HARSHAD KANJIBHAI PANCHANI,SURAT vs. ACIT, WARD 3(2)(3), SURAT

The brief facts of the case are that the assessee is an individual engaged in the business of embroidery job work in the name and style of his proprietary concern viz. M/s. Meera Fashion and had filed his return of income declaring income of Rs.3,92,020/- for the year under consideration. The case was selected for scrutiny under CASS and notices under sections 143(2) and 142(1) were issued. During the scrutiny, the Assessing Officer observed unexplained credits in bank accounts, investment in immovable property, and ownership of commercial properties without declaring rental income. The Assessing Officer completed the assessment under section 143(3), making additions as follows:

1 Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the CIT(A), challenging these additions, claiming that bank credits were business receipts, the investment was partly from partnership firms, and the properties were used for business purposes. The Ld. CIT(A) confirmed all these additions.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.

We have heard the rival submissions and perused the material available on record. The grounds are adjudicated as under:-

The Assessing Officer added Rs.1,24,57,286/- under section 68 of the Act, on account of unexplained deposits in two bank accounts maintained with Tamilnad Mercantile Bank Ltd. and Mehsana Urban Co-op Bank Ltd. The assessee contended that these deposits represented business receipts for embroidery job work & handwork. It was also contended that though the assessee failed to properly disclose and maintain books, the pattern of deposits indicates business receipts and rotation of funds. In view of these facts, taxing the entire gross receipts would result in unrealistic assessment of income. What can reasonably be brought to tax is the profit element embedded in such receipts. In the present case, authorities below have brought entire gross deposits to tax without considering withdrawals or business expenditure. Considering the nature of business of the assessee, i.e. embroidery job work as also considering the facts of the case, we deem it fair and reasonable to estimate net profit at 8% of the gross receipts reflected in the undisclosed bank accounts. Accordingly, the Assessing Officer is directed to restrict the addition to 8% of Rs.1,24,57,286/- and the addition of balance amount is deleted. Asst. Year : 2015-16 - 4–

The Assessing Officer added an amount of Rs.31,18,974/- under section 68 of the Act, treating it as unexplained investment. The assessee submitted that Rs.29,44,350/- was paid in F.Y. 2015-16 and the balance Rs.1,74,624/- was from current business income and withdrawals from partnership firms, namely M/s Radhe Tex Fab, M/s Sai Krupa Tax, Meera Tex Fab, M/s Vishwa Creation, and Mrs. Arunaben H. Panchani. However, the assessee did not furnish supporting evidence such as bank statements of the partnership firms, mode of transactions, or contra confirmations to substantiate the claim. Given the lack of documentary proof and the unreported nature of parallel business activities, the veracity of the claimed sources could not be verified. Therefore, in the interest of justice, we restore this issue to the file of the Assessing Officer for the limited purpose of examining the claim of telescoping of income estimated against the investment made. The Assessing Officer shall grant appropriate relief after providing opportunity of hearing to the assessee.

The Assessing Officer determined annual letting value based on market inquiry and added Rs.12,20,000/- as deemed rental income. The assessee claimed that properties were used for business by partnership firms. The assessee owned multiple commercial properties but did not offer any income under the head “Income from House Property”. It was submitted that the properties were self- occupied for own business in terms of statutory provisions; hence, we hold that no notional income is chargeable. Asst. Year : 2015-16 - 5–

This addition relates to difference between receipts shown in the Profit and Loss Account and bank credits. The nature of the difference also pertains to business receipts. Since we have already directed estimation of profit on entire deposits as per Ground No.1, separate addition of Rs. 6,90,909/- would amount to double taxation. We, therefore, delete the addition and the appeal of the assessee on this ground is accordingly allowed.

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