MUNAF A.K. VADGAMA,MUMBAI vs. ITO 17(1)(3), MUMBAI

We heard the parties and perused the record. The assessee has filed return of income for A.Y. 2005-6 declaring total income of Rs. 1,27,220/-. Subsequently, it was noticed that the assessee has made cash deposit of Rs. 35,23,200/- and cheque deposit (excluding cheques returned/bounced) of Rs. 13,50,000/- in the savings bank account maintained with State Bank of India during the financial year relevant to A.Y. 2005-06. When questioned, the assessee did not furnish required details. The assessee had claimed to be carrying on business of trading in sand and stones. However, the assessee did not furnish any details relating to purchase and sales. Hence the Assessing Officer treated the above cited deposits as unexplained and assessed the aggregate amount of Rs. 48.73 lakhs in the hands of the assessee. The learned

Learned AR submitted that the assessee has been carrying on business of trading in sand and stones in the earlier years also and has filed return of income for those years. He submitted that the assessee has maintained books of account and the impugned bank account has been duly disclosed therein. Accordingly, he submitted that the tax authorities are not justified in treating the deposits as unexplained when deposits and withdrawals are duly reflected in the books of account.

On the contrary, learned DR submitted that the assessee has taken different stand before the learned CIT(A). He has submitted before Ld CIT(A) that he was doing civil contract work and accordingly claimed that his income should be computed as per the provisions of section 44AD of the Act. However, before the Assessing Officer, the assessee has claimed to be carrying on business of trading in sand and stones. The learned DR submitted that the provisions of section 44AD will not apply in respect of trading business. Learned DR further submitted that the assessee did not furnish any details before the Assessing Officer and hence his claim of maintaining books of account should not be accepted.

We heard the parties and perused the record. We noticed that the assessee has been filing return of income for earlier years also. In support of the same, the learned AR furnished copies of return of income filed for A.Y. 2004-05 and 2006-07. A Perusal of the acknowledgment shows that the assessee declared his bank account as ‘Union Bank of India’, Null Bazar with Account No. 31394. The assessee has furnished a paper book, wherein ledger account copies of purchases, sales and bank accounts are placed. The ledger copy of Bank account is available at page No. 5 to 12 of the paper book and Account number of the Bank is shown as 31394. According to learned AR, impugned deposits of cash and cheques have been collated by the Assessing

However, we noticed that the assessee has not furnished any supporting material or details relating to purchases and sale of sand and stones. It is well settled proposition that the initial onus to prove the purchase and sales lie upon the assessee. Before us also, no supporting materials was placed. Before the AO, the assessee has also not furnished the books of accounts before the AO and hence at this stage, we do not want to recognize them. However, we notice from the I.T return acknowledgement that the assessee has been submitting profit and loss account and Balance-sheet along with the return of income, meaning thereby, his claim of carrying on trading business in stand and stones cannot be dismissed altogether. However, during the year under consideration, the assessee has shown sales of only Rs. 22.26 lakhs as against deposit of Rs. 48.73 lakhs. In our view, the deposits to the extent of sales figure of Rs.22.26 lakhs may be accepted in the facts and circumstances of the case. The remaining amount of deposits works out to Rs.26.47 lakhs and the assessee is required to explain the sources of the same. The assessee has taken a ground that the cheque deposits of Rs.13.50 lakhs represent cancelled pay order cheques. If that be the case, then the amount of Rs.13.50 lakhs also needs to be excluded. However, this fact requires verification. This leaves a balance of Rs.12.97 lakhs.

Under the facts and circumstances of the case, we are of the view that the remaining amount of deposits may also be taken as the turnover of the assessee, on which profit may be estimated. We notice that the assessee has declared gross profit at around 5%. Accordingly we are of the view that the profit may be estimated on the balance amount of Rs.12.97 lakhs @ 5%. The AO may verify the claim of the assessee with regard to the cheque deposits of Rs.13.50 lakhs and if he is satisfied with the same, then no addition is called for. Otherwise, the AO may estimate the profit on those deposits also @ 5%. In 4 Mr. Munaf A.K. Vadgama our view, the above said direction would put this issue at rest. Accordingly, we set aside the order passed by the learned CIT(A) and direct the Assessing Officer to compute disallowance in the manner stated above.

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