KIRAN VALLABHBHAI AHIR,SURAT vs. INCOME TAX OFFICER, WARD - 3(3)(3), SURAT

आदेश /O R D E R

PER O. P. MEENA, AM: 1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-3, Surat(in short “the CIT (A)”) dated 06.06.2017 pertaining to Assessment Year 2013-14, which in turn has arisen from the assessment order passed under section 143 (3) dated 17.02.2016 of Income Tax Act, 1961 (in short ‘the Act’) by the Income Tax Officer, Ward- 3(3)(3)Surat(in short “the AO”). 2. Ground No.1 to 3 states that Ld. CIT (A) has erred in sustaining addition of Rs. 53,32,345 made by the AO treating the entire cash deposits in bank account as unexplained cash deposits, whereas entire cash deposits are sale proceeds of the assessee on which profit can be

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estimated and without prejudice even if cash deposits is not accepted

as business transactions, then also CIT (A) erred in sustaining entire

cash deposits in bank account as income of the appellant whereas only

peak credit balance of the bank account should be treated as net

unexplained cash credit. 3. Succinct facts are that AIR information revealed that the assessee

had a bank account in HDFC Varachha Branch Surat wherein cash deposits

of Rs. 53,27,345 were reflected beside cash deposits of Rs.5,000 in bank

account with OBC Ichhapor, Surat. These bank accounts have not been

disclosed in return of income of the assessee. Therefore, a show-cause

notice was issued on 21.01.2016 to explain the source of bank deposits by

27.01.2016. But, no explanation was filed, therefore, the AO treated the

entire bank deposits as unexplained cash deposits and added to total

income. 4. Being, aggrieved, the assessee filed an appeal before the Ld. CIT

(A). Wherein the assessee submitted that the deposits in bank account

comprises mainly for cash deposits and the same deposit represents sale

proceeds of items sold by the assessee and cash withdrawn from bank. It

was further submitted that an amount of Rs.7,46,000 was withdrawn in

cash and also cheque amounting to Rs.1,21,500 have been returned.

Therefore, these should not be considered while calculating the total

deposits in the bank account. Here it is to be noted that cash withdrawn

from this bank account have been used to be redeposited again in the same

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bank and accordingly cash with the from this bank account should also

reduced from the total additions made. Therefore, effectively total

deposits made in HDFC bank account would work out to be Rs.45, 58,845.

It was further submitted that estimation of profit rate is the only logical

option under the facts of the case, since, the assessee has not made any

unexplained investment to the extent of addition of Rs.53,32,345 made by

the AO out of above bank accounts. The transaction in said bank account

pertains to trading activity only, and in order to overcome any controversy

and put an end to the litigation, the deposits in bank account excluding

the cash withdrawn from this bank account and cheque returned which

amounts to Rs 45,58,845 may be treated as turnover and profit at the rate

of 8%, be estimated as provided under section 44AD of the Act. The

assessee has ready to pay tax on the net profit, which is worked out to Rs.

3,64,707. Without prejudice, it was further submitted, that if the above

plea of the assessee is not accepted, the addition if any, can be made only

in respect of peak credit since cash deposits in bank account has been

utilised in the manner as explained above, and if the same is not recorded

as expenditure of assessee in that case, the obvious conclusion is that the

assessee has not parted with the cash and the same is available with him

for redeposit in the bank account. Therefore, it is the peak credit of the

bank account which comes to Rs.6,60, 603 as on 21. 01. 2013. Hence, only

peak credit balance can be added for which reliance was placed on the

decision of ITAT Ahmedabad in the case of Vishal Chug I.T.A.No.

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866/Ahd/2013. However, CIT (A) did not accept the pleas of the assessee

on the ground that no VAT No., business address was submitted and no

evidence to show whether business has been actually done was filed.

Therefore, the addition made by the AO was confirmed. 5. Being, aggrieved the assessee filed this appeal before the Tribunal.

The learned counsel for the assessee submitted that most of cash deposits

have been made from places out of Surat. If the bank account is properly

analyzed, it is evident that cash has been deposited at Saharanpur (UP),

Dalhousie , Chandani Chowk Delhi , Rewari , Muzzafar Nagar, Philkuwa ,

Jabalpur , Gwalior etc. This facts proved that cash deposits are out of sale

proceeds of textile trading. Further, the payment have been made to

various textile firms such as Rajlaxmi Fabrics, Rajlaxmi Fab, Chirag

Synthetics, Shyam Textile. Similarly, there are debits in bank account,

which are in respect of textile trading of business. Thus, only estimated

profit for such turnover could be added. The learned counsel for the

assessee also placed reliance on the decision of Hon’ble Gujarat High Court

in the case of CIT-VII v. Pradeep Shantilal Patel [2014] 42 taxmann.com

wherein it was held that in such case at the most estimated profit of such

turnover can be added. Therefore, addition of the entire turnover amount

is clearly unjustified. Learned Counsel submitted that though the

Department is accepting net profit of 2% to 5% in this line of business ,

but since the assessee has not maintained books of accounts hence, at the

most net profit @8% as per section 44AD can be sustained and not the

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whole addition made by the AO. The learned counsel for the assessee also

filed additional evidence in respect of business transaction in the form of confirmation and or purchase bills of two suppliers. 6. Per contra, the ld. Sr. D.R. submitted that no proper application has been made for additional evidence hence, same is not admissible. Furthermore, the assessee has not filed any submission during the course

of assessment proceedings, hence, CIT (A) has rightly upheld the order of the AO. 7. We have heard the rival submissions and perused the relevant material on record. The perusal of assessment order reveals that the

assessee has not filed any details before the AO. However, before CIT (A) the claim was made that the cash deposits in bank account pertained to

textile business carried out by the assessee, though no books of accounts were maintained nor the bank account were disclosed in return of income.

However, it is discernible from bank account that cash deposits were made

for various out stations like Delhi and UP. The bank account also reflects payments made to textile concerns. Therefore, it is clearly apparent that

cash deposits are linked with business transaction of the assessee. Since the assessee has not maintained any books of accounts, hence, in such situation only net profit as per provisions of section 44AD of the Act is required to be estimated as net profit and not entire turnover or cash

deposits reflected in the bank account. Therefore, following the ratio laid

down in the case of CIT V. Pradeep Shantilal Patel [2014] 42 taxmann.com

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2 (Gujarat) wherein it was held that where assessee admitted that cash

deposits pertained to his retail business but details and nature of business were not forthcoming from record, considering total turnover of assessee,

net income to be determined under section 44AD of the Act, the AO is directed to estimate net profit @ 8% of total turnover of Rs. 53,32,345

being cash deposits in bank account. Accordingly, Ground No. 1 to 3 of appeal are partly allowed. 8. In the result, the appeal of the assessee is partly allowed. 9. Order pronounced in the open Court on 10.02.2020.

Sd/- Sd/- (SANDEEP GOSAIN) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 10th February, 2020/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/ Guard file of ITAT. By order // TRUE COPY // Assistant Registrar, Surat