2018 (9) TMI 2093 - AT - Income Tax

Tribunal limits unaccounted income addition, dismisses expense disallowance, upholds cash credit addition.

The Tribunal partially allowed the appeal regarding the addition of alleged unaccounted income, limiting the addition to Rs. 91,600. The appeal on the ... Bank deposits treated as unexplained income - estimation of business income from undisclosed transactions by applying a presumptive net profit rate - peak credit method - evidentiary onus under section 68 - confirmation of unexplained cash credit where creditor lacks capacity to advance loanBank deposits treated as unexplained income - estimation of business income from undisclosed transactions by applying a presumptive net profit rate - peak credit method - Whether entire deposits in the assessee's bank account could be treated as unexplained income or whether addition should be restricted by estimating net profit at 5% of total deposits. - HELD THAT: - The Tribunal found that the bank account exhibited both deposits and frequent withdrawals (cash and cheque) and that the assessee claimed the account related to unrecorded trading activity. On the facts and bank statements the Tribunal concluded it was not reasonable to treat the entire deposits as unaccounted income where the account showed transactional activity indicative of business receipts and payments. Applying a pragmatic approach and in the interest of justice, the Tribunal accepted that only a presumptive net profit on total deposits should be assessed. The Tribunal therefore directed the Assessing Officer to compute income at 5% net profit on total deposits of Rs. 18,32,079, restricting the addition to Rs. 91,600 instead of the entire sum previously added. [Paras 7]Addition of Rs.14,76,614 restricted to net profit @5% of deposits (Rs.91,600); ground partly allowed.Evidentiary onus under section 68 - confirmation of unexplained cash credit where creditor lacks capacity to advance loan - Whether the alleged loan of Rs.2,00,000 (cash credit) should be ignored and added as unexplained cash credit where the creditor's bank statement showed prior cash deposits and the creditor's income indicated lack of capacity to advance the loan. - HELD THAT: - The assessee produced loan confirmation, bank passbook, bank statement and the creditor's return. However, the creditor's bank statement showed cash deposits of the disputed amount before issuance of cheques to the assessee, and the creditor's declared income was low, indicating lack of capacity to advance the loan. Applying the established principle that the assessee must satisfactorily explain the nature and source of credits and that unexplained credits may be added where the creditor lacks means, the Tribunal found no reason to differ from the Commissioner (Appeals) and upheld the addition, relying on the ratio in the cited authority. [Paras 14]Addition of Rs.2,00,000 as unexplained cash credit under section 68 confirmed; ground dismissed.Final Conclusion: Appeal partly allowed: addition based on bank deposits reduced to net profit @5% of deposits (Rs.91,600) and addition under section 68 of Rs.2,00,000 sustained; other ground not pressed and treated as dismissed. Issues:1. Addition of alleged unaccounted income.2. Disallowance of various expenses.3. Addition of alleged unexplained cash credit under section 68 of the Act.Issue 1: Addition of Alleged Unaccounted Income:The appeal was against the addition of Rs. 14,76,614 on account of alleged unaccounted income for the Assessment Year 2008-09. The Assessee argued that the bank deposits were related to business trading not reflected in her books of accounts. The CIT (A) held that the deposits were unexplained as the appellant failed to provide evidence linking the transactions to her business. The Tribunal observed that the bank account showed transactions of cash and cheques, indicating unrecorded business activities. It directed the AO to consider 5% net profit on total deposits of Rs. 18,32,079, limiting the addition to Rs. 91,600, partially allowing this ground of appeal.Issue 2: Disallowance of Various Expenses:Ground no. 2 regarding the disallowance of expenses amounting to Rs. 18,078 was not pressed by the Assessee's counsel during the hearing, leading to its dismissal as not pressed.Issue 3: Addition of Alleged Unexplained Cash Credit:The addition of Rs. 2,00,000 on account of alleged unexplained cash credit under section 68 of the Act was challenged. The loan received by the Assessee from her husband was questioned by the AO due to discrepancies in the husband's income and capacity to provide the loan. The CIT (A) upheld the addition, stating that the Assessee failed to prove the creditworthiness despite providing documents. The Tribunal concurred with the CIT (A), citing the husband's inadequate income to justify the loan, and dismissed the ground of appeal, upholding the addition.In conclusion, the Tribunal partially allowed the appeal concerning the addition of unaccounted income while dismissing the appeal related to unexplained cash credit. The disallowance of various expenses was also upheld due to non-presentation during the hearing.