When all cash credits treated as turnover, capital introduced be also treated out of it- ITAT

When all cash credits treated as turnover, capital introduction in cash and machinery purchased should also be considered out of the cash deposits – ITAT

ABCAUS Case Law Citation:
ABCAUS 3242 (2020) (02) ITAT

In the instant case, an appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) in partly upholding addition towards unexplained investment.

The assessee was an individual. His case was selected for scrutiny under CASS. During the assessment proceedings u/s 143(3) of the Income Tax Act, 1961 (the Act), the Assessing Officer (AO) observed that the assessee had purchased fixed assets and that the assessee had also invested large amount during the year.

Therefore, the assessee was required to furnish the information to prove the sources of such funds. The assessee furnished his reply from which AO noticed that the gross receipts were much lesser than the cash deposited in the Bank A/c of the assessee.

When asked to explain the difference,  the assessee accepted to treat the difference of the amount also as total turnover of the assessee and the income be estimated at 12.03% as offered by him on the declared receipts.

Accordingly, AO treated the entire deposits as gross turnover of the assessee and estimated the income at 12.03% on the same and the AO accordingly brought it to tax.

However, the AO further noticed that the assessee had purchased furniture and Plant & Machinery and introduced it as capital along with cash deposits. The assessee was asked to explain the sources for the total of capital introduced including the Plant & Machinery and cash deposits.

The assessee could not explain properly and since the AO had already estimated the profit from business, he deducted the same from the amount of unexplained investment and brought rest to tax.

Aggrieved, the assessee preferred an appeal before the CIT (A) who granted partial relief by considering the opening capital b/f and also giving credit to the expenses debited to the capital a/c.

Before the Tribunal, the assessee contended that the unexplained cash deposits which had been considered as the gross receipts should also be considered as the sources of introduction of capital and also for purchase of the Machinery.

He submitted that the assessee himself had already offered the sum to tax and cash deposits should be telescoped and the additions should be deleted.

The Tribunal observed that gross deposits into the Bank A/c had been treated as the gross business receipts of the assessee and the net profit thereon had been arrived at, which had been accepted by the assessee.

It was also noted that the addition to the capital in the form of Plant & Machinery and also cash deposits was asked to be explained. The CIT (A) had accepted the net profit as available source. The balance remained to be explained.

It was further observed that the CIT (A) had perused the capital A/c and has held that the AO had not deducted the expenses debited in the capital A/c and had held that the correct capital introduced by the assessee during the year was much lower.

When all cash credits treated as turnover, capital introduced also explained

The Tribunal noted that all the cash credits had been treated as the assessee’s business receipts and the income there from has been estimated. The Tribunal opined that if those receipts were to be considered to be of business receipts of the assessee, then they should also be considered available with the assessee for introduction of the capital in the form of Plant & Machinery and cash deposits.

The Tribunal noted that the gross receipts definitely exceeded the net capital introduced by the assessee and the expenditure incurred by the assessee. Therefore, the Tribunal deleted the addition as confirmed by the CIT (A).   

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