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Facts
The assessee filed his return for AY 2010-11 declaring income of Rs.1,51,020/-. Subsequently, the case was reopened under section 147, alleging undisclosed cash deposits of Rs.21,20,783/- in ICICI bank accounts, Rs.3,01,995/- in HDFC and Andhra Bank accounts, and other credit entries of Rs.8,30,859/-. The Assessing Officer (AO) added these amounts to the total income as unexplained cash credits.
Held
The Tribunal held that while the reopening of assessment was justified as the assessee failed to disclose details of bank accounts and cash/credit entries, the addition of the entire amount was excessive. Citing precedents, the Tribunal stated that only a reasonable profit element should be taxed for unaccounted business transactions or collection activities.
Key Issues
Whether the reopening of assessment under Section 147 was valid, and whether the entire cash deposits and credit entries amounting to Rs.32,53,637/- could be treated as unexplained income under Section 68 of the Act.
Sections Cited
143(3), 147, 148, 68, 133(6), 142(1), 143(2), 250
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Before: SHRI DINESH MOHAN SINHA & SHRI BIJAYANANDA PRUSETH
Assessment Year: 2010-11 (Hybrid hearing) Shreyansh Anilkumar Shah Income Tax Officer, Ward-5, बनाम/ 504, Rushabh Residency, Navsari, Income T ax Office, Vs. Maneklal Road, Near Charpool, Awabaug, Navsari-396 Telephone Exchange, Navsari- 445 396 445 �थायीलेखासं./जीआइआरसं./PAN/GIR No: AIQPS 6441 P (अपीलाथ�/Appellant) (��थ� /Respondent) �नधा�रती क� ओर से /Appellant by Shri Rasesh Shah, CA राज�व क� ओर से /Respondent by Shri Ajay Uke, Sr-DR सुनवाई क� तार�ख/Date of Hearing 22/07/2025 उ�घोषणा क� तार�ख/Date of Pronouncement 26/09/2025 आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, 'the Act’) dated 26.07.2023 by the National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income-tax Appeal [in short, the ‘CIT(A)’] for the assessment year (AY) 2010-11, which in turn arises out of assessment order passed by the Assessing Officer (in short, ‘AO’) u/s 143(3) r.w.s. 147 of the Act on 27.10.2017.
Grounds of appeal
raised by the assessee for the appeal are as under: “1. On the facts and circumstances of the case as well as law on the subject, the Ld. AO has erred in reopening assessment u/s.147 by issuing notice u/s.148 of the IT Act, 1961.
2. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of AO in making addition of Rs.32,53,637/- u/s 68 of the Act on account of alleged unexplained cash credits.
A.Y 10-11 Shreyansh A Shah 3. It is, therefore, prayed that the assessment order passed u/s.143(3) rws 147 may please be quashed.
4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
The appeal filed by the assessee is barred by limitation by 29 days. An application for condonation of the delay was filed, which is supported by an affidavit. It is stated by the assessee that the small delay occurred on account of his failure to check his email. He came to know of the CIT(A) order when his accountant opened his email in the first week of the October when notice u/s.226(3) of the Act was issued and sent by the AO for attaching his bank account. Therefore, it is prayed by the assessee that delay of 29 days in filing appeal may be condoned.
3.1 After hearing both the parties, we note that delay in filing appeal by the appellant is not intentional and deliberated. In view of the same, the request for condonation of delay is allowed and the appeal is admitted for hearing.
Facts of the case in brief are that the assessee filed his return of income for the AY 2010-11 declaring the total income at Rs.1,51,020/-. As per the information available, the assessee had deposited cash of Rs.21,84,793/- in his savings bank accounts maintained with the ICICI Bank, deposited cash in his HDFC Bank and Andhra Bank of Rs.3,01,995/- and had credit entries aggregating to Rs.8,30,889/- in his various bank accounts. On verification of the details in ITD system, it was seen that the assessee had not disclosed the aforesaid savings bank account in his ITR-4 filed for the relevant AY. Therefore, case of the A.Y 10-11 Shreyansh A Shah assessee was reopened and notice u/s.148 of the Act dated 22.03.2017 was issued to the assessee. In response to the same, assessee submitted his reply on 22.06.2017 enclosing acknowledgement copy of return of income for the AY 2010-11 along with computation of income. It was mentioned in the aforesaid reply that assessee had maintained four bank accounts during the year under consideration with ICICI Bank, HDFC bank and Andhra Bank. In addition to this, objection was also raised by the assessee against the issue of notice u/s.148 of the Act. The aforesaid objection was disposed of vide order dated 22.06.2017. Subsequently, notices u/s.143(2) and 142(1) of the Act were issued during the assessment proceedings seeking details/documents regarding the source of cash deposited by the assessee in his savings bank account.
4.1 In his reply, the assessee stated that only two bank accounts are maintained by him with the ICICI Bank (A/c. no. 020601503314 & 020601504323 wherein cash deposits of Rs.4,61,600/- only had been made by him out of the cash withdrawals from bank only. In order to substantiate this claim, assessee could not furnish any cogent documentary evidence other than bank account statement of aforementioned two bank accounts. Therefore, AO issued notices u/s.133(6) to the bank to verify the claim of the assessee. In compliance of same, information/details were provided by the bank as per which assessee was maintaining two more bank accounts, i.e., 020601511377 and 020601511411 and had deposited cash of Rs.11,15,383/- and Rs.5,43,900/- in these bank accounts, respectively. The total cash deposits in ICICI bank accounts only of the A.Y 10-11 Shreyansh A Shah assessee was found at Rs.21,20,783/-. Since, the assessee concealed details regarding the bank accounts and could not substantiate his claim of making cash deposits to the extent of Rs.4,61,600/- out of cash withdrawals, a show cause notice dated 12.10.2017 was issued to him by the AO. In the aforesaid show cause notice, assessee was requested to show cause as to why the amount of Rs.21,20,783/- should not be treated as unexplained cash credit and added to his total income, however, assessee did not furnish any reply in compliance. Therefore, aforesaid cash deposits of Rs.21,20,783/- were treated as unexplained and added to his total income.
4.2 It was also observed by the AO during assessment proceedings that assessee deposited cash of Rs.3,00,995/- in his HDFC bank account and cash of Rs.1000/- in his Andhra Bank account, however, no details/documents were furnished by the assessee to substantiate the source of such cash deposits. Accordingly, amount of Rs.3,01,995/- was treated as unexplained and added to the total income of the assessee. In addition to this, the AO observed that in various bank accounts of assessee, there were credit entries aggregating to Rs.8,30,859/-, however, inspite of being provided ample opportunities, assessee failed to substantiate the source of such credit entries. Therefore, the aforesaid credit entries of Rs.8,30,859/- were also treated as unexplained and added to the total income of the assessee. Accordingly, order u/s. 147 rws 143(3) of the Act was passed on 27.10.2017 wherein total income of the assessee was
Aggrieved by the addition made in assessment order, assessee preferred appeal before CIT(A). The CIT(A) observed that the assessee was given ample opportunity to substantiate the source of cash deposits and credit entries in his various bank accounts, however, assessee failed to furnish any document/supporting material to substantiate source of aforesaid cash deposits and credit entries in his bank accounts. Accordingly, on the basis of detailed findings and reasons given by the AO in his assessment order and on account of failure of assessee to furnish any cogent documentary evidence to substantiate the source of cash deposits and credit entries in his bank accounts, the CIT(A) confirmed the additions made by the AO and dismissed the appeal of the assessee.
Further aggrieved by the order of CIT(A), the assessee has filed present appeal before the Tribunal. The Ld. AR of the assessee filed a paper book containing copy of submission made before the CIT(A), copy of ITR and computation of income, copy of notice u/s.148 and reasons recorded for reopening, objections raised against reopening, submissions made before the AO, order by AO disposing off the objections raised against reopening, show cause notice issued by the AO, bank statements of ICICI and HDFC bank accounts, etc. Apart from this, the Ld. AR also filed some case laws which were relied upon by him.
A.Y 10-11 Shreyansh A Shah 6.1 The Ld. AR contended that in the instant case, AO in the reasons recorded for reopening, proceeded on the erroneous footing that the assessee had not filed any return of income at all. Since, the very first premise for issuing notice u/s.148 was factually incorrect, therefore, reopening proceedings may be quashed. Apart from this, it is stated by the Ld. AR that the assessee is working as freelancer agent and earned commission income on RDs, Gold coin scheme, insurance, vehicle finance, etc. of ICICI bank and care consultant and other agencies and the day-to-day cash received from various customers for insurance premium, vehicle booking, R.D. and ICICI gold coin scheme are deposited in his bank accounts and withdrawals therefrom were made as per requirement. The Ld. AR further stated that aforesaid cash deposits/credit entries are not assessee’s income and since long time has passed, therefore, it would be difficult to obtain relevant data of all the customers from whom the cash and cheque were received for various collections.
On the other hand, Ld. Sr. DR for the revenue supported the findings and observations made by AO and requested to uphold the order of CIT(A) in view of the assessee’s utter failure to furnish cogent documentary evidence to substantiate the source of cash and credits made in his bank accounts.
We have hard both the parties and perused the materials available on record. We have also deliberated on the decisions relied upon by Ld. AR. On perusal of the reasons recorded for reopening, it is seen that the AO observed that though the assessee has filed his return of income for AY 2010-11, however, A.Y 10-11 Shreyansh A Shah he has failed to disclosed the details of said saving bank accounts in his ITR -4 filed for the relevant AY. It is pertinent to mention here that minor factual inaccuracies in the reasons recorded do not vitiate the reopening proceedings if the material relied upon discloses a prima facie belief of escapement of income. Reliance in this regard is placed on the decision of Hon’ble jurisdictional High Court in the case of Damodar H. Shah vs. ACIT [245 ITR 774 (Guj)]. In the present case, despite the return being filed, the assessee had failed to disclose details of multiple bank accounts and substantial cash/credit entries aggregating Rs.32,53,637/-. These entries were clearly not examined in the original processing of return u/s 143(1) of the Act and therefore, reopening based on such tangible material is justified, even if the AO mistakenly noted that no return was filed. Therefore, first ground of appeal of the assessee challenging the validity of reopening u/s.147 of the Act is dismissed.
9. Ground Nos. 2 & 3 raised by assessee deal with the addition made u/s 68 of the Act. The AO made the addition of Rs.32,53,637/- u/s 68 of the Act treating the cash deposits and credit entries in the assessee’s bank accounts as unexplained. The burden u/s 68 lies on the assessee to establish the nature and source of the sum credited in books or bank account. This burden remains even if such amount is deposited in a personal bank account. The assessee submitted bank statements and made general submissions about being a freelancer collecting cash for various schemes. The assessee claimed that these amounts were collections from customers in the course of acting as a freelancer/agent A.Y 10-11 Shreyansh A Shah for various financial schemes. The explanation is broadly plausible, especially considering that financial agents or sub-brokers often collect and deposit cash on behalf of clients.
9.1 However, the assessee has not maintained any books of account nor has he produced any documentary evidence or confirmations from parties to substantiate the claim. There is no ledger or system of documentation that can be relied upon. At the same time, the assessee’s claim is not outrightly disproved and the revenue has not shown that the cash deposits are from some alternative undisclosed source. Under such circumstances, where business activity is admitted, but books are not properly maintained, the addition of the entire credit entries as income would be excessive and unjustified. The correct approach would be to estimate a reasonable net profit from the total cash flow.
9.2 The Tribunals and Hon’ble High Courts have in a number of cases have taken the view that in the case of unaccounted business transactions or collection activities, only reasonable profit element can be taxed, not the entire turnover. Reference is drawn to the decision given by Hon’ble jurisdictional High Court in the case of CIT vs. President Industries [258 ITR 654 (Guj.)], wherein Hon’ble Gujarat High Court observed –
“…….. It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the A.Y 10-11 Shreyansh A Shah effect that investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question, whether entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative…..” 9.3 Given that the assessee appears to be acting as a freelance agent earning commission income and the cash deposits are claimed to be part of his business receipts, we deem it fair and just to estimate net profit @ 15% on the aggregate impugned cash and credit entries in the bank accounts. Accordingly, the AO is directed to add an amount of Rs.4,88,045/-, being 15% of Rs.32,53,637/- and deleted the remaining addition. Ground Nos. 2 and 3 are partly allowed.
In the result, the appeal of the assessee is partly allowed.