EHSAMUDDIN M. MALIK,MUMBAI vs. ITO 25(1)(1), MUMBAI

In ground no.1, assessee has challenged addition of ` 10,73,900.

Briefly stated the facts are, assessee an individual is engaged in retail trade of tobacco. For the assessment year under consideration, assessee filed his return of income on 22nd June 2009, declaring total income of ` 1,10,145. During the assessment proceedings, the Assessing Officer found that as per the information available on record, assessee had made cash deposits of ` 10,73,900 in his bank account. He, therefore, called upon the assessee to explain the source of such deposits. In response to the query raised, it was submitted by the assessee that the bank account was operated by his brother–in– law. The Assessing Officer, however, did not accept the explanation of the assessee and treated the cash deposit of ` 10,73,900 as unexplained credit under section 68 of the Act and added it to the income of the assessee. Being aggrieved of such addition, assessee challenged the same before the learned Commissioner (Appeals).

Learned Commissioner (Appeals) also sustained the addition accepting the reasoning of the Assessing Officer.

Learned Authorised Representative submitted that the cash deposits made in the bank account represent assessee’s business receipt which is proved from the fact that out of such deposits cheques have been issued to different parties towards payment made for 3 Ehsamuddin M. Malik purchase of tobacco. He, therefore, submitted that the cash deposits cannot be treated as unexplained cash credit under section 68 of the Act. However, learned Authorised Representative submitted since the cash deposits represent the business receipt of the assessee profit can be estimated @ 5% in terms of section 44AF.

Learned Departmental Representative supported the order of the learned Commissioner (Appeals) and the Assessing Officer.

We have considered the submissions of the parties and perused the material available on record. Undisputedly, assessee has made cash deposits of ` 10,73,900 in his bank account during the relevant financial year. However, it is also observed from the bank statement, regular payments have been made out of such cash deposits through account payee cheques issued in the name of various parties who are dealers in tobacco. The fact that assessee is also engaged in tobacco business has not been disputed by the Department. In such circumstances when the payment were regularly being made from the bank account on account of purchase of tobacco through account payee cheque assessee’s claim that cash deposits represent his business receipt is acceptable. That being the case, the entire deposits cannot be considered to be income of the assessee as only the profit

In ground no.2, assessee has challenged the estimation of income from tobacco business at ` 1,00,000 and adding the entire commission income of ` 2.15 lakh without allowing any expenditure.

Briefly stated the facts are, the Assessing Officer during the assessment proceedings found that the assessee for the purpose of suppressing his real income is carrying on his business in two different names. The Assessing Officer observed that the statement of affairs of his business run in the name and style of K.G.N. Enterprises reveals that the assessee has shown gross loss of ` 6,206 without considering the expenditure claimed in the Profit & Loss account. He, therefore, proceeded to estimate the income from proprietary business at ` 1 lakh. The commission income of ` 2.15 lakh was also added back without allowing any expenditure. Being aggrieved, assessee preferred appeal before the learned Commissioner (Appeals) but first appellate authority also sustained the addition.

Learned Authorised Representative drawing our attention to the Profit & Loss account of the tobacco business submitted the gross sales for the year was disclosed by the assessee at ` 3,48,523. Therefore, if the Assessing Officer proposed to estimate the income of the assessee, then he should have estimated such income by applying the provisions of section 44AF as the assessee is engaged in retail trade. He submitted, in view of section 44AF, the maximum profit which could have been estimated is 5% of the total sales and not ` 1 lakh. As far as addition of commission income of ` 2.15 lakh, learned Authorised Representative submitted it cannot be said that assessee has not incurred any expenditure in respect of the commission income. Therefore, the Assessing Officer was not justified in making addition of the entire commission income without allowing any expenditure.

We have considered the submissions of the parties and perused the material available on record. As could be seen, the Assessing Officer has estimated the income on ad–hoc basis by quantifying it at ` 1 lakh. Thus, the Assessing Officer was clear that income of the assessee has to be estimated. As a matter of fact, Assessing Officer has not disputed that assessee is engaged in retail trade of tobacco. Therefore, if the Assessing Officer wanted to estimate the income of the assessee, he should have applied the provisions of section 44AF.

In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 04.03.2016