2018 (9) TMI 2091 - AT - Income Tax

Tribunal directs re-calculation of taxable income based on profit elements, considering business nature and turnover.

The Tribunal partially allowed the appeal, directing the re-calculation of the taxable income based on profit elements rather than total sale proceeds. ... Unexplained cash deposited in savings bank account - estimation of profit/income earned from the Jari business - HELD THAT:- As per provision of s. 44AD of the Act, 8% of turnover or gross receipts of the assessee in the previous years on account of such business shall be deemed to be the profits and gains of such business chargeable to tax under the head “profit and gains of business or profession”. From the copy of bank account, it is discernable that the assessee has withdrew and deposited very small amounts and the peak was Rs. 34,623/- as on 18.03.2008, but the same cannot be treated as the only income earned from the Jari business of the assessee. Keeping in view the provision of s. 44AD of the Act and amount of turnover undertaken by the assessee during the relevant period, we are of the considered opinion that the entire amount deposited to the bank account of the assessee by the respective purchasers cannot be treated as income of the assessee only profit element therein can be treated as income of the assessee from Jari business. Therefore, all possible leakage of revenue would be covered if, the profit/income earned from the Jari business is estimated @ 10% of total turnover of the assessee and we direct the AO to calculate the income of the assessee accordingly. From the copy of bank statement, we observe that on 31.03.2007 there was balance of Rs. 401/- only which was brought forward to the present financial year and thereafter, on 05.04.2007, the amount of Rs. 20,000/- was deposited and thereafter, balance reached to Rs. 20,401/-. Hence, we observe that there was a very meager amount of Rs. 401/- in the beginning of financial year and hence, the peak of Rs. 34,623/- as on 18.03.2008 is also be treated as an amount of undisclosed investment of the assessee for conducting Jari business as no business can be done without any capital. Therefore, AO is also directed to make addition of peak amount to the income of the assessee. Accordingly, remaining sole ground of the assessee is partly allowed and AO is directed to re-compute the taxable income of the assessee as directed above. Issues involved:1. Addition of alleged unexplained cash deposited in savings bank account.Analysis:Issue 1: Addition of alleged unexplained cash deposited in savings bank accountThe appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2008-09. The Assessee contested the addition of Rs. 18,37,895 on account of alleged unexplained cash deposited in the savings bank account. The Assessee's Representative argued that the income was below the tax limit, and the deposited amount was received from the sale of Jari in South India. It was highlighted that the income should be calculated based on profit elements, not the entire sale proceeds. The Departmental Representative supported the assessing officer's decision. The Tribunal noted that the Assessee was in the Jari sale business, and the deposited amount was the sale proceeds used for further transactions. Considering the turnover and provisions of section 44AD, the Tribunal directed the assessing officer to calculate the income at 10% of the total turnover for the Jari business. Additionally, a meager initial balance and subsequent deposits were considered as undisclosed investments for the business. Therefore, the Tribunal partly allowed the appeal, directing the re-calculation of the taxable income based on the provided guidelines.In conclusion, the Tribunal partially allowed the appeal, emphasizing the need to calculate income based on profit elements rather than the total sale proceeds. The decision was made in consideration of the Assessee's business nature and turnover, directing the assessing officer to re-compute the taxable income accordingly.