2020 (3) TMI 593 - AT - Income Tax

Addition on account of deposit of cash in the bank account - reopening of assessment - HELD THAT - Assessee has furnished his PAN, driving license for opening the bank account. The bank opening form was also signed by him in the capacity of the proprietor as confirmed by the bank. We also find that the cases for the assessee were reopened by the AO u/s 148 for the assessment years 2006-07 and 2007-08 on the reasoning that the assessee has deposited cash in the impugned bank account which has escaped assessment. AO accordingly made the addition to the total income of the assessee in the respective assessment years. AR before us has not brought anything on record suggesting that the impugned addition made by the AO for the assessment years 2006-07 and 2007-08 has been challenged before the higher forum. But the learned AR before us has placed the copies of the assessment order. Thus in the absence of such information, it is transpired that the orders of the AO for the assessment years 2006-07 and 2007-08 have reached to its finality. Thus we can safely conclude that the impugned bank account belongs to the assessee. Availability of opening balance of cash in hand - HELD THAT - Assessee has utilized the amount of cash deposits for some commercial activities. Moreover the revenue has not brought anything on record suggesting that the amount of cash deposits was utilized by the assessee either for investment purposes or it was used to meet the personal expenses. As such, in the given facts and circumstances, we are of the view that the amount of cash deposit cannot be treated as income in the entirety. Thus, we are of the considered opinion that justice shall be served to the assessee and the revenue if some percentage of profit of the cash deposit is treated as income to bring the end to the ongoing dispute. Accordingly, we direct the AO to treat 20% on average basis of cash deposit as income of the assessee. We are taking the basis of 20% of the cash deposit as income of the assessee from the profit and loss account filed by the assessee for different years. Interest expenses incurred in the CC bank account - HELD THAT - onus lies on the assessee to justify based on documentary evidence that such interest expenses was incurred in connection with the business. But there was no documentary evidence filed by the assessee suggesting that the interest expenses incurred on borrowing were in connection with the business. Therefore we hold that the assessee cannot be allowed the claim for the deduction of such interest expenses under the provisions of section 36(1)(iii) of the Act. Hence the ground of appeal of the assessee is partly allowed.

Issues Involved
1. Ownership of the cash credit account.
2. Credit of opening cash balance.
3. Deduction of interest expenses.
4. Treatment of cash deposits as unaccounted investments.

Detailed Analysis

1. Ownership of the Cash Credit Account
The primary issue was whether the cash credit account No. 118 with Commercial Co-operative Bank belonged to the assessee individually or to the HUF (Hindu Undivided Family). The assessee claimed the account was held in the capacity of Karta of the HUF, but the authorities found that the account was opened using the assessee's PAN and driving license, and the bank confirmed it was opened in the name of M/s H.K. Mistry Prop. Haren Kantilal Mistry. The tribunal concluded that the account belonged to the assessee individually, noting that previous assessments for the years 2006-07 and 2007-08 had treated the account as belonging to the assessee, and those assessments had not been contested further.

2. Credit of Opening Cash Balance
The assessee argued for a deduction of ?8,61,809/- as the opening cash balance of the HUF. However, the authorities and the tribunal found that this balance was not verifiable since the HUF had not filed any returns of income and there was no evidence of such cash balance being disclosed to the income tax authorities. The tribunal held that the opening cash balance could not be adjusted against the cash deposits.

3. Deduction of Interest Expenses
The assessee sought a deduction of ?55,146/- as interest expenses incurred on the cash credit account. The authorities denied this claim, stating that the assessee failed to demonstrate that the borrowings were for business purposes. The tribunal upheld this decision, noting that there was no documentary evidence to support the claim that the interest expenses were related to business activities, and thus, the deduction under section 36(1)(iii) of the Act was not allowable.

4. Treatment of Cash Deposits as Unaccounted Investments
The authorities treated the cash deposits of ?9,56,477/- in the cash credit account as unaccounted investments under section 69 of the Act. The assessee argued that these deposits were from the opening cash balance of the HUF and cash received from Darshan Traders. The tribunal found that the cash deposits were used for commercial activities and not for personal expenses or investments. To resolve the ongoing dispute, the tribunal directed that 20% of the cash deposits be treated as income of the assessee, based on an average profit margin derived from the assessee's profit and loss accounts for different years.

Conclusion
The appeal was partly allowed. The tribunal concluded that the cash credit account belonged to the assessee individually, denied the claim for the opening cash balance and interest expenses, but directed that only 20% of the cash deposits be treated as income, thereby providing partial relief to the assessee.

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