2017 (12) TMI 737 - AT - Income Tax

Addition on account of unexplained cash deposits in the bank account maintained with Axis Bank - estimating the profit at the rate of 8% on turn over - Held that - There is no whisper about such remand report from the AO. Under these circumstances, find merit in the submission of the assessee that his profit from fabric trading business should be estimated at 8% on the turn over of ₹ 23,19,870/-. Therefore, direct the AO to adopt the profit @ 8% on turn over of ₹ 23,19,870/- in place of ₹ 16,54,000/- made by AO u/s 68 of the IT Act. Grounds raised by the assessee are accordingly partly allowed.

Summary

Issues:
1. Addition of cash deposit in bank account under section 68 of the IT Act.
2. Justification of business income declaration and profit estimation.

Analysis:
1. Issue 1: Addition of cash deposit under section 68
The case involved an appeal against the addition of a cash deposit in the bank account under section 68 of the IT Act. The Assessing Officer (AO) observed unexplained cash deposits of ?16,54,000 in the assessee's bank account. The assessee claimed these deposits were proceeds from fabric trading business. However, the AO made the addition as the source was not satisfactorily explained. The CIT(A) upheld the AO's decision, stating that the appellant failed to provide evidence supporting the business activity, such as purchase/sale records, trade license, etc. The CIT(A) emphasized the onus on the appellant to establish the nature and source of the cash deposits. The Tribunal considered additional evidence and directed the AO to estimate the profit at 8% of the turnover, overturning the addition made by the AO under section 68.

2. Issue 2: Justification of business income declaration
The second issue revolved around the justification of business income declaration and profit estimation. The assessee argued that the cash deposits were from fabric trading business, requesting profit estimation at 8% of the turnover. The Tribunal noted that the CIT(A) did not consider the remand report from the AO, which highlighted procedural lapses. The Tribunal, after considering the submissions and additional evidence, directed the AO to estimate the profit at 8% of the turnover, overturning the CIT(A)'s decision. The Tribunal emphasized the importance of proper assessment procedures and the onus on the appellant to substantiate the source of income.

In conclusion, the Tribunal partially allowed the appeal, directing the AO to estimate the profit at 8% of the turnover, overturning the addition made under section 68 of the IT Act. The judgment highlighted the significance of providing evidence to support business activities and the procedural obligations in assessing income sources.