2022 (9) TMI 1023 - AT - Income Tax

Reopening of assessment u/s 147 - addition of aggregate of cash as well as cheque deposit in the bank account of assessee - assessee vehemently submitted that assessee was doing a business of Lapsi on very small scale and family of assessee is in this traditional business inherited from his predecessors and that the deposits made in the bank accounts are part of sale proceed or transaction of family business of Lapsi - HELD 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 bossiness transactions. As recorded above the assessee before us claimed that the assessee was doing a small traditional business of lapsi which the assessee inherited and the surname of the assessee is also derived from their traditional business. We find merit in his submission that the assessee was doing some business activity though it was not disclosed to the department. In my view taxing the entire credit is not justified thus it would be justified if only profit element in such business activities from where the assessee generated the credit found in the bank account. Therefore 7% of total addition is considered as profit from such business activities. Accordingly the AO is directed to consider 7% of total deposit. Coordinate Bench of this Tribunal in Smt. Krushangi Keyur Bhagat 2018 (9) TMI 2093 - ITAT SURAT almost on similar set of facts wherein cash credit 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. 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. 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 WE direct the AO to restrict the addition @ 7% of credit in the bank account of assessee.Ground raised by assessee are allowed.

Summary

Issues Involved:
1. Condonation of delay in filing appeal.
2. Validity of reopening assessment.
3. Addition of unexplained investment under Section 69.
4. Justification of cash deposits in bank account.
5. Determination of profit element in business activities.

Issue 1: Condonation of delay in filing appeal:
The appeal by the assessee was directed against the order of the National Faceless Appeal Centre for the Assessment year 2012-13. The delay in filing the appeal was due to the Covid-19 pandemic, and the assessee filed the appeal within the grace period allowed by the Supreme Court. The delay was condoned following the directions of the Honorable Apex Court.

Issue 2: Validity of reopening assessment:
The Assessing Officer reopened the case due to cash deposits in the bank account without filing the return of income for A.Y. 2012-13. The reasons for reopening were provided to the assessee, who claimed to be engaged in the business of "Lapsi." However, the Assessing Officer added an amount as unexplained investment under Section 69, which was upheld by the CIT(A) due to the lack of evidence regarding the business. The grounds related to the validity of reopening were not pressed by the assessee and dismissed accordingly.

Issue 3: Addition of unexplained investment under Section 69:
The Assessing Officer added the entire cash and cheque deposits in the bank account as unexplained investment. The assessee contended that the deposits were from the sale of "Lapsi" and requested a reasonable estimation of income. The Tribunal considered the traditional business background of the assessee and directed the Assessing Officer to consider 7% of the total deposit as profit from the business activities, following legal precedents.

Issue 4: Justification of cash deposits in bank account:
The Tribunal found merit in the submission that the assessee was engaged in a small business activity, leading to the deposits in the bank account. It was observed that the deposits and withdrawals indicated unreported business transactions. Therefore, only the profit element from the business activities generating the credit in the bank account was considered for taxation, rather than the entire amount deposited.

Issue 5: Determination of profit element in business activities:
Based on the traditional business background of the assessee and legal precedents, the Tribunal directed the Assessing Officer to restrict the addition to 7% of the credit in the bank account, considering it as the profit element. Consequently, grounds related to the addition were allowed, and the appeal was partly allowed.

This detailed analysis covers the various issues involved in the legal judgment delivered by the Appellate Tribunal ITAT SURAT.