2022 (8) TMI 428 - AT - Income Tax

Assessee's Appeal Dismissed for Undisclosed Capital in Bank Accounts

The Tribunal dismissed the appeal of the assessee, upholding the order regarding the addition of undisclosed capital in the bank accounts. The decision ... Undisclosed circulating capital (peak credit) - treatment of bank deposits as business turnover - estimation of income by applying presumptive net profit rate - burden of proof to explain bank creditsTreatment of bank deposits as business turnover - estimation of income by applying presumptive net profit rate - Whether the assessing officer was justified in treating total cash deposits in the assessee's bank accounts as gross turnover and estimating income at the presumptive net profit rate - HELD THAT: - The Tribunal recorded that the CIT(A) analysed the pattern of bank transactions and found them not to be in the nature of sale/purchase because of frequent withdrawals and subsequent deposits (same day or shortly thereafter). On that basis the CIT(A) held that the AO was not justified in treating the entire deposits as gross turnover and deleted the addition made on this ground. The Tribunal, after hearing the Departmental Representative and perusing the record, found no reason to interfere with the CIT(A)'s conclusion that the deposits could not be equated to business turnover and sustained the deletion of the AO's estimation of income on that basis. [Paras 7, 8, 9]Deletion of the addition made by the AO treating total deposits as gross turnover; AO's estimation of income on that basis is set aside.Undisclosed circulating capital (peak credit) - burden of proof to explain bank credits - Whether the addition on account of peak credit as undisclosed circulating capital in the bank accounts was sustainable and whether any part could be held as genuine accumulated past savings - HELD THAT: - The CIT(A) examined the AO's addition of peak credits as undisclosed circulating capital and accepted the AO's action to an extent but also recognised that the assessee might have had accumulated past savings. In the interest of justice the CIT(A) allowed a part of the peak credit as genuine circulating capital from past savings and confirmed the remaining amount as undisclosed capital. The Tribunal concurred with the CIT(A)'s approach, finding the allowance of a specified amount as accumulated savings and confirmation of the residual addition to be reasonable and sustainable under the provisions of law. Accordingly, the Tribunal sustained the confirmation of the remaining addition as undisclosed circulating capital. [Paras 7, 9]Allowance of part of the peak credit as genuine accumulated past savings and confirmation of the remaining amount as undisclosed circulating capital is sustained.Final Conclusion: The CIT(A)'s order is sustained: the AO's treatment of total bank deposits as gross turnover and the consequent income estimation is deleted, while part of the peak credit was allowed as genuine accumulated savings and the remaining addition as undisclosed circulating capital is confirmed; the assessee's appeal is dismissed. Issues:1. Appeal against order of ld. CIT(A) under Income Tax Act2. Addition of undisclosed capital in bank accounts3. Assessment based on cash deposits in bank accounts4. Failure to file return of income in response to notice u/s 148Issue 1: Appeal against order of ld. CIT(A) under Income Tax Act:The appeal was filed by the assessee against the order of the ld. CIT(A) passed under section 250 of the Income Tax Act. The grounds of appeal raised by the assessee included challenges to the legality and factual correctness of the impugned order. The main grievance of the assessee was the confirmation of the addition of undisclosed capital in the bank accounts. The ld. CIT(A) partly allowed the appeal, leading to the assessee being aggrieved and appealing further.Issue 2: Addition of undisclosed capital in bank accounts:The case involved the assessment of the assessee who had made substantial cash deposits in the bank account, disproportionate to the income declared in the return. The Assessing Officer (AO) treated the deposits as sales turnover, estimating income at 8% under section 44AD of the Income-tax Act. The ld. CIT(A) considered the nature of transactions and found that the deposits were not business-related, leading to the deletion of the addition on this ground. However, an amount was confirmed as undisclosed circulating capital based on past savings, resulting in a partial allowance of the appeal.Issue 3: Assessment based on cash deposits in bank accounts:The assessment was initiated after the assessee failed to file a return of income in response to a notice under section 148. The AO made an ex-parte assessment, determining the total income based on the cash deposits in the bank account. The ld. CIT(A) provided relief to the assessee by considering the nature of transactions and past savings, resulting in adjustments to the additions made by the AO.Issue 4: Failure to file return of income in response to notice u/s 148:Despite notices issued to the assessee, there was a lack of compliance and participation in the proceedings. The absence of the assessee during the hearing led to the decision being made with the assistance of the ld. DR. The conduct of the assessee indicated a lack of interest in pursuing the appeal, ultimately resulting in the dismissal of the appeal by the Tribunal.In conclusion, the Tribunal dismissed the appeal of the assessee after considering the findings of the ld. CIT(A) and upholding the order regarding the addition of undisclosed capital in the bank accounts. The decision was based on the assessment of the nature of transactions, past savings, and the provisions of the law. The appeal was deemed unsustainable, and the order was sustained by the Tribunal.