2024 (10) TMI 306 - AT - Income Tax

ITAT allows partial appeal on Section 147 reopening, directs 8% addition on cash deposits under Section 69A instead of full amount

Niravbhai Kirit Shah Versus The ITO, Ward – 6, Vapi

The ITAT Surat-AT partially allowed the appeal regarding reopening of assessment u/s 147. For unexplained cash deposits u/s 69A, the tribunal held that ... Reopening of assessment u/s 147 - Addition of unexplained cash deposits u/s 69A - AO based on the information available with the Department re-opened the case after recording the reasons and getting approval of the appropriate authority - HELD THAT:- In this case the assessee has offered presumptive tax u/s 44AD of the Act in respect of the contract receipt during the year under consideration and also for subsequent assessment years upto AY. 2015-16 for its gross receipts from sale of shops. We find that he has gross net profit @ 15% on gross receipt from AY.2010-11 to 2015-16 except AY 2012-13, where net profit is declared @ 12.07%. The net profit declared is reasonable having regard to the nature of business carried on by the assessee. Though the income of the project, M/s Shrijee Infraproject has been offered for taxation u/s 44AD in subsequent assessment years, the assessee has shown cash receipts from the customers in this year. The appellant has also offered income u/s 44AD in receipt of contract receipts. The nexus between the gross receipt offered of presumptive tax u/s 44AD and the cash deposits has not been fully explained and established. On the other hand, no new source of income has been found by the AO. Therefore, as submitted by appellant, only the profit element and not the entire amount can be added as income of the assessee. Since, the assessee has offered net profit @ 15% u/s 44AD, it would be fair and reasonable if the profit on the cash deposit is estimated @ 8% of the cash deposits. Accordingly, addition being 8% is upheld which shall be over and above the income shown by the assessee in his return of income. AO is directed to delete the remaining addition. Treatment of agricultural income as income from other sources - We find that the assessee has been consistently showing agricultural income in his returns of income from AY.2008-09 to 2015-16. There was scrutiny assessment for AY.2008-09 and AY.2011-12 wherein the agricultural income of assessee was accepted. The CIT(A) has also accepted agricultural income of assessee for AY.2011-12. Reason for not accepting agricultural income in the immediately preceding year is not very clear. As the appellant has consistently disclosed agricultural income, such claim cannot be brushed aside for the impugned assessment year. In absence of complete details as pointed out by the lower authorities, it would not be proper to allow the entire agricultural income disclosed by the assessee. Addition on account of unexplained cash deposit - CIT(A) directed AO to reduce a sum declared as profit and gain on account of business income reported by the assessee. Similar facts were there in the appeal of the assessee for AY.2010-11 where after detailed discussion, we have directed the AO to add 8% of the cash deposit and delete the remaining addition. We direct AO to add and delete the remaining addition. The ground is partly allowed. Addition towards short-term capital gain - The reasons for not making the addition in respect of one property for which details are not given cannot be a ground to delete the addition made by the AO for the other property due to operation of a specific provisions u/s 50C. As per section 50C, where the sale consideration due to transfer of a capital asset is less than value adopted or assessed or assessable by the Stamp Valuation Authority, the value so adopted or assessed or assessable shall be the full value of consideration for the purpose of capital gain. As observed by CIT(A), appellant has not objected to full value of consideration adopted by AO u/s 50C. AO has rightly applied the provision and made the addition. Hence, no interference is necessary in respect of the addition made u/s 50C of the Act due to difference in market value and the amount mentioned in the sale deed by the sub-Registrar. Regarding the cost of improvement, the assessee has submitted photographs appearing in the sale deed which evidences a compound wall. Therefore, the claim of the assessee that it had incurred expenses for compound wall and develop cost cannot be rejected in full. Normally, the land is filled up and levelled before a wall is raised. We are of the view that 75% of the expenses would be reasonable expenses in absence complete details by the assessee. Therefore, assessee gets a relief and the balance addition is upheld. In the result, the ground is partly allowed. Issues Involved:1. Validity of reopening of assessment under Section 147 of the Income-tax Act, 1961.2. Addition of unexplained cash deposits under Section 69A.3. Treatment of agricultural income as 'income from other sources'.4. Addition related to short-term capital gains and applicability of Section 50C.Issue-wise Detailed Analysis:1. Validity of Reopening of Assessment under Section 147:The primary contention was whether the reopening of assessment under Section 147 was valid. The assessee argued that the reopening was not based on any escapement of income but merely to verify the source of cash deposits. The Tribunal noted that the Assessing Officer (AO) had information about substantial cash deposits in the assessee's bank accounts which were not disclosed in the return of income. The Tribunal held that the AO had reasonable grounds to believe that there was non-disclosure of material facts, justifying the reopening. The Tribunal also referenced the decision of the jurisdictional High Court in Silverdale Inn (P.) Ltd. vs. ITO, which supported the reopening based on substantial cash deposits. The Tribunal found that the reopening was valid as the AO had followed due process, including obtaining approval from the appropriate authority.2. Addition of Unexplained Cash Deposits under Section 69A:The assessee had deposited cash in bank accounts, which the AO treated as unexplained money under Section 69A. The assessee explained that the cash deposits were from various sources, including business receipts and advances against sales. However, the AO and CIT(A) did not accept these explanations. The Tribunal noted that the assessee had declared income under Section 44AD, which provides for presumptive taxation, and the AO had accepted the credits through bank transactions and cheques. The Tribunal held that only the profit element embedded in the cash deposits should be taxed, not the entire amount. Thus, it directed the AO to tax 8% of the cash deposits as income.3. Treatment of Agricultural Income as 'Income from Other Sources':The AO treated the agricultural income declared by the assessee as 'income from other sources' due to a lack of evidence. The assessee argued that agricultural income had been accepted in previous and subsequent years. The Tribunal acknowledged the consistent disclosure of agricultural income by the assessee in past assessments. However, due to incomplete details, the Tribunal deemed it appropriate to disallow 20% of the agricultural income claimed, allowing the remaining 80%.4. Addition Related to Short-term Capital Gains and Applicability of Section 50C:For AY 2011-12, the AO added an amount as short-term capital gain, applying Section 50C, which mandates that the value adopted by the Stamp Valuation Authority shall be considered the full value of consideration for capital gains computation. The assessee failed to provide evidence for the cost of improvement of the properties sold. The Tribunal upheld the addition under Section 50C due to the lack of objection from the assessee regarding the valuation. However, it allowed partial relief for the cost of improvement, acknowledging some expenses evidenced by photographs of a compound wall.Conclusion:The Tribunal partly allowed the appeals for both assessment years. It upheld the validity of the reopening of assessments, directed the AO to tax only the profit element in cash deposits, partially allowed agricultural income, and provided partial relief concerning short-term capital gains by recognizing some improvement costs.