2020 (10) TMI 562 - AT - Income Tax

Addition u/s 69 as undisclosed income - AO treated the cash deposits as undisclosed turnover and estimated the profit at 8% u/s. 44AD - HELD THAT - AO has stated that he issued notice u/s.142(1) of the Act on 11.4.2016 but there is no mention therein that it was served on the assessee and other several notices were also served. In absence of specific mention regarding the service of such notices, we safely presume that the assessee was not allowed due opportunity of hearing for explaining and substantiating his stand before the AO. Definitely, we are in complete agreement with the contention of D.R. that the burden to prove the source and credibility of deposits and statement of the assessee before the Investigation Wing was on the assessee but opportunity to discharge this burden has to be given to the assessee by the AO. Assessee should be given an opportunity to discharge the burden lay on his shoulder that the impugned account belongs to Shri Pramod Kumar Sundara, which has not been given by the AO. Therefore, ends of justice would meet if the assessee is provided due opportunity of explaining his stand and explanation given before Investigation Wing and to substantiate its claim that the account belongs to Shri Sundara alongwith supporting evidence. Hence, this sole issue is restored to the file of the AO for verification, examination and adjudication - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Appeal against addition of undisclosed income under section 69 of the Income Tax Act.

Detailed Analysis:
1. The appeal was filed by the assessee against the order of the CIT(A), confirming the addition of ?51,49,900/- as undisclosed income under section 69 of the Act for the assessment year 2011-12.
2. The assessee maintained a bank account with ICICI Bank, Nayagarh, with total cash deposits of ?51,49,900 during the relevant previous year, claiming the deposits were sales proceeds and realization of debtors.
3. The AO treated the cash deposits as undisclosed turnover and estimated profit under section 44AD of the Act. Subsequently, the assessee stated before the Investigation Wing that the bank account was used by a labour contractor and money was deposited by persons migrating from villages through agents in J&K and Surat.
4. Revisionary proceedings under section 263 were initiated by the ld PCIT due to contradictory statements by the assessee before the AO. The issue was sent back to the AO for denovo assessment.
5. The Assessing Officer made the addition under section 69 as the assessee failed to explain the source of cash deposits, which was upheld in the first appeal.
6. The Tribunal considered submissions from both sides and examined relevant materials.
7. The assessee presented an affidavit by a labour contractor confirming the bank account was used for depositing amounts by labourers in Surat and J&K, with withdrawals in Nayagarh for distribution to relatives. Bank statements were submitted to support the claim.
8. The Department argued against allowing peak credit theory, citing a previous decision where additions were confirmed when the source of deposits was unproven.
9. The Department objected to considering the affidavit at a belated stage without verification by the AO.
10. The Tribunal noted the deposits made outside Odisha and withdrawals in Odisha, supporting the claim of distribution to labourers' relatives. Lack of specific mention of notice service to the assessee raised procedural concerns.
11. The Tribunal agreed with the Department that the burden of proof lay on the assessee, but emphasized the importance of providing the assessee with an opportunity to explain and substantiate claims before the AO.
12. The Tribunal allowed the appeal for statistical purposes, restoring the issue to the AO for verification and examination of the assessee's explanation and supporting evidence.

This detailed analysis outlines the progression of the case, highlighting key arguments, procedural issues, burden of proof considerations, and the Tribunal's decision to provide the assessee with an opportunity to substantiate their claims before the AO.