2018 (10) TMI 916 - AT - Income Tax

Addition being cash deposits made into the bank accounts of the assessee - Held that - We are unable to agree with the percentage of profit claimed by the assessee. The fact that the receipts are coming from faraway places also show that the assessee should be incurring expenses in his business. Under these set of facts, we are of the view that this issue may be put to rest, if the net income , i.e., net of all expenses is estimated at 5% of the aggregate amount of deposits. Accordingly we direct the AO to estimate the business income of the assessee @ 5% of aggregate amount of deposits. The assessee has already declared a sum of ₹ 2,04,525/- as his business income. Hence the difference between the business income estimated at 5% of aggregate amount of deposits and the business income declared by the assessee shall be added by the AO. Appeal filed by the assessee is partly allowed.

Summary

Issues:
- Addition of cash deposits as unexplained income
- Application of peak credit theory
- Burden of proof under section 68 of the Income Tax Act

Analysis:

Issue 1: Addition of cash deposits as unexplained income
The appeal was against the confirmation of the addition of ?212.24 lakhs, being cash deposits made into the bank accounts of the assessee. The Assessing Officer treated the deposits as unexplained income as the assessee's explanations were not convincing. The assessee claimed the deposits were business proceeds from dealing in mobile accessories and leather goods on a commission basis. The CIT(A) also upheld the addition, leading to the appeal before the ITAT. The ITAT considered the assessee's submissions, including the destruction of records in a fire, and the nature of deposits from various locations, concluding that the deposits likely represented sales proceeds. The ITAT directed the AO to estimate business income at 5% of the aggregate deposits, with the difference added to the declared income.

Issue 2: Application of peak credit theory
The assessee argued for applying the peak credit theory, citing decisions from the Andhra Pradesh High Court and Allahabad High Court. However, the ITAT determined that in this case, the deposits likely represented business receipts, making the application of peak credit theory unnecessary. The ITAT differentiated this case from the Delhi High Court decision by emphasizing the nature of the deposits and withdrawals, indicating regular business transactions.

Issue 3: Burden of proof under section 68 of the Income Tax Act
The ITAT discussed the burden of proof under section 68 of the Income Tax Act, noting that while the initial onus is on the assessee, the AO has discretion not to assess the entire cash credits as income. Referring to a Supreme Court decision, the ITAT highlighted the importance of considering the facts and circumstances of the case. In this instance, multiple deposits and withdrawals on the same day suggested business transactions. The ITAT directed the AO to estimate business income at 5% of the total deposits, considering the lack of credible evidence for the 2% commission claimed by the assessee and the likelihood of business expenses incurred, thereby modifying the CIT(A)'s order.

In conclusion, the ITAT partly allowed the appeal, emphasizing the need to estimate business income based on the aggregate deposits and directing the AO to adjust the declared income accordingly.