Unexplained cash deposits from retail jeans trading accepted as business income, taxed at 8.65% rate

ITAT Mumbai allowed assessee's appeal partly in a reopening assessment case involving unexplained cash deposits. The tribunal held that cash deposits of Rs. 27,75,833 from retail jeans trading should be accepted as business income since Revenue had already accepted part of the business. As this was the first year of business with no purchase/sales evidence for turnover, the tribunal directed AO to tax income at 8.65% rate (Rs. 2,40,110) as offered by assessee, confirming addition to this extent while deleting balance addition.

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Issues:
Reopening of assessment under Section 147
Addition of unexplained cash credit
Determination of taxable income based on cash deposit
Validity of assessing officer's calculation of profit
Acceptance of cash deposit as business income

Analysis:

Reopening of assessment under Section 147:
The appeal was filed against the appellate order passed by the National Faceless Appeal Centre, Delhi, dismissing the appeal against the assessment order under Section 143(3) read with Section 147 of the Income-tax Act, 1961. The appellant challenged the reopening of the assessment, arguing that the Assessing Officer erred in computing the total income. The appellant contended that the notice issued under Section 148 was bad in law. However, the lower authorities confirmed the action of the Assessing Officer, leading to the appeal.

Addition of unexplained cash credit:
The Assessing Officer added the cash deposit of Rs. 27,75,833 in the bank account as unexplained cash credit to the total income of the assessee. The appellant claimed that the cash deposit was from sales of jeans, but the Assessing Officer found discrepancies in the explanation provided. The appellant failed to establish the retail business and the correlation between debit and credit entries in the bank account. The addition was made based on the unexplained nature of the cash deposit.

Determination of taxable income based on cash deposit:
The Tribunal considered the appellant's claim that the cash deposit was from the retail trading of jeans. Despite the lack of evidence for purchase and sales, the Tribunal noted that the Revenue had accepted a certain turnover as business income. The Tribunal directed the Assessing Officer to tax the income at the rate of 8.65% of the cash deposited, resulting in a confirmed addition of Rs. 2,40,110.

Validity of assessing officer's calculation of profit:
The Assessing Officer's calculation of profit was questioned by the appellant, who argued that the peak figure should have been considered for determining the chargeable profit under Section 44AD. The Tribunal, however, directed the taxation of income based on the cash deposit amount, accepting the appellant's self-offered rate of 8.65%.

Acceptance of cash deposit as business income:
The Tribunal ultimately accepted the cash deposit as business income, considering the turnover accepted by the Revenue and the lack of evidence for purchase and sales. The Tribunal found no reason to reject that the cash deposit was not from the appellant's retail trading of jeans. The orders of the lower authorities were reversed to the extent of confirming the addition based on the cash deposit.

The appeal was partly allowed, with the Tribunal directing the taxation of income at the rate of 8.65% of the cash deposit amount. No other grounds were pressed before the Tribunal, and the order was pronounced on 29.07.2024.

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