SORABH KUMAR,NEW DELHI vs. ITO, WARD-46(4), NEW DELHI

Facts of the case, in brief, are that the assessee is an individual and had not filed his return of income. In this case, information was available with the Department that the assessee has deposited cash of Rs.38,91,055/- in the bank account during the financial year 2010-11. Since, the assessee had not filed his return of income and also no assessment u/s 143(3) of the Act has taken in the case of the assessee for the relevant assessment year, therefore, the AO reopened the assessment of the case of the assessee u/s 147 of the Act by recording reasons and after obtaining necessary approval from the competent authorities. Notice u/s 148 of the Act dated 31.03.2018 was issued and served on the assessee. In response to the notice, no reply was filed by the assessee. The AO, thereafter, issued notice u/s 142(1) of the Act. However, the same also remained uncompiled with. The AO, thereafter issued show cause notice to the assessee asking him to explain as to why the assessment should not be passed u/s 144 of the Act and addition of Rs.38,91,055/- be made to the total income of the assessee along with the interest on the said bank account.

The assessee sought adjournment and thereafter attended the proceedings without any documents. Since, on the last date of hearing, there was no compliance from the side of the assessee, the AO held that the assessee has no explanation for explaining the source of the cash deposits. He, therefore, made addition of Rs.38,91,055/- to the total income of the assessee as unexplained money u/s 69A of the Act.

The AO further made addition of Rs.2,313/- being interest from the savings bank account. Thus, the AO completed the assessment on the total income of the assessee at Rs.38,93,368/-.

Before the learned CIT(A), it was argued that the assessee is an individual deriving income from small business of purchase and sale of old dhoti used in polishing of furniture and paint. The goods dealt with the assessee are exempted from VAT at all time and therefore, the assessee was not liable for any registration under VAT. It was explained that the assessee had not filed the return of income since his taxable income was below the limit prescribed under the Act. The assessee filed the scanned copies of purchases and sales invoices for the impugned assessment year. It was argued that the cash deposited in the bank account represented the money collected from the customers and withdrawal is the payment to the vendors and to the shopkeepers. It was argued that the AO during the course of assessment proceedings did not accept the contention of the assessee that the cash deposits in the saving bank account represent the cash sales and collection from the customers. It was accordingly requested for deletion of the addition.

However, the learned CIT(A) was not satisfied with the arguments advanced by the assessee. He held that the assessee could not substantiate before him that the cash deposits and withdrawals are on account of ongoing business activity, since, the assessee could not substantiate by any corroborating documents or evidence in the nature of sale bills, purchase bills and the ledger account of purchase or sale.

Aggrieved with such order of the learned CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:-

The learned counsel for the assessee did not press the ground challenging the validity of reassessment proceedings. So far as the merits of the case is concerned, the learned counsel for the assessee reiterated the same arguments as made before the learned CIT(A). Referring to page-28 to 75 of the paperbook, he submitted that details of copy of sale bills were submitted before the learned CIT(A). Similarly, referring to pages 76 to 101 of the paper book, he submitted that copy of purchase bills were submitted before the learned CIT(A).

He again submitted that the cash transactions pertaining to the bank account are related to the day to day sale proceeds of the assessee, which are fully explainable. He accordingly submitted that the addition made by the AO and sustained by the learned CIT(A) is not justified. He also relied on various decisions.

The learned DR on the other hand heavily relied on the order of the learned CIT(A).

I have considered the rival arguments made by both the sides, perused the orders of the AO and the learned CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find the AO in the instant case made addition of 38,91,055/- u/s 69A of the Act as unexplained money on the ground that the assessee failed to substantiate the source of cash deposits of the above amount in the bank account maintained with HDFC Bank, Indarpuri Branch. I find the learned CIT(A) upheld the action of the AO on the ground that the assessee could not substantiate that the deposits and withdrawals are on account of sale and purchase, since, the assessee failed to produce any document or evidence in the nature of sale bills, purchase bills and ledger account of sale and purchase. He also rejected the theory of peak credit and theory of previous cash withdrawals eligible for subsequent deposits. It is the submission of the learned counsel for the assessee that the assessee is engaged in the small business of sale and purchase of old dhoti used in polishing of furniture and paint. The assessee is not liable for any registration under VAT as the goods in which the assessee deals with fall under the exempted goods under the Act. Since, the income of the assessee is below the taxable limit, the assessee did not file return of income. It is also the submission of the learned counsel for the assessee that he has produced the necessary purchase and sale bills before the AO and the CIT(A) and in the subsequent year, the AO had passed the order u/s 147/143(3) of the Act determining the total income of the assessee at Rs.1,70,800/- on the total cash deposits of Rs.16,12,224/- which comes to 10.57%.

I find some force in the above arguments of the learned counsel for the assessee. The paper book filed on behalf of the assessee shows that the assessee has filed the copy of sale bills and the purchase bills before the learned CIT(A) to substantiate the sale and purchase. Further in the subsequent assessment year, the case of the assessee was re-opened on account of cash deposits of Rs.16,12,224/- in Union Bank of India and the AO passed the order u/s 143(3) of the Act assessing the total income of the assessee at Rs.1,70,800/- which comes to 10.59% of the total deposits. The relevant assessment order passed by the same Assessing Officer who has passed the order for the impugned assessment year reads as under:-

Since, the AO in the subsequent year has accepted the submission of the assessee that it is engaged in the business of hardware and tools, therefore, considering the totality of facts of the case, I am of the considered opinion that business activities carried out by the assessee cannot be simply rejected and the entire cash deposits cannot be brought to tax as unexplained income. Since, the assessee in the instant case has filed purchase and sale bills before the learned CIT(A), therefore, the business activity is established. Further, there is no query either by the AO or by the learned CIT(A) regarding the utilization of the substantial withdrawals from the said bank account to the extent of Rs.37,40,100/-. Looking to the facts of the present case and in view of various documents filed in the paper book containing scanned copies of purchase and sale bills, I am of the considered opinion that the learned CIT(A) was not justified in sustaining the addition of Rs.38,91,055/- made by the AO on account of cash deposits in the bank account. Since, the same AO in the subsequent assessment year has accepted the profit rate of 10.59% u/s 44AD of the Act, therefore, considering the totality of the facts of the case, I am of the considered opinion that adoption of net profit @ 11% on the total bank deposits of Rs.38,91,055/- will meet the ends of the justice. I hold and direct accordingly. Grounds raised by the assessee are accordingly partly allowed.

In the result, the appeal filed by the assessee is partly allowed.