2020 (7) TMI 220 - AT - Income Tax

Addition u/s 68 - peak credit addition - GP estimation - HELD THAT - As combined peak credit of both bank accounts need to be taken to work out the element of undisclosed investments made by the assessee for the undisclosed transactions. From the opening balances in both the banks, it is understood that this is not the initial year, wherein, the assessee has made the undisclosed transaction. Since, this is the assessment year in which the fact of undisclosed bank accounts were discovered, the undisclosed investment needs to be taxed separately. Combined peak credit in respect of both the banks need to be taken to find out the undisclosed investments made by the assessee for the undisclosed transaction in both banks which is ₹ 2,06,690/-, which needs to be added in the hands of the assessee. Since the AO failed to bring on record any material to show that the assessee was doing any other business other than the grocery business, the inference that can be drawn is that the assessee was doing undisclosed transaction in respect of grocery from grey market without any bills etc.. Therefore, assessee was engaged in the business of grocery through these undisclosed bank accounts. Next, coming to the trade profit, which the assessee could have made from the undisclosed transaction, I note that the assessee had disclosed Gross Profit oft 8.81% and Net Profit of 4.65% of the turnover from the regular grocery business. Therefore, trade profit of the regular business i.e. G.P rate of 8.81% would be justified. In the light of the aforesaid discussion, the entire addition made by AO/Ld. CIT(A) of the total amount deposited in the two undisclosed bank accounts to the tune of ₹ 21,92,100/- is erroneous. Direct the AO to restrict the addition to two items (i) combined peak credit of two bank accounts, which would take care of the undisclosed investment of the assessee, which is ₹ 2,06,690/- and (ii) trading profit from the undisclosed transaction needs to be added in the hands of the assessee.

Summary

Issues Involved:
1. Addition of ?21,92,100 under Section 68 of the Income-tax Act, 1961 as unexplained cash credit.

Detailed Analysis:

Issue 1: Addition of ?21,92,100 under Section 68 of the Income-tax Act, 1961 as unexplained cash credit

Facts of the Case:
The assessee filed a return declaring a total income of ?5,79,480. During scrutiny, it was found that the assessee had not disclosed two bank accounts in Allahabad Bank and Axis Bank, where deposits totaling ?21,92,100 were made. Despite several opportunities, the assessee failed to explain these cash transactions, leading the AO to add ?21,92,100 as unexplained cash credit under Section 68 of the Income-tax Act, 1961. This addition was upheld by the Ld. CIT(A).

Arguments by the Assessee:
The assessee contended that the deposits in the undisclosed bank accounts were part of her grocery business transactions. It was argued that only the Gross Profit (GP) or Net Profit (NP) or peak credit from these accounts should be taxed, not the entire deposits. The assessee relied on previous Tribunal decisions, including Ashok Kr. Paul Vs. ITO and Ghanshyam Agarwal Vs. ITO, where only a percentage of undisclosed receipts was added as income.

Tribunal's Findings:
The Tribunal examined the facts and previous case laws. It was noted that the assessee had two undisclosed bank accounts with regular deposits and withdrawals. The peak credits in these accounts were ?1,76,281 (Allahabad Bank) and ?2,06,690 (Axis Bank). The Tribunal accepted the assessee's argument that the cash flow indicated cross-deposits and withdrawals between the accounts.

Conclusion:
The Tribunal concluded that the combined peak credit of ?2,06,690 should be considered as the undisclosed investment. Additionally, since the assessee was engaged in the grocery business, the GP rate of 8.81% on the total deposits of ?21,92,100 should be applied, amounting to ?1,93,124. Thus, the total addition sustained was ?3,99,814 (?2,06,690 + ?1,93,124), and the balance addition of ?17,92,286 was directed to be deleted.

Final Judgment:
The appeal was partly allowed. The AO was directed to restrict the addition to ?3,99,814, consisting of the combined peak credit and the GP rate applied to the total deposits. The balance addition of ?17,92,286 was deleted.

Pronouncement:
The order was pronounced in the open court on 08 July, 2020.