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Appellant represented by Shri P.M. Jagasheth, CA Respondent represented by Shri Vinod Kumar, Sr. DR Date of hearing 19/01/2023 Date of pronouncement 30/01/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) (in short, the ld. CIT(A) dated 22/03/2022 for the Assessment year (AY) 2012-13. The assessee has raised following grounds of appeal: “1. On the facts and in the circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in reopening the assessment u/s 147 of the Income Tax Act, 1961 and issuing notice u/s 148 of the Income Tax Act, 1961.
2. On the facts and in the circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in not considering the plea for 8% G.P. amounting to Rs. 2,81,750/- from bank account transaction of business.
ITA 125/Srt/2022 Vasantlal Ukaji Purohit Vs ITO 3. On the facts and in the circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs. 8,12,229/- on account of peak credit balance of bank account treated as income.
4. It is therefore prayed that the above addition may please be deleted as learned members of the Tribunal may deem it proper.
5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.”
Brief facts of the case are that the case of the assessee was reopened on the basis of AIR information that the assessee has made cash deposit of Rs. 24,45,880/- in his savings bank account with Central Bank of India during financial period under consideration. On the basis of such information, the assessee was issued notice to explain the source of cash deposit. The assessee failed to make any response to such show cause notice. The Assessing Officer recorded that the assessee has not filed return of income for A.Y. 2012-13 and in absence of explanation of assessee, the source of cash deposit in the bank account remained unexplained which relates to conclusion that the income of assessee has escaped assessment. The Assessing Officer after recording reasons under Section 147, issued notice under Section 148 of the Income Tax Act, 1961 (in short, the Act) on 29/03/2019. Notice under Section 148 was duly served. The Assessing Officer recorded that no return of income in response to such notice was filed. The Assessing Officer obtained information from bank by issuing notice under Section 133(6) about the details of bank account. The bank furnished necessary details in response to notice under Section 133(6)
ITA 125/Srt/2022 Vasantlal Ukaji Purohit Vs ITO of the Act. The Assessing Officer on the basis of such details, noted that there was a total credit of Rs. 35,21,733/- which includes cash deposit of Rs. 24,45,800/- and other credit of Rs. 10,75,853/-. The Assessing Officer again issued show cause notice on 11/09/2019 as to why total credit of Rs. 35,21,733/- should not be treated as unaccounted income. The Assessing Officer recorded that the assessee filed his return of income on 27/09/2019 declaring income of Rs. 2,81,750/- on gross total turnover of Rs. 35.21 lacs under Section 44AD of the Act. The Assessing Officer after serving notice under Section 143(2) and supplying the reasons recorded, proceeded for assessment. The assessee was issued show cause notice to substantiate the source of cash deposit. The assessee in his reply dated 11/10/2019 submitted that he is in the business of selling mobile, mobile accessories, Sim card and recharge voucher coupons. The deposit in bank account was out of business receipt and payments made to distributors and retailers. The assessee also submitted certain copies of bills and vouchers in his name from Sai Marketing. The explanation of assessee was not accepted by the Assessing Officer and the amount of cash component in bank deposit of Rs. 24,45,880/- was treated as unexplained money under Section 69A of the Act and other credit in the bank account of Rs. 10,75,853/- is treated as unexplained investment under Section 69 of the Act in the assessment order dated 30/10/2019.
ITA 125/Srt/2022 Vasantlal Ukaji Purohit Vs ITO 3. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee challenged the validity of reopening as well as both the additions on merit. The assessee in his submission submitted that similar contention has submitted before the Assessing Officer. The assessee also stated that addition should be limited to 8% of gross profit on his total turnover/deposits. The ld. CIT(A) after considering the submissions of assessee held that in many judicial decisions which relates to quantification of income on account of undisclosed bank deposit, in majority of decisions it was held that peak credit in the bank account should be taken as income from the deposit in undisclosed bank account. The bank deposits contained deposits as well as subsequent withdrawal and adding back the entire deposits would be arbitrary and harsh. The ld. CIT(A) find that the peak credit is Rs. 8,12,229/- and accordingly restricted the addition to that extent and thereby deleted the remaining addition. Further aggrieved, the assessee has filed the present appeal before this Tribunal.
At the outset of hearing, the learned Authorised Representative (ld. AR) of the assessee submits that he is not pressing ground No. 1 of the appeal which relates to validity of reopening under Section 147 and notice under Section 148 of the Act. The learned Senior Departmental Representative (ld. Sr. DR) for the revenue has not raised any objection ITA 125/Srt/2022 Vasantlal Ukaji Purohit Vs ITO if ground No. 1 of the appeal is dismissed being not pressed. Therefore, considering the submission of ld. AR of the assessee, ground No. 1 of the appeal is dismissed as not pressed.
Grounds No. 2 and 3 of the appeal relate to not considering the plea of assessee for 8% gross profit addition and in restricting the addition to the peak credit. The ld. AR of the assessee submits that the assessee is a small business man and was also doing a business of “selling mobile, mobile accessories, Sim card and recharge voucher coupons” at a very small level as a retailer. The assessee filed his return under Section 44AD of the Act and offered a taxable income of Rs. 2,81,750/-. The Assessing Officer made addition of entire cash deposit as well as cheque deposits. The assessee before the lower authorities has explained the source of cash as well as cheque received from customers on sale of mobile, accessories and recharge coupons etc. The assessee was doing a very small business and was not liable to maintain books of account. The ld AR for the assessee submits that the profit margin in the trade of assessee is very low ranging from 4 to 6% of the turnover. The assessee has already offered the income from such business in the return of income filed in response to the notice under section 148 and no addition is liable to be sustained.
ITA 125/Srt/2022 Vasantlal Ukaji Purohit Vs ITO
In alternative submissions the ld. AR for the assessee submits that to avoid the protracted litigation, a reasonable estimation of the income form such cash deposits may be made. To support his submission, the ld. AR has relied on the following case laws: (i) CIT-VII Vs Pradeep Shantilal Patel (2014) 42 taxmann.com 2 (Guj) (ii) Mukesh Gamanbhai Patel Vs ITO dated 16/10/2018 (iii) Bharat GAnpatram Vys Vs ITO ITA No. 186/Srt/2022 (iv) Jagdishbhai Savjibhai Patel Vs ITO ITA No. 67 & 68/srt/2019 dated 27/07/2022. (v) Nikhil Jatinkumar Lapsiwala Vs ITO ITA No. 219/Srt/2021.
On the other hand, the ld. Sr. DR for the revenue has vehemently supported the orders of the lower authorities. The ld Sr DR for the revenue further submits that even if it is considered that the assessee was doing some business as claimed, the entire deposits in the bank account is net profit of the assessee. 8. I have considered the submissions of both the parties and have gone through the orders of lower authorities carefully. I find that the during the assessment, the Assessing officer made addition of aggregate of cash as well as cheque deposit in the bank account of assessee. The ld. CIT(A) has given part relief to the assessee by taking a view that in many judicial decisions which relates to quantification of income on account of undisclosed bank deposit, in majority of decisions it was held that peak credit in the bank account should be taken as income from the deposit in ITA 125/Srt/2022 Vasantlal Ukaji Purohit Vs ITO undisclosed bank account. The bank deposits contained deposits as well as subsequent withdrawal and adding back the entire deposits would be arbitrary and harsh. Before me, the ld. AR of the assessee vehemently submitted that assessee was doing a business of ‘sale of mobile, accessories and recharge coupons’ on very small scale. I find that pattern of deposits in bank account shows that there are certain cheque deposits, deposits in cash and regular withdrawal of amount. The lower authorities have confirmed the entire aggregate of deposits and have not considered the withdrawal. I am of the view that entire amount of deposits cannot be considered for addition. The frequent deposit and withdrawal shows that the bank account in dispute was used for unreported business transactions. As recorded above the ld AR for the assessee before me claimed that the assessee was doing a small business of mobile, accessories and recharge coupons etc. Thus, after considering the submissions of the ld AR for the assessee, I find merit in his submission that the assessee was doing some business activity, though it was not disclosed to the department.
The Hon’ble Gujarat High Court in CIT Vs Pradeep Shantilal Patel (supra) held that where assessee admitted that cash deposit pertains to his retail business but details and nature of business were not forthcoming from record, considering the total turnover of assessee, net income had to be determined under Section 44AF. Further the ITA 125/Srt/2022 Vasantlal Ukaji Purohit Vs ITO Coordinate Bench of this Tribunal in Smt. Krushangi Keyur Bhagat Vs ITO in dated 26/09/2018 almost on similar set of facts wherein cash credit of Rs. 183207/- was found credited in the bank account of that assessee, the assessee took plea before lower authorities that transaction in bank account pertained to her textile business. The assessee claimed that only peak credit appearing in the bank account should be considered which was not accepted and the amount after reducing the cheque deposits, remaining was treated as unexplained. However, on appeal before Tribunal, the plea of assessee that amount credited in the bank was a part of textile business and only profit element @ 5% of total deposit including of credit by way of cheque was considered as a profit element on the total deposits. Considering the fact of the case and the legal view taken by Hon’ble High Court as well as by Coordinate Bench of this Tribunal, I am of the view, taxing the entire credit or restricting the addition on peak basis is not justified, and it would be justified if only profit element in such business activities from where the assessee generated the credit found in the bank account to avoid the possibility of revenue leakage. Therefore, 8% of total addition is considered as profit from such business activities. Accordingly, the Assessing Officer is directed to consider 8% of total deposit of Rs. 24,45,880/-.
ITA 125/Srt/2022 Vasantlal Ukaji Purohit Vs ITO 10. Hence, I direct the Assessing Officer to restrict the addition @ 8% of credit in the bank account of assessee. In the result, ground No. 2 and 3 of appeal raised by assessee are allowed. 11. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 30th January, 2023.