2025 (1) TMI 1652 - AT - Income Tax

Partly allowed appeal: treat regular bank credits; tax 10% deemed profit on total credits; s.115BBE inapplicable

ITAT (Surat) partially allowed the appeal. It held that bank accounts of the assessee showed regular debit-credit activity and entire cash deposits could ... Addition u/s 69A - charging tax u/s 115BBE - cash deposit during demonetization period - HELD THAT:- We find that AO has not given any credit (Set off) of debit entries from both the accounts. CIT(A) confirmed the action of AO by taking view that assessee has not given any books of account like customer sale received, stock register and purchase and transportation receipt. It was also held that in absence of comprehensive and verifiable record, no relief can be allowed. We find that account is a current bank account in the name of “Shree Kishan Cattle Food”, which is a proprietary concern of assessee as has been mentioned in the details of account itself. Further there are regular debit and credit entries in this bank account. Thus, there is regular transaction in the bank account either of credit or debit. It is not the case that whatever amount was credited in those bank account, it remained ideal. We find that in the case of CIT Vs. President Industries [1999 (4) TMI 8 - GUJARAT HIGH COURT] held that amount of sales by itself cannot represent the income of assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost it is the realization of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed the question whether entire sum of undisclosed sales proceeds can be treated as income. Tribunal in case of DCIT vs. Mehul T Desai [2018 (12) TMI 760 - ITAT AHMEDABAD] also held that assessee cannot earn gross receipt without incurrence of expenditure, it was only net profit embedded in unaccounted receipt which deserves to be added to his taxable income. Now again adverting to the facts of the case and considering the continuous credit and debit in both the bank accounts, which show a systematic activity, thus, addition of entire cash deposits can never be income of assessee and only addition a reasonable estimation of profit on such debit and credit entries would be sufficient to prevent revenue leakage. Thus, considering the peculiar facts and circumstances of the case, in our view @ 10% of credit entries in both the accounts would meet the possibility of revenue leakage. Thus, the Assessing Officer is directed to tax @ 10% on addition. This ground of assessee is treated as partly allowed. Taxing the addition u/s 115BBE - We find that Divisions Bench as well as SMC Bench of this Tribunal in a series of case has held that enhance rate prescribed under section 115BBE is not applicable for AY 2017-18, reference is made in case of Samir Shantilal Mehta [2023 (5) TMI 1279 - ITAT SURAT], Arjunsinh Harisinh Thakor [2023 (6) TMI 770 - ITAT SURAT] and in Jitendra Nemichand Gupta [2023 (6) TMI 1338 - ITAT SURAT] and Punjab Retail Pvt. Ltd [2021 (11) TMI 405 - ITAT INDORE] and Sandesh Kumar Jain [2022 (11) TMI 126 - ITAT JABALPUR] - In the result, ground of the appeal is partly allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether cash credits in two bank accounts that were not recorded in the assessee's cash book but show regular debit and credit entries can be treated as undisclosed income liable to addition under section 69A (cash credits) by taxing the entire credit amount. 2. If such bank-account credits are not wholly taxable as income, what is the appropriate method and quantum of estimation for adding the profit component arising from those credits? 3. Whether the enhanced tax rate under section 115BBE is applicable to any addition made on account of such unexplained/unaccounted bank credits for the relevant assessment year. ISSUE-WISE DETAILED ANALYSIS Issue 1: Characterisation of bank-account cash credits as undisclosed income and permissibility of taxing entire credits Legal framework: Addition of unexplained cash credits is governed by the concept of unexplained cash credits/undisclosed income where the Assessing Officer may treat unexplained receipts as income when not satisfactorily explained. The principle distinguishing gross receipts from income (profit) is that sales or receipts represent consideration which includes cost; only excess over cost (profit) is taxable income. Precedent treatment: The Court relied on High Court authority holding that gross sales do not ipso facto represent income and that only the excess over cost (profit) constitutes taxable income. The Tribunal's prior decisions were cited supporting the view that unaccounted receipts should attract taxation only to the extent of net/gross profit component rather than the entire receipt. Interpretation and reasoning: The Assessing Officer treated the entire credits in two bank accounts as undisclosed income because those accounts were not reflected in the books (cash book) and issued additions aggregating Rs. 77,13,800. The Tribunal observed that the bank accounts showed regular debit and credit transactions, were current accounts for proprietary concerns connected to the business, and substantial amounts were debited for purchases. The assessee produced audited accounts, purchase bills and other supporting material, demonstrating that the credits largely represented business turnover rather than unexplained personal receipts. Applying the legal principle that gross receipts cannot be equated with taxable income absent a finding that costs of acquisition were not incurred or disclosed, the Tribunal found it inappropriate to tax the entire credited amounts as income. Ratio vs. Obiter: Ratio - Where bank-account credits arise from trading activity and there is evidence of corresponding debit entries/purchases, the entire credited amount cannot be treated as income; only the profit component is taxable. Obiter - Observations on the sufficiency of the assessee's produced documents and the characterization of specific accounts as current/proprietary-supporting may be contextual to facts. Conclusions: The addition of the entire cash credits as income was not justified. The Tribunal directed that the Assessing Officer cannot treat whole credits as income where records and the nature of transactions indicate trading turnover with corresponding expenditures. Issue 2: Method and quantum for estimating taxable profit from unexplained/unaccounted bank credits Legal framework: When entire receipts cannot be treated as income, the revenue is entitled to reasonably estimate the profit component embedded in unexplained receipts to prevent revenue leakage. Estimation must be realistic, considering nature of business, demonstrated gross/net profit margins and transactional pattern. Precedent treatment: The Tribunal relied on its own and High Court precedents which permitted addition of a reasonable proportion of gross receipts (gross or net profit) where precise quantification was infeasible, noting that only the profit embedded in unaccounted receipts is taxable. Interpretation and reasoning: Considering continuous and systematic debit-credit activity in the accounts, the business nature (trading of cattle food) and the assessee's stated gross and net profit margins (gross ~3.30%, net ~1.00%), the Tribunal held that adding the entire credited sum was disproportionate. To balance revenue protection and fairness, the Tribunal applied a reasonable estimate method and fixed an ad hoc addition at 10% of the total credit entries in both accounts to capture potential unaccounted profit while recognizing substantial debits/purchases. Ratio vs. Obiter: Ratio - In cases where bank-account credits are part of trading turnover and records show corresponding debits, a reasonable percentage estimate of profit (rather than full credit) may be imposed; the percentage should consider business margins and transactional facts. Obiter - The specific choice of 10% as the estimating percentage is fact-driven and may not create a universal rule for other factual matrices. Conclusions: The Tribunal allowed the appeal partly by directing the Assessing Officer to tax 10% of the credited amounts (Rs. 77,13,800) as the reasonable estimate of taxable profit arising from those bank credits, instead of taxing the entire sum. Issue 3: Applicability of enhanced tax rate under section 115BBE to additions on account of such bank credits Legal framework: Section 115BBE prescribes special taxation rates for certain undisclosed incomes for specified assessment years, subject to statutory applicability and temporal operation. Precedent treatment: The Tribunal referred to its Division and SMC Bench decisions and other coordinate Bench authorities holding that the enhanced rates under section 115BBE were not applicable for the assessment year under consideration. Interpretation and reasoning: Applying the precedents and bench rulings for the same assessment year, the Tribunal concluded that the enhanced rate prescribed under section 115BBE does not apply to the addition for that year. Given that the addition was itself reduced to a reasonable estimation of profit (10% of credits), the enhanced taxation regime was held inapplicable. Ratio vs. Obiter: Ratio - For the assessment year in question, enhanced rates under section 115BBE are not applicable to additions of this nature, following the Tribunal's binding bench precedents. Obiter - Broader commentary on legislative intent or applicability to other assessment years is not undertaken. Conclusions: The Tribunal held that section 115BBE's higher tax rate is not applicable for the relevant assessment year and disallowed its application to the addition; the ground was allowed partly. Cross-reference: The conclusion on Issue 1 directly informs Issue 2 (quantum of addition), and the conclusion on Issue 2 determines the taxable base to which Issue 3's tax-rate analysis applies.