2024 (7) TMI 835 - AT - Income Tax

Assessment of business income - assessee has determined sales figures of Rs. 19.05 Lacs whereas Ld. AO has taken the same at Rs. 41.53 Lacs - HELD THAT - The assessee has determined sales figures of Rs. 19.05 Lacs whereas Ld. AO has taken the same at Rs. 41.53 Lacs. The reconciliation, in this regard, has been placed on the assessee. The assessee has submitted that withdrawal of Rs. 6.80 Lacs on 19.05.2017 represent amount returned to M/s Sana Trading Co. out of money lent by them to the assessee. The assessee also submits that amount credited on 23.05.2017 for Rs. 14.33 Lacs and Rs. 4.22 Lacs credited on 30.05.2017 has not been considered by Ld. AO. However, we find that no supporting evidences could be adduced by the assessee, in that regard. In such a case, the determination of business income, in our considered opinion, could not be faulted with. However, at the same time, it could be noted that the aggregate credit of Rs. 18.55 Lacs represent business transaction which has already been considered while estimating the business income of the assessee. Even otherwise the business income has been computed on the presumption that entire purchases were sold during the year. Therefore, separate addition of Rs. 18.55 Lacs stand deleted whereas the estimation of additional income for Rs. 1.66 Lacs stand confirmed. Separate addition of opening stock for Rs. 2.42 Lacs is not warranted. The same stand deleted. The business income so computed by Ld. AO would be subjected to normal rate of taxes. Addition of cash deposits and unexplained investments - Cash deposits represent deposit made by the assessee on 11.05.2017 12.05.2017 respectively. The assessee has explained that he was engaged in arbitrage activity on peer-to-peer trading platform for cash with a minimum price margin of 1- 3%. On 11.05.2017, trade was made with multiple member of Lbtc Portal and cash was consolidated and deposited in the bank account using the handler nbkarthi (userid). The list of user handlers / buyers with trade reference Id was also submitted. AO rejected the aforesaid claim in the absence of supporting documents and trading receipts. Once this fact is accepted that the receipts arose out of arbitrage activities, the full addition thereof would not be justified. Therefore, we direct Ld. AO to estimate profit rate of 3% on cash deposit of Rs. 15.63 Lacs. The same would be assessable as business income which would be subjected to tax at normal rates. The addition of Rs. 1 Lacs stand deleted since there are prior withdrawals which is evident from bank statement of the assessee as placed on record.

Summary

Issues Involved:
Assessment of business income, Cash deposits and unexplained investments

Assessment of Business Income:
The appeal arose from the final assessment order of the Assessing Officer (AO) for the Assessment Year 2018-19 concerning the confirmation of cash deposits and unexplained investments made by a non-resident individual involved in Bitcoin transactions. The appellant contested the additions made in the order, arguing that the assessment was erroneous and violated various provisions of the law. The Accountant Member (AM) and Judicial Member (JM) heard arguments from both sides and examined the case records to reach a decision.

The AO's draft assessment order and proceedings before the Dispute Resolution Panel (DRP) revealed that the appellant, a non-resident individual, did not file a return of income initially. Subsequently, based on information about Bitcoin transactions, notices were issued, and the appellant admitted income of Rs. 2.40 Lacs. However, the AO proposed a higher income figure in the draft assessment order, including additions for cash deposits and unexplained investments. The appellant's submissions regarding Bitcoin transactions, sale, and purchase figures were considered by the AO.

The Tribunal found discrepancies between the appellant's declared sales figures and the AO's calculations. While some additions were justified, the Tribunal ruled that certain additions were not warranted. The Tribunal considered the nature of the transactions and directed the AO to estimate business income based on a profit rate for cash deposits, deleting certain additions made by the AO. The Tribunal also addressed the issue of unexplained investments and made specific rulings on the treatment of different amounts based on the appellant's explanations and supporting documents.

Cash Deposits and Unexplained Investments:
The appellant's explanations regarding cash deposits and unexplained investments were scrutinized by the AO, who made additions based on lack of supporting documents and trading receipts. The Tribunal acknowledged the appellant's engagement in arbitrage activities but found the AO's full addition unjustified. The Tribunal directed the AO to estimate a profit rate on the cash deposits for taxation purposes, deleting certain additions due to prior withdrawals evidenced in the bank statements. The Tribunal dismissed certain legal grounds raised by the appellant and partially allowed the appeal based on its findings regarding cash deposits and unexplained investments.

In conclusion, the Tribunal's detailed analysis of the issues surrounding the assessment of business income, cash deposits, and unexplained investments resulted in specific directions to the AO for recalculating taxable amounts based on the nature of the transactions and supporting evidence provided by the appellant. The Tribunal's decision highlighted the importance of substantiating claims with proper documentation and considered the appellant's activities in Bitcoin transactions while determining the taxable income.