2025 (4) TMI 718 - AT - Income Tax

Unexplained income - taking sales proceeds as unaccounted and unexplained income - Addition by taking 8% of total turnover as income - HELD THAT - On this aspect the assessee has declared the total turnover therefore merely because of not filing the details of purchase and sales vouchers is not the criteria to say that the assessee s first cash deposit as unexplained is not correct. As per the assessee she has submitted the cash book and sales vouchers before the ld. CIT(A) on my verification which clearly establish that her turnover is more than the deposits. Therefore the AO is not correct to declare unexplained cash credit during demonetization period. Hence direct the ld. AO to delete the addition made by the AO on this account. So far as 8% of the estimation of business of the assessee has no basis and it is AO s mere assumption. Considering the nature of the business of the assessee its of the considered view that 5% is appropriate to estimate the income of the assessee. Therefore 5% is to be calculated on the total turnover of the assessee instead of 8%. Grounds raised by the assesese are partly allowed.

ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal issues:

Whether the addition of Rs.5,50,000/- as unaccounted income by the Assessing Officer and CIT(A) was justified.
Whether the estimation of 8% of the total turnover as income by the Assessing Officer and CIT(A) was appropriate.
Whether the interest charged under section 234A was arbitrary and unjust.

ISSUE-WISE DETAILED ANALYSIS

1. Addition of Rs.5,50,000/- as Unaccounted Income

Relevant Legal Framework and Precedents: The case involves the interpretation of unexplained cash credits under the Income Tax Act, particularly sections 144/147, which relate to best judgment assessment and income escaping assessment.
Court's Interpretation and Reasoning: The Tribunal noted that the assessee declared a total turnover of Rs.81,16,658/-. The Tribunal found that merely failing to provide purchase and sales vouchers does not justify treating the cash deposit of Rs.5,50,000/- as unexplained.
Key Evidence and Findings: The assessee provided a cash book and sales vouchers during the appellate proceedings, which supported the declared turnover exceeding the cash deposits.
Application of Law to Facts: The Tribunal applied the principle that the absence of specific documentation does not automatically render a cash deposit unexplained if the overall financial records support the declared turnover.
Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the lack of distributor and creditor details justified the addition, emphasizing the sufficiency of the turnover evidence.
Conclusions: The Tribunal directed the Assessing Officer to delete the addition of Rs.5,50,000/- as unaccounted income.

2. Estimation of 8% of Total Turnover as Income

Relevant Legal Framework and Precedents: The estimation of income for business turnover is guided by the principles of reasonableness and fairness under the Income Tax Act.
Court's Interpretation and Reasoning: The Tribunal found that the 8% estimation by the Assessing Officer was arbitrary and lacked a concrete basis.
Key Evidence and Findings: The Tribunal considered the nature of the assessee's business and determined that a 5% estimation was more appropriate.
Application of Law to Facts: The Tribunal applied the principle of reasonable estimation, considering the business context and industry standards.
Treatment of Competing Arguments: The Tribunal adjusted the estimation rate, acknowledging the assessee's argument against the higher percentage without dismissing the need for some estimation.
Conclusions: The Tribunal directed the Assessing Officer to recalculate the income estimation at 5% of the turnover.

3. Charge of Interest under Section 234A

Relevant Legal Framework and Precedents: Section 234A pertains to interest for defaults in furnishing return of income.
Court's Interpretation and Reasoning: The Tribunal did not provide a detailed analysis of this issue, focusing instead on the primary issues of income addition and estimation.
Key Evidence and Findings: The Tribunal did not specifically address the evidence related to the interest charge.
Application of Law to Facts: The Tribunal's decision did not hinge on this issue, as the primary relief was granted on the income addition and estimation points.
Treatment of Competing Arguments: The Tribunal implicitly acknowledged the assessee's plea for interest recalibration but did not provide a separate directive.
Conclusions: The Tribunal's order focused on the primary issues, leaving the interest charge largely unaddressed.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Merely because of not filing the details of purchase and sales vouchers is not the criteria to say that the assessee's first cash deposit of Rs.5,50,000/- as unexplained is not correct."
Core Principles Established: The Tribunal emphasized the importance of considering the overall financial records and business context when assessing unexplained income and estimating business income.
Final Determinations on Each Issue: The Tribunal directed the deletion of the Rs.5,50,000/- addition and recalibrated the income estimation to 5% of the turnover, granting partial relief to the assessee.