2022 (9) TMI 991 - AT - Income Tax

Addition on account of credit in the bank account - addition of entire credit entries reflected in the savings bank account - HELD THAT - We find that there are frequent debit and credit entries by way of cheque as well as cash, thus the entire credit entry cannot be considered as income of assessee. Considering the various decisions of Tribunal including the Hon ble Jurisdictional High Court either peak credit or presumption income from unaccounted business can be added. Considering the overall facts and circumstances of the case, we are of the view that 8% of credit entry would meet the possibility of revenue leakage. Accordingly, the Assessing Officer is directed to restrict the addition to the extent of 8% of credit entries in the savings bank account maintained by the assessee. In the result, ground No.2 of the appeal is partly allowed. Levy of penalty under Section 271(1)(c) - Since we have restricted the addition to the extent of 8% of credit entries thereby granting substantial relief to the assessee in quantum assessment. It is a matter of fact that we have restricted the addition on ad hoc basis, therefore, the penalty levied on entire credit entry addition would not survive. Further, it is settled position of law that no penalty is leviable on the addition made on ad hoc basis, therefore, we direct the Assessing Officer to delete the entire addition.

Issues Involved:
1. Reopening of assessment under Section 147 and issuance of notice under Section 148 of the Income Tax Act, 1961.
2. Addition of Rs. 27,98,735/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
3. Levy of penalty of Rs. 8,93,509/- under Section 271(1)(c) of the Income Tax Act, 1961.
4. Adequacy of opportunities provided by the Commissioner of Income Tax (Appeals) to the assessee.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 and Issuance of Notice under Section 148:
The assessee challenged the reopening of the assessment and issuance of notice under Section 148. However, during the hearing, the assessee did not press this ground. Consequently, the tribunal dismissed this ground as not pressed.

2. Addition of Rs. 27,98,735/- as Unexplained Cash Credit under Section 68:
The case was reopened based on AIR data indicating a cash deposit of Rs. 19,97,000/- in the assessee's bank account. The Assessing Officer (AO) added Rs. 27,98,735/- as unexplained cash credit due to non-compliance by the assessee. The assessee argued that the deposits were related to his business of retail and wholesale trade in sarees and dress materials and that his income was below the taxable limit for AY 2008-09. The AO did not consider the debit entries and only added the credit entries. The CIT(A) upheld the AO's decision, emphasizing that the savings bank account should not be used for business purposes as per RBI regulations.

The tribunal, after considering the arguments, found that there were frequent debit and credit entries in the bank account, indicating business activities. Citing similar cases where only peak credit or a percentage of the turnover was added, the tribunal directed the AO to restrict the addition to 8% of the credit entries, thereby partly allowing the assessee's appeal.

3. Levy of Penalty of Rs. 8,93,509/- under Section 271(1)(c):
Since the tribunal restricted the addition to 8% of the credit entries, granting substantial relief to the assessee, it held that the penalty levied on the entire credit entry addition would not survive. The tribunal noted that no penalty is leviable on ad hoc additions and directed the AO to delete the entire penalty.

4. Adequacy of Opportunities Provided by the CIT(A):
The assessee contended that the CIT(A) did not provide ample opportunities to present his case. The tribunal did not make a specific ruling on this issue but implicitly addressed it by re-evaluating the evidence and arguments presented by both parties.

Conclusion:
The tribunal partly allowed the appeal concerning the quantum assessment by restricting the addition to 8% of the credit entries in the bank account. It fully allowed the appeal regarding the penalty, directing the AO to delete the penalty levied under Section 271(1)(c). The judgment emphasized the importance of considering both credit and debit entries in bank accounts and the non-leviability of penalties on ad hoc additions.

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