2022 (9) TMI 1374 - AT - Income Tax

Addition u/s 68 - Unexplained cash credit - HELD THAT - Pattern of deposits in bank account shows that there are certain cheque deposits, deposits in cash and regular withdrawal of amount. The frequent deposit and withdrawal shows that the bank account in dispute was used for unreported business transactions. As recorded above assessee before us claimed that the assessee was doing a business of plastic items, thus, considering the submissions of assessee, we find merit in his submission that the assessee was doing some business activity, though it was not disclosed to the department. Taxing the entire credit is not justified, thus, it would be justified if only profit element in such business activities from where the assessee generated the credit found in the bank account. The lower authorities have confirmed the entire aggregate of deposits and have not considered the withdrawal. The Hon ble Gujarat High Court in CIT Vs Pradeep Shantilal Patel 2013 (11) TMI 1646 - GUJARAT HIGH COURT held that where assessee admitted that cash deposit pertains to his retail business but details and nature of business were not forthcoming from record, considering the total turnover of assessee, net income had to be determined under Section 44AF. The Coordinate Bench of this Tribunal in Smt. Krushangi Keyur Bhagat 2018 (9) TMI 2093 - ITAT SURAT almost on similar set of facts wherein cash credit was found credited in the bank account of that assessee, the assessee took plea before lower authorities that transaction in bank account pertained to her textile business. The assessee claimed that only peak credit appearing in the bank account should be considered which was not accepted and the amount after reducing the cheque deposits, remaining was treated as unexplained. On appeal before Tribunal, the plea of assessee that amount credited in the bank was a part of textile business and only profit element @ 5% of total deposit including of credit by way of cheque was considered as a profit element on the total deposits. Entire amount of deposits cannot be considered for addition, when the assessee is specifically contended before ld CIT(A) that the credit in the bank account if his unreported income. Therefore, 8% of total addition is considered as profit from such business activities. Accordingly, the Assessing Officer is directed to consider 8% of total deposit - In the result, ground raised by assessee is party allowed.

Summary

Issues:
1. Validity of reopening assessment under Section 147 of the Income Tax Act
2. Addition of Rs. 32,55,324/- as unexplained money under Section 69A of the Act
3. Adequate opportunities to be heard before passing an ex-parte order
4. Deletion of the above addition by the Tribunal

Analysis:

Issue 1: Validity of Reopening Assessment
The appeal challenged the reopening of the assessment under Section 147 of the Income Tax Act. The Assessing Officer reopened the case due to undisclosed cash deposits and credits in the assessee's bank account. The Tribunal noted that no submission was made by the assessee's representative on this issue, leading to the dismissal of this ground of appeal.

Issue 2: Addition of Unexplained Money
The Assessing Officer added Rs. 32,55,324/- as unexplained money under Section 69A of the Act, based on cash deposits and credits in the bank account not disclosed in the books. The assessee contended that the deposits were genuine business receipts and should not be entirely added as income. The Tribunal agreed that only the profit element from the unreported business transactions should be taxed, considering the nature of the business activity. Relying on case laws, the Tribunal directed the Assessing Officer to tax only 8% of the total deposit amount.

Issue 3: Adequate Opportunities for Hearing
The assessee raised concerns about not being given ample opportunities to be heard before an ex-parte order was passed. The Tribunal observed that despite opportunities during appellate proceedings, the assessee failed to explain the nature and source of the deposits adequately. However, the Tribunal considered the business activity conducted by the assessee and directed a partial allowance of the appeal based on the profit element.

Issue 4: Deletion of the Addition
The Tribunal partially allowed the appeal, directing the Assessing Officer to tax only 8% of the total deposit amount. The Tribunal emphasized that taxing the entire credit was not justified, and only the profit element from the business activities generating the credit should be considered.

In conclusion, the Tribunal partially allowed the appeal, directing the Assessing Officer to tax only 8% of the total deposit amount, considering the nature of the business activity and the profit element involved.