Deposits in Bank-Income estimated 10% of cash and 20% of cheque deposits as the assessee reasonably proved that he was carrying on business activity – ITAT
ABCAUS Case Law Citation:
ABCAUS 1260 (2017) (05) ITAT
The appellant assessee had challenged the order passed by CIT(A), confirming the addition relating to unexplained bank deposits made by the Assessing Officer (‘AO’).
Assessment Year : 2010-11
Date/Month of Pronouncement: May, 2017
Brief Facts of the Case:
The assessee filed his return of income declaring a total income of Rs.1,33,820/- consisting of salary, commission and other sources income. The AO received information that the assessee has made cash deposits aggregating to Rs. 19,69,755/- into his bank account. When questioned, the assessee submitted that he was carrying on retail trade in fabrics and the deposits represent sale proceeds of the business. He further submitted that he had also deposited cheques/transfer deposits aggregating to Rs.7,38,895/- which also represented sale proceeds of fabrics.
Since the assessee did not substantiate the said claim, the AO assessed aggregate amount of Rs.27,08,732/- as income of the assessee. Before the AO the assessee requested to assess 5% of the Rs.27,08,732/- as income of the assessee as per the provisions of section 44AF of the Income Tax Act, 1961 (‘the Act’) but the same was rejected by the AO.
The CIT(A) confirmed the order of the AO.
Contentions of the appellant Assessee:
The assessee submitted that the assessee had furnished certain purchase bills and also obtained confirmation from one supplier regarding purchase of fabrics to the extent of Rs.15.65 lakhs. Accordingly it was submitted that the assessee had proved majority of purchases. It was submitted that the assessee’s claim had not been accepted by the tax authorities mainly for the reason that the assessee did not declare the business activities in the return of income. Since the assessee was doing retail sales, he could not furnish the names of the parties to whom the goods were sold. Accordingly he submitted that a reasonable income may be estimated from the deposits made by the assessee.
Observations made by the Tribunal:
It was noticed that the assessee had obtained confirmation letter for the purchase value of Rs.15.65 lakhs from a party. The said party had also furnished copy of its returns. The AO had not brought any material on record to show that the said confirmation letter was wrong.
The ITAT opined that since the assessee had proved part of purchases, it would be reasonable to presume that the assessee was carrying on business activities.
However, it was observed that with regard to the cheque deposits and transfer deposits, the explanation of the assessee that the same also represent sale proceeds of fabrics was difficult to accept. Had it been the case, the assessee should have been in a position to give the name and addresses of the customers, confirmation from customers etc.
The ITAT opined that since the business activities had been accepted, it might be reasonable to presume that the cheque deposits/transfer deposits might also represent proceeds from some other business activities. Under these set of facts, the issue might be settled by estimating income from the deposits. Accordingly it directed the AO estimate the income at 10% of cash amount of deposits and at 20% in respect of cheque amount of deposits.
The appeal was partly allowed and the order passed by CIT(A) modified as above.