2020 (10) TMI 97 - HC - Income Tax

Addition u/s 68 - unexplained cash credits - Tribunal restricting the addition to the extent of 2% of the total credits - as per revenue assessee has failed to prove the source of credits, genuineness and creditworthiness of depositors - HELD THAT - CIT(A) thought fit to compute the profit at the rate of 8% of the turnover. However, the Tribunal noticed that such computation was without any basis or materials on record. Ultimately, the Tribunal thought fit to estimate the income at the rate of 2% of the amount deposited with the bank. If such is the view of the Tribunal, then, in our opinion, we should not disturb the same. No substantial question of law.

Summary

Issues:
Interpretation of Section 68 of the Income Tax Act, 1961 regarding cash deposits in bank account without proof of source, genuineness, and creditworthiness.

Analysis:
The case involved a Tax Appeal under Section 260A of the Income Tax Act, 1961, where the Revenue challenged an order passed by the Income Tax Appellate Tribunal regarding the addition of a significant amount made by the Assessing Officer under Section 68 of the Act. The primary issue was whether the Tribunal was justified in restricting the addition to 2% of the total credits in the absence of proof of source, genuineness, and creditworthiness of the deposits. The Tribunal found that the assessee had substantial cash credits in the bank account, prompting inquiries into the source of these deposits. Despite notices and requests for explanations, the assessee failed to provide satisfactory responses, leading to the assessment of a substantial income under Sections 68 and 69A of the Act for the cash deposits.

The Commissioner of Income Tax (A) had initially directed the Assessing Officer to delete the addition made under Section 68, considering the deposits as part of the assessee's turnover and applying a net profit rate of 8%. However, the Appellate Tribunal, upon hearing both parties and examining the evidence, found that the assessee had sufficiently demonstrated engagement in business activities through provided documents such as bank statements, sale tax assessment orders, and sales and purchase bills. The Tribunal noted that the burden had shifted to the Revenue to disprove these contentions, which they failed to do by not providing evidence of the assessee's actual income or expenditures.

The Tribunal acknowledged the lack of a standard formula for estimating income but referred to similar cases where income was estimated based on the nature of business activities. The Tribunal emphasized the need for a rational and informed basis for income estimation, suggesting that justice would be served by estimating income at 2% of the deposited amount. The Tribunal disagreed with the CIT (A)'s 8% turnover profit rate calculation, as it lacked supporting materials or comparative data. Despite requests for further investigation by the Revenue, no additional information was provided, leading the Tribunal to uphold the assessee's contentions with modifications based on the circumstances.

Ultimately, the High Court upheld the Tribunal's decision, stating that in the absence of a substantial question of law in the Revenue's proposed query and considering the Tribunal's reasoned estimation of income at 2% of the deposits, the appeal was dismissed. The judgment highlighted the importance of evidence-based assessments, burden of proof, and the need for a rational basis in income estimation, emphasizing fairness to both the assessee and the Revenue in tax matters.