2025 (1) TMI 28 - AT - Income Tax

Reopening assessment u/s 147 - reason to believe - cash deposits in the undisclosed bank account - HELD THAT -Whether material would conclusively prove escapement of income is not the concern at that stage. Requirement is that there should be prima facie reason at the stage of reopening. The sufficiency or correctness of the reason cannot be examined at the threshold. In the present case, the assessee has not disclosed his SB bank account with Bank of Baroda in his return of income. On the other hand, he had deposited cash of Rs. 13,20,535/-. Hence, there was prima facie reason to reopen the case. Reopening is upheld and ground No.1 is dismissed. Addition of entire amount of cash deposited in the undisclosed bank account of the assessee - There is nothing on record to suggest that assessee was carrying on any business other than the business of wholesale purchase and sale of vegetables. Therefore, the logical conclusion would be that either he was carrying out the same business a part of which was not disclosed to the Department. It is also possible that part of the profit of his disclosed business was diverted and the amounts were deposited in the SB account. However, it is seen that the appellant has also made multiple withdrawals of almost the same amounts during the year. In absence of any evidence, it cannot be ascertained whether the amounts withdrawn were used for purchase of vegetables or were used for personal expenses or investments. Hence, a reasonable estimate of cash deposit may be considered as income of the assessee. In our view, it will be fair and reasonable if 25% of the cash deposit of is taken as the income of assessee. Estimation of profit @ 8% by the CIT(A) in lieu of profit @ 35% by the AO on the turnover - Appellant has not disclosed all credit entries even of his disclosed bank account. The appellant has not brought anything on record to show that the nature of the other credit entries are different from sales made by assessee and they are not tenable. Hence, the total credit entries are held to be sales of the assessee during the year. As assessee himself has shown profit @ 8% of the turnover in his ROI. Hence, we do not find any reason, to adopt a profit rate lower than the rate adopted by appellant. Therefore, the decision of CIT(A) in estimating income @ 8% is upheld. Penalty u/s 271B - failure to get his accounts audited on or before due date - HELD THAT - Hon ble Supreme Court in case of Wipro Ltd. 2022 (7) TMI 560 - SUPREME COURT has held that the twin conditions of furnishing a declaration before the AO and that too before due date of filing original return u/s 139(1) are to be satisfied and both are mandatorily to be complied with. Hence, we agree with the CIT(A) that filing of audit report is mandatory and only exception for non-compliance is to establish with documentary evidence a reasonable cause . The assessee has not been able to establish any reasonable cause for failure to get accounts audited. In fact, he had estimated profit @ 8% on turnover of Rs. 32,34,156/- though the actual turnover was Rs. 89,63,222/-. No reasons are given as to why such a lower turnover was shown by the assessee. Hence, the accounts were not audited by showing turnover below limit prescribed u/s 44AB of the Act but assessee is taking the plea that he was not aware of the provisions of section 44AB of the Act. In view of the above facts the ground is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment primarily deals with the following core issues:

• Whether the reopening of the assessment under Section 147 and the issuance of notice under Section 148 of the Income-tax Act was justified.
• Whether the addition of the entire amount of cash deposits in the undisclosed bank account was appropriate.
• Whether the estimation of profit at 8% of the turnover by the CIT(A) was correct.
• Whether the penalty imposed under Section 271B for failure to get accounts audited was justified.

2. ISSUE-WISE DETAILED ANALYSIS

Reopening of Assessment under Section 147 and Notice under Section 148

• Legal Framework and Precedents: The reopening of an assessment under Section 147 requires a "reason to believe" that income has escaped assessment. Precedents such as Raymond Woollen Mills Ltd. and ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. establish that at the stage of reopening, the sufficiency or correctness of the reasons cannot be questioned.
• Court's Interpretation and Reasoning: The Tribunal upheld the reopening, citing that the non-disclosure of a bank account with significant cash deposits constituted a prima facie reason for reopening.
• Conclusions: The Tribunal dismissed the ground challenging the reopening of assessment.

Addition of Cash Deposits

• Legal Framework and Precedents: The onus is on the taxpayer to explain the nature and source of cash deposits. The CIT(A) relied on various Supreme Court decisions to support the addition of unexplained cash deposits.
• Court's Interpretation and Reasoning: The Tribunal found that the taxpayer failed to provide sufficient evidence to explain the cash deposits. However, considering the possibility of business-related transactions, the Tribunal deemed it reasonable to estimate 25% of the cash deposits as income.
• Conclusions: The Tribunal directed the AO to add 25% of the cash deposits as income, partially allowing the taxpayer's appeal.

Estimation of Profit at 8%

• Legal Framework and Precedents: Under presumptive taxation schemes, such as Section 44AD, income can be estimated at a fixed rate, typically 8% of turnover.
• Court's Interpretation and Reasoning: The Tribunal agreed with the CIT(A)'s estimation of profit at 8%, noting that the taxpayer's own return reflected a similar profit rate.
• Conclusions: The Tribunal upheld the CIT(A)'s decision to estimate profit at 8% of the turnover.

Penalty under Section 271B

• Legal Framework and Precedents: Section 271B imposes a penalty for failure to get accounts audited when required under Section 44AB. The provision allows for exceptions if reasonable cause is demonstrated.
• Court's Interpretation and Reasoning: The Tribunal found that ignorance of the law does not constitute a reasonable cause for non-compliance. The taxpayer failed to provide a valid reason for not conducting an audit.
• Conclusions: The Tribunal dismissed the appeal against the penalty, affirming the CIT(A)'s decision.

3. SIGNIFICANT HOLDINGS

• Reopening of Assessment: "There should be prima facie reason at the initial stage of reopening. The sufficiency or correctness of the reason cannot be examined at the threshold."
• Addition of Cash Deposits: "In our view, it will be fair and reasonable if 25% of the cash deposit of Rs. 13,20,535/- is taken as the income of assessee."
• Estimation of Profit: "The decision of CIT(A) in estimating income @ 8% is upheld."
• Penalty under Section 271B: "The reason given by the assessee that he was not aware of provisions of section44AB of the Act would not constitute 'reasonable cause' u/s 273B of the Act."

The final determinations on each issue were as follows:

• The reopening of assessments was upheld.
• The addition of cash deposits was partially allowed, with 25% deemed as income.
• The estimation of profit at 8% was upheld.
• The penalty under Section 271B was affirmed.

In conclusion, the appeals were partly allowed, with specific directions for the AO regarding the addition of cash deposits, while the other grounds were dismissed.