The A.O. correctly levied interest on the total income determined, and the Tribunal upheld this action.

Conclusion:
The appeals filed by the assessee for AY 2010-11, 2011-12, and 2012-13 were partly allowed. The appeals filed by the revenue were dismissed, and the cross objections filed by the assessee were also dismissed. The order was pronounced in the open court on 30th Dec'16.