S.BAKKIAM,NAMAKKAL vs. ITO WARD 1, NAMAKKAL

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals), Salem, dated 18.03.2019 and pertains to assessment year 205-16.

Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the Assessing Officer found that there were cash deposits in the Savings Bank accounts of more than the turnover. According to the Ld. counsel, the assessee explained before the Assessing Officer that the sale proceeds of poultry raw material was deposited in the bank account. However, the Assessing Officer has taken the peak credit and made addition of ₹43,17,679/- as unexplained income. According to the Ld. counsel, what was deposited is only the sale proceeds of poultry raw material, therefore, only the profit element embedded in the turnover to be added. Referring to the statement said to be recorded from the assessee, more particulary, answer to question No.6, the Ld.counsel submitted that the assessee during the course of examination on 16.10.2017, clarified that the sale proceeds were deposited. According to the Ld. counsel, no doubt, the profit from the sale of poultry raw material was not disclosed in the original return. However, the assessee was willing to offer the same at the rate of 8% of the turnover during the course of assessment proceeding. Therefore, the Ld.counsel submitted that the profit element may be considered for taxation. On a query from the Bench, the Ld.counsel clarified that no revised return was filed during the course of assessment proceeding since the time limit for filing the same had expired. However, according to the Ld. counsel, the assessee offered 8% of the turnover as profit during the course of assessment proceeding.

On the contrary, Shri V.M. Mahidar, the Ld. Departmental Representative, submitted that no doubt, the assessee claimed before the Assessing Officer during the course of examination that the sale proceeds of poultry raw material were deposited in the bank account. However, according to the Ld. D.R., the profit from the business, namely, sale of poultry raw material, was not disclosed in the return of income. Moreover, the actual source of deposit of cash in the bank account could not be identified. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.

We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, there was cash deposit of ₹34,50,000/- in the SB account maintained with Karur Vysya Bank Ltd., Namakkal Branch and ₹21,50,000/- in the account maintained with Tamilnad Mercantile Bank Ltd., Koolipatti Branch. In fact, the assessee has deposited ₹56,00,000/- in both the banks. When the assessee was examined under Section 131 of the Act on 16.10.2017, in response to question No.6, the assessee explained that the sale proceeds of poultry raw material were deposited in both the accounts. The Assessing Officer now observed in the impugned order that the source for deposit could not be identified. When the assessee has no other source of income, the presumption is that the money was flown from known source, namely, sale proceeds of poultry raw material is deposited in the bank account. Therefore, as rightly submitted by the Ld.counsel for the assessee, what is to be brought for taxation is the profit element embedded in the turnover of the assessee. In other words, the entire bank deposits cannot be made as subject matter of taxation. The assessee in response to question No.10 has offered 8% of the turnover. Therefore, this Tribunal is of the considered opinion that the profit element embedded in the turnover has to be taken as 8%. Accordingly, 8% of the amount deposited in bank is liable for taxation.

No doubt, while filing the return of income, the assessee had not offered any profit from the business of sale of poultry raw material. When the return was taken for scrutiny, during the course of examination under Section 131 of the Act, the assessee offered 8% of turnover. Therefore, this Tribunal is of the considered opinion that the profit element embedded in the turnover has to be taken as profit in the business of sale of poultry raw material. Accordingly, the same needs to be brought to taxation.

In view of the above discussion, the orders of both the authorities below are set aside and the Assessing Officer is directed to estimate 8% of the turnover on sale of poultry raw material / amount deposited in bank and levy tax thereon at the rate applicable during the financial year relevant to the assessment year under consideration.

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