2017 (12) TMI 1136 - AT - Income Tax

Tribunal reduces net profit addition, deletes undisclosed investment addition in assessee's appeal.

The Tribunal partially allowed the assessee's appeal, reducing the addition on account of net profit to Rs. 12,47,655 and deleting the addition of Rs. ... Addition made on account of cash found deposited in the bank which remained unexplained - Held that:- The cash deposited in the bank having been explained as being made out of various sources as held above in the earlier part of our order and out of the receipt from the property dealing business, the cash deposited in the bank stands completely explained. There is no reason, therefore, to make any other addition in the case of the assessee that the investment made in the property dealing business can be attributed to the withdrawals made in cash or by cheque as reflected in the bank account of the assessee. In view of the same, we delete the addition made by estimating the undisclosed investment in the business @ 10% of the turnover. In effect we uphold the order of the CIT(A) to the extent that the cash deposited in the same is attributable to the business of property dealing of the assessee and therefore dismiss the Revenues appeal challenging this action of the CIT(A). But at the same time we restrict the quantum of deposits attributable to the business to ₹ 83,17,700/- as against ₹ 89,57,700/- held by the CIT(A) and as a consequence thereof restrict the addition on account of Net profit earned thereon to ₹ 12,47,655/- as against ₹ 13,49,566/- held by the CIT(A). Further we direct that the addition made on account of undisclosed investment in the business of ₹ 8,99,700/- be deleted. Appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed. Issues Involved:1. Addition made on account of unexplained cash deposits in the bank.Issue-wise Detailed Analysis:1. Addition Made on Account of Unexplained Cash Deposits in the Bank:The primary issue in these cross-appeals is the addition made due to unexplained cash deposits in the bank account of the assessee amounting to Rs. 89,57,700. The Assessing Officer (AO) treated these deposits as income from undisclosed sources after the assessee failed to provide satisfactory explanations.Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee argued that he was a property dealer and agriculturist, and the deposits were from cash withdrawals rotated in the bank. The CIT(A) partially accepted this explanation, treating the total deposits as the assessee's turnover and estimating the net profit at 15% (Rs. 13,49,566) and undisclosed investments at 10% (Rs. 8,99,700). Consequently, the AO's addition was reduced to Rs. 22,49,266.Assessee's Appeal:The assessee contested the CIT(A)'s decision, arguing that:- The entire deposits could not be treated as turnover.- Specific amounts should be attributed to opening cash in hand, sale of land, cash from KCC, and business/agricultural income.- No additional investment should be considered since the cash was rotated in the business.Revenue's Appeal:The Revenue challenged the deletion of Rs. 67,08,434, arguing that:- The assessee failed to provide evidence for the cash deposits during the assessment stage.- The CIT(A) incorrectly treated the total cash deposits as business turnover and estimated profits and investments.Tribunal's Findings:- Opening Cash in Hand: The Tribunal accepted Rs. 3,40,000 as opening cash in hand based on withdrawals made in March of the preceding year. An additional Rs. 50,000 was considered reasonable from past savings, totaling Rs. 3,90,000.- Sale of Bada: The Tribunal rejected the assessee's claim of Rs. 4,50,000 from the sale of a bada due to lack of substantial evidence beyond a self-serving affidavit.- Withdrawal from KCC: The Tribunal accepted Rs. 2,50,000 as cash withdrawn from the KCC account on 16.8.2010.- Returned Income: The Tribunal attributed Rs. 50,000 from the assessee's declared income and agricultural income, considering daily expenses.Thus, the Tribunal held that Rs. 6,90,000 of the cash deposits was explained, leaving Rs. 82,67,700 to be attributed to the property dealing business. Estimating the net profit at 15%, the Tribunal calculated the profit at Rs. 12,47,655.Net Profit Rate and Undisclosed Investment:- The Tribunal upheld the 15% net profit rate, rejecting the assessee's argument to apply the 8% rate under Section 44AF, as it pertains to retail trade, not property dealing.- The Tribunal agreed with the assessee that no additional undisclosed investment should be added since the cash deposits were explained and attributed to business activities.Conclusion:The Tribunal partially allowed the assessee's appeal, reducing the addition on account of net profit to Rs. 12,47,655 and deleting the addition of Rs. 8,99,700 for undisclosed investment. The Revenue's appeal was dismissed.Order Pronounced:The appeals were decided in the open court, with the assessee's appeal partly allowed and the Revenue's appeal dismissed.