2022 (9) TMI 1093 - AT - Income Tax

Tribunal allows appeal for peak balance in undisclosed bank accounts under tax law

Milind Mangilal Jain Versus ITO, Ward-1 (2), Jalgaon

Milind Mangilal Jain Versus ITO, Ward-1 (2), Jalgaon - TMI Issues:1. Addition of unexplained income deposited in bank accounts and its taxability under section 115BBE.2. Addition of unexplained investment in gold jewellery.Analysis:1. The first issue pertains to the addition of Rs.96,61,500 deposited in two undisclosed bank accounts by the assessee engaged in the sale and purchase of jewellery. The Assessing Officer (AO) treated the entire deposits as unexplained income and taxed it under section 115BBE of the Income-tax Act, 1961. The assessee contended that the deposits were related to jewellery sales and purchases. The Tribunal observed that only the peak balance in the bank accounts should be added to the total income, subject to tax under section 115BBE. Additionally, profits from the sale of jewellery recorded in the bank accounts should be taxed at the normal rate of 8%, similar to the rate declared by the assessee on regular sales.2. The second issue concerns the addition of Rs.22,84,500 as unexplained investment in gold jewellery based on the balance sheet submitted by the assessee during assessment. The Tribunal noted that the assessee, being in the jewellery business, must maintain stock. As the assessee had declared income under section 44AD and the case was a no-account case, the AO could not rely on the balance sheet to add the inventory value of gold jewellery. All assets in the balance sheet cannot be subject to addition. Consequently, the Tribunal ordered the deletion of this addition.In conclusion, the Tribunal partly allowed the appeal, directing the addition of the peak balance in the undisclosed bank accounts for taxation under section 115BBE and rejecting the addition related to unexplained investment in gold jewellery.