2018 (5) TMI 55 - AT - Income Tax

Addition u/s 69 - Held that - CIT(A) directed the A.O. to treat the entire deposits as her business turnover and directed the A.O. to estimate the profit @ 8% on the deposits. If the conclusion of the Ld. CIT(A) with regard to the acceptance of the source of funds is wrong, it is the duty of the Assessing Officer to either file an appeal or to file cross-objection or appeal by way of a petition under Rule 27 of the ITAT Rules. But in the instant case, no such action was taken at any stage of the proceedings which implies that the Revenue has accepted the conclusion of the Ld. CIT(A) i.e., the source of funds was referable to the monies pooled from the customers in the form of advances received and sales effected in the business. In such event, the addition cannot be made u/s 69 of the Act. Powers of the Ld. CIT(A) in disposing of the first appeal - CIT(A) directed the A.O. to treat the entire deposits as her business turnover and directed the A.O. to estimate the profit @ 8% on the deposits - Held that - While computing the total business income of the assessee, the Assessing Officer estimated the sales at an enhanced figure and applied a higher rate of Gross Profit. According to Hon ble High Court the only matter dealt with by the Assessing Officer, in the assessment order, was the estimation of profits of the assessee whereas the AAC expressed doubts about the capacity of the assessee to raise finances for the purchase of goods and to show a huge turnover in the very first year of his business and thus, the enquiry was altogether on a new source of income which, according to the Court, is not permissible under law. It is not in dispute that this information was furnished for the first time and never produced before the Assessing Officer. There is a live link between the statement of the assessee and the turnover declared by the assessee since the turnover of the assessee otherwise was much less which was in fact commented upon by the Assessing Officer in his remand report by stating that sales were shown only to the tune of ₹ 17,13,202/- and it is not possible to claim that she has received advances of huge amounts of cash during the Financial Year 2007-2008 to the tune of ₹ 46,32,200/-. The assessee s reply on the other hand was that it was only advances received from the parties and sales were made against such advances. There is a live link between the statement of the assessee and the turnover declared by the assessee since the turnover of the assessee otherwise was much less which was in fact commented upon by the Assessing Officer in his remand report by stating that sales were shown only to the tune of ₹ 17,13,202/- and it is not possible to claim that she has received advances of huge amounts of cash during the Financial Year 2007-2008 to the tune of ₹ 46,32,200/-. The assessee s reply on the other hand was that it was only advances received from the parties and sales were made against such advances. Since the view taken by the Ld. CIT(A) is in consonance with the claim of the assessee that she has received business advances and therefore, it cannot be said that there is a new source of income but only the source which was contended by the assessee since it was claimed as advances received in the course of her business and sales made therein. No infirmity in the order passed by the Ld. CIT(A). - Decided in favour of assessee

Issues Involved:
1. Validity of the addition of ?17,20,722/- as unexplained investment under Section 69 of the Income Tax Act.
2. Admission of additional evidence under Rule 46A by the CIT(A).
3. Legitimacy of treating the deposits as business turnover and estimating profit @ 8%.
4. Authority of the CIT(A) to introduce a new source of income and enhance the assessment.

Detailed Analysis:

1. Validity of the Addition of ?17,20,722/- as Unexplained Investment under Section 69:
The assessee declared a total income of ?1,33,900/- and net agricultural income of ?52,450/- for the assessment year 2008-09. The return was initially processed under Section 143(1) but was later scrutinized under CASS. The Assessing Officer (A.O.) noticed frequent deposits and withdrawals in the bank account, for which the assessee could not provide sufficient evidence. Consequently, the A.O. completed the assessment under Section 144, adding ?17,20,722/- as unexplained investment under Section 69, citing inaccurate particulars and concealed transactions.

2. Admission of Additional Evidence under Rule 46A by the CIT(A):
During the first appellate proceedings, the assessee filed additional evidence under Rule 46A, claiming that the deposits were pooled funds from customer advances and sales for obtaining a visa for her son. The CIT(A) called for a remand report from the A.O., who objected to the admission of additional evidence, arguing that the assessee did not maintain books of account and filed the return as a "No Account Case." Despite objections, the CIT(A) admitted the additional evidence, noting that the deposits were plausible as business transactions.

3. Legitimacy of Treating the Deposits as Business Turnover and Estimating Profit @ 8%:
The CIT(A) observed that the deposits were made between June and October 2007, with some amounts immediately withdrawn, supporting the assessee's claim of pooled funds from business activities. Consequently, the CIT(A) directed the A.O. to treat the entire deposits as business turnover and estimate profit @ 8%, resulting in an income of ?5,12,184/-. The assessee contested this, arguing that the CIT(A) introduced a new source of income without proper opportunity for a hearing.

4. Authority of the CIT(A) to Introduce a New Source of Income and Enhance the Assessment:
The assessee cited several judicial decisions asserting that the first appellate authority cannot introduce a new source of income. The Tribunal noted that the CIT(A) accepted the source of funds as business advances, implying it should be treated as turnover. The Tribunal highlighted that the power of the first appellate authority is coterminous with that of the A.O., including the power of enhancement. The Tribunal found no infirmity in the CIT(A)'s order, as the addition was based on the assessee's consistent plea of receiving business advances.

Conclusion:
The Tribunal concluded that the CIT(A) acted within his powers by treating the deposits as business turnover and estimating the profit. The appeal filed by the assessee was allowed, and the order pronounced in the open court on 27th April 2018.

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