2021 (11) TMI 408 - AT - Income Tax

Addition u/s 68 - unexplained deposit of cash in the bank account - addition made by the Assessing Officer on ad-hoc basis @50% of the sales - HELD THAT - AO has passed an order based on surmises and conjecture. His order is bereft on cogent material on which addition is based - CIT(A) himself has further passed a contradictory order where he claimed that assessee and the Assessing Officer both are correct. The defect in Assessing Officer's approach pointed out by learned CIT(A) that books have not been rejected, would not warrant sustaining the addition. Further note that the assessee in grounds of appeal has also raised the issue of lack of opportunity. Accordingly in the facts and circumstances of the case I deem it appropriate to remit the issue to the file of the Assessing Officer. Assessing Officer should pass an order afresh after giving the assessee proper opportunity of being heard. Appeal is allowed for statistical purposes.

Summary

Issues:
1. Addition of ?8,38,850 as unexplained cash credit
2. Addition of ?47,42,905 as low gross profit

Issue 1: Addition of ?8,38,850 as unexplained cash credit

The Assessing Officer (AO) added ?8,38,850 as unexplained cash credit in the assessee's income, citing suspicious cash deposits and lack of satisfactory explanations. The AO noted cash deposits in the bank account and questioned the source, leading to the submission of a cash book showing receipts from the sale of plots. However, the AO found discrepancies and considered the amount from a specific party as unexplained cash credit under section 68 of the Act. The Commissioner of Income Tax (Appeals) upheld the addition, stating that the assessee failed to substantiate the transaction of the sale of plots and the receipt of cash from a particular individual. The CIT(A) dismissed the appeal on this ground.

Issue 2: Addition of ?47,42,905 as low gross profit

The AO made an addition of ?47,42,905 as low gross profit, calculated at 40% of turnover, due to discrepancies in the project costs and lack of detailed expenses submitted by the assessee. The AO estimated a reasonable gross profit at 50% on sales, considering the high project cost claimed by the assessee and insufficient details provided. The CIT(A) partly allowed the appeal, directing a 40% addition as gross profit and deleting the balance 10%. The ITAT noted that the AO's order lacked substantial evidence and was based on conjecture. Despite the CIT(A) partially allowing the appeal, the ITAT remitted the issue back to the AO for a fresh order, emphasizing the need for proper opportunity to be given to the assessee.

This judgment highlights the importance of providing detailed and substantiated explanations to support income and profit calculations to avoid additions as unexplained cash credits or low gross profits. It also underscores the significance of affording the assessee a fair opportunity to present their case and address any discrepancies in the assessment process.