SUBRAMANIAN SHANKAR,CHENNAI vs. THE INCOME TAX OFFICER,NON-CORPORATE WARD 15(5)., CHENNAI

The sold issue raised by the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.42,23,538/- (being 35% of Rs.1,20,67,251/-) on account of deposits in bank accounts, wrongly treating it as undisclosed investments.

Brief facts of the case are that the assessee is an individual, engaged in the business and having income from house property and other sources filed his return of income for AY 2013-14 on 05.05.2014 declaring an income of Rs.16,69,050/-. The return of income was processed u/s.143(1) of the Act and later the case was selected for scrutiny under CASS and accordingly the statutory notices were issued. During the assessment proceedings, on perusal of the submissions made by the assessee, the AO found that the assessee has made cash deposits of Rs.1,20,67,251/- during the A.Y.2013-14, which is morethan the income shown in the profit and loss account and the assessee did not substantiate with evidences, the assessment was concluded by making an addition of 35% of deposit as unexplained investment. The AO passed an assessment order u/s.143(3) of the Act dated 31.03.2016 and made an addition of Rs.42,23,538/- to the total income.

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A) on 15.05.2016 in manual form 35. The ld.CIT(A) dismissed the appeal without admitting the same as the appeal has not been filed elecgtronically (w.e.f 01.03.2016) by passing an order in ITA No.206/CIT(A)- 15/2016-17 DATED 03.02.2020. 5. Aggrieved by the order of the ld.CIT(A), the assessee challenged the same before the Tribunal, and the Tribunal set aside the order of the ld.CIT(A) and remitted back to the ld.CIT(A) to readjudicate the appeal by granting adequate opportunity to the assessee by passing an order in ITA No.531/Chny/2020 dated 13.05.2020. Accordingly, the statutory hearing notices were served on assessee by the ld.CIT(A). However, the assessee did

The ld.AR submitted that the ld.CIT(A) has passed order by dismissing the appeal filed by the assessee without participation in the appellate proceedings. He submitted that the Assessing Officer has made an addition on estimation without any basis and unreasonable. Though the assessee has declared a correct income in the return of income, the AO has erred in considering the bank deposits as unexplained investment and estimated the income @ 35% of the deposits, which is not warranted, when the assessee furnished the bank statements and ledger accounts during the assessment proceedings. Alternatively, the ld.AR prayed for making a reasonable estimate of 5% as income of the total deposits of Rs.1.20 crores, to end the litigation as the assessment year related is 2013-14. 7. Per contra, the ld.DR submitted that the assessee has been negligent in responding to the statutory notices and hence, prayed for confirming the order of the ld.CIT(A) or remit the matter back to the AO for fresh assessment.

We have heard the rival submissions and perused the materials available on record. The issue involved in the present appeal relates to estimation of income on the cash deposits made by the assessee in his bank account during the impugned assessment year. It is an admitted fact that the assessee had deposited a sum of Rs.1,20,67,251/- in the bank account during the relevant previous year. It is also not in dispute that the assessee was carrying on business activities and had disclosed income from business in the return of income filed for the impugned assessment year. However, the assessee failed to properly substantiate the nature and source of the entire cash deposits before the AO with supporting evidences and complete books of account.

At the same time, from the facts available on record, we find that the AO has not brought any independent material to establish that the entire deposits represented unexplained money of the assessee. The AO has merely adopted 35% of the total deposits on estimation basis without assigning any reasonable basis, comparable cases, incriminating material or defects in the books warranting such high estimation. It is a settled proposition of law that estimation cannot be arbitrary, excessive or without reasonable nexus to the facts of the case. Though the assessee has not fully discharged the burden cast upon him in explaining the deposits, the Revenue authorities are equally required to make a fair and reasonable estimation based on surrounding circumstances and business realities.

We further observe that the assessee has consistently contended that the deposits represented business transactions routed through the bank account. The bank statements and certain ledger extracts were stated to have been furnished before the AO. However, due to lack of proper compliance and non-participation at various stages of proceedings, the complete details could not be verified either by the AO or by the ld.CIT(A). It is also pertinent to note that the ld.CIT(A), while passing the impugned order, merely confirmed the additions made by the AO in ex parte manner due to non-appearance of the assessee, without independently examining whether the estimation made by the AO was reasonable and justified on the facts of the case.

Considering the entirety of the facts and circumstances of the case, the nature of transactions involved, the turnover reflected through bank deposits, and keeping in view the principle of reasonable estimation, we are of the considered opinion that estimation of income at 35% of the total deposits is :-5-:

In our considered view, to meet the ends of justice, to balance the equities between the parties, and also to put a quietus to the prolonged litigation since the appeal relates to Assessment Year 2013-14, a reasonable estimation of income at 8% of the total bank deposits would be fair and proper in the facts of the present case. The estimation of income at 8% also finds support from the settled principles relating to estimation of business income in cases where complete details are not available and the turnover is ascertainable from bank deposits. Therefore, we direct the JAO to estimate the income of the assessee at 8% of the total deposits of Rs.1.20 crores and recompute the total income accordingly. Accordingly, the addition sustained by the ld.CIT(A) is modified and the JAO is directed to restrict the addition by estimating the income at 8% of Rs.1,20,67,251/-. Thus, the grounds raised by the assessee are partly allowed.

In the result the appeal of the assessee is partly allowed.