COMMISSIONER OF INCOME TAX I vs. SARWANKUMAR SHARMA

Facts

The assessee, Sarwankumar Sharma, an individual with income from salary and interest, filed his return for AY 2008-09 declaring an income of Rs. 1,07,160. During scrutiny, AIR information revealed cash deposits totaling Rs. 45,16,192 in his Punjab National Bank account. The Assessing Officer (AO) found total deposits of Rs. 66,75,030, including Rs. 45,16,192 in cash. The assessee claimed these deposits related to undisclosed business transactions of trading in art silk cloth, with cash deposited by outside parties against sales. The AO, not satisfied, added Rs. 45,16,192 to the assessee's total income as unexplained money under Section 69A. The CIT(A) upheld the AO's order. The Income Tax Appellate Tribunal (ITAT) partly allowed the assessee's appeal, treating the entire deposits of Rs. 45,85,861 as total turnover of the undisclosed business and estimating income at 8% of this turnover. The Revenue has appealed this ITAT order.

Held

The High Court held that the impugned order of the ITAT, which directed that the entire deposit of Rs. 45,85,861 be treated as total turnover of the assessee with respect to his undisclosed business of trading in art silk cloth, could not be sustained. The Court found that the ITAT had wrongly shifted the onus upon the Revenue to show that the cash deposited was income from undisclosed sources, without properly appreciating that it was for the assessee to establish and prove his claim by leading evidence. The Court noted that the assessee had miserably failed to establish and prove that he was in the business of trading in art silk cloth and that the deposits were related to this business. Consequently, the Court found no basis for estimating income at 8% of the total turnover, as there was no discussion or reasoning provided by the ITAT for this estimation. The ITAT's order was quashed and set aside, and the orders of the CIT(A) and AO, making the addition of Rs. 45,85,861 under Section 69A, were restored. The appeal was allowed.

Key Issues

1. Whether, on the facts and in law, the ITAT was justified in accepting Rs. 45,85,861 as trading receipt of the assessee, despite it not being substantiated by the assessee during assessment or appellate proceedings? (Question of law and fact, concerning Section 69A of the Income Tax Act). 2. Whether, on the facts and in law, the ITAT was justified in holding that the onus of proving the source of credit entries in an unaccounted bank account lies on the Revenue? (Question of law, concerning the burden of proof in tax proceedings). Assessee's Contentions: The assessee argued that the deposits in the bank account pertained to business transactions of sales and purchases of art silk cloth, with cash deposited by outside parties against sales. The assessee requested that gross profit be considered as income. The ITAT, in its order, noted that the assessee claimed these transactions were from undisclosed business of trading in art silk cloth and relied on case laws cited by the assessee. The ITAT treated the deposits as turnover and estimated income at 8%. Revenue's Contentions: The Revenue contended that the ITAT erred in accepting the amount as trading receipt without substantiation by the assessee. The Revenue argued that the ITAT wrongly shifted the onus onto the Revenue to prove that the cash deposits were income from undisclosed sources, and that the finding of the assessee indulging in trading activities was based on surmises and conjectures. The Revenue cited Modi Stone Ltd., Dayal Singh and Sons, and Sanjay Chhabra to support the view that the onus is on the assessee to prove alleged payments and that unexplained investment/unaccounted sales not substantiated should be added under Section 69A.