2014 (9) TMI 92 - HC - Income Tax

High Court Upholds Tax Authority's Findings on Unexplained Income - Burden of Proof on Assessee

Commissioner of Income Tax-I Versus Sarwankumar Sharma

The High Court overturned the Tribunal's decision and upheld the Assessing Officer and Commissioner of Income Tax (Appeals)'s findings that the cash ... Estimation of income @ 8% of total turnover - Entire deposits in bank account treated as total turnover - Undisclosed business of trading in art silk cloth – Onus to prove the source of credit entries on revenue or not - Whether the Tribunal was justified in accepting the amount as trading receipt of the assessee though the same was never proved by the assessee either at the time of assessment proceeding or appellate proceeding – Held that:- The Tribunal directed to treat the entire deposit made by the assessee in his bank account in cash - The working out pick credit and sustaining addition to the extent of pick credit would arise if it is established by the assessee that his undisclosed income is relatable to the trading in art silk cloth - When it has been found that the assessee has miserably failed to establish and prove that he was in the business of trading in art silk cloth and that the deposit made in cash in his bank account was with respect to his undisclosed business of trading in art silk cloth, there is no question of further making addition on the basis of estimation at 8% of the total turnover working out pick credit - there is no such discussion and/or the reasons assigned by the Tribunal on the directions that the income of the assessee shall be estimated at 8% of the total turnover - Even nothing is on record how and on what basis the Tribunal has even estimated the income at 8% of the total turnover – the order directing that the income of the assessee shall be estimated at 8% cannot be sustained – thus, the order of the CIT(A) in making addition in his total income of the assessee u/s 69A of the Act is restored – Decided in favour of Revenue. Issues Involved:1. Justification of treating the amount of Rs. 45,85,861/- as trading receipt of the assessee.2. Determination of the onus of proving the source of credit entries in an unaccounted bank account.Issue-wise Detailed Analysis:1. Justification of treating the amount of Rs. 45,85,861/- as trading receipt of the assessee:The Revenue challenged the Tribunal's decision to treat the deposits of Rs. 45,85,861/- in the assessee's bank account as trading receipts from an undisclosed business of trading in art silk cloth. Initially, the assessee declared an income of Rs. 1,07,160/- from salary and interest, without disclosing any business activities. During scrutiny, it was discovered that the assessee had deposited Rs. 66,75,030/- in a Punjab National Bank account, with Rs. 45,16,192/- deposited in cash. The assessee later claimed these were proceeds from trading in art silk cloth but failed to provide any supporting evidence.The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] both rejected the assessee's explanation, treating the cash deposits as unexplained money under Section 69A of the Income Tax Act, 1961. The Tribunal, however, accepted the assessee's claim, estimating the income at 8% of the total turnover based on the deposits. The High Court found that the Tribunal erred in its decision, as the assessee did not provide any evidence to substantiate the claim of being in the business of trading in art silk cloth. The Tribunal's decision was based on surmises and conjectures without any concrete evidence, leading to the conclusion that the deposits should be treated as unaccounted income.2. Determination of the onus of proving the source of credit entries in an unaccounted bank account:The Tribunal had shifted the burden of proof onto the Revenue to establish that the cash deposits were from undisclosed sources. The High Court clarified that the onus was on the assessee to prove the legitimacy of the deposits, especially when claiming them as business receipts. The Tribunal's approach was incorrect as it failed to hold the assessee accountable for providing evidence of the alleged trading activities. The High Court emphasized that the assessee must substantiate claims with credible evidence, and the Revenue's role is secondary unless the assessee provides initial proof.The High Court cited relevant case law, including the decisions of the Delhi High Court in Commissioner of Income Tax v. Modi Stone Ltd. and the Punjab & Haryana High Court in Dayal Singh and Sons v. Commissioner of Income Tax and Commissioner of Income Tax v. Sanjay Chhabra, Proprietor of Sanjay Chhabra Traders, which support the principle that the onus is on the assessee to prove the source of unexplained investments or deposits.Conclusion:The High Court quashed the Tribunal's decision, restoring the AO and CIT(A)'s orders that treated the cash deposits as unexplained income under Section 69A. The Tribunal's direction to estimate the income at 8% of the total turnover was also set aside due to lack of evidence and improper burden shifting. The appeal by the Revenue was allowed, reinforcing the requirement for the assessee to substantiate claims with adequate evidence.