2025 (11) TMI 1759 - AT - Income Tax

Cash deposits from scrap trading treated as business turnover; Section 68 addition replaced with 8 percent estimated profit

ITAT Pune held that cash deposits in the assessee's bank account were linked to scrap trading, an unorganised business with customary cash dealings ... Addition u/s.68 - unexplained cash deposit - alleged cash deposit is on account of payments received from various customers which they have deposited directly in the bank account of the assessee - HELD THAT:- Assessee with the help of bank statement and details mentioned in the written submissions has successfully demonstrated that the transactions in the bank account, withdrawals and deposits are in relation to scrap trading which is an unorganised sector and the cash transactions are customary due to nature of trade and involvement of small vendors and buyers. Bank statement also reveals that various payments have been made through banking channel for purchase of goods and one of the concern appearing in the bank statement if Ms. Sai Enterprises. As per the details filed by Ld. Counsel for the assessee, net turnover for the year is Rs. 24,83,397/-, however, as per the bank statement the total of the credits for the year are approximately Rs. 38,30,178/-. There are certain contra entries. Considering the facts and circumstances of the case and that the assessee is not filing the regular return of income and not maintaining proper details and even has not filed the return in compliance to notice u/s.148 proceed to estimate the income of the assessee from the scrap trading activity carried out during the year. Alleged cash deposits are also part of the turnover for the year and I proceed to estimate the net profit @8% of the total turnover. Though in the bank statement, the total of the credits during the year are Rs. 38,30,178/- but there are certain contra entry transactions which are clearly visible from the perusal of the bank statement amounting to Rs. 13,46,781/-. Thus, the net amount from the total credits comes to Rs. 24,83,397/-. Further in absence of proper details, it cannot be ignored that certain cash sales have not been deposited in the bank account. Therefore, estimate the total turnover for the year at Rs. 30.00 lakh and estimate the profit @8% which comes to Rs. 2,40,000/- - Assessee appeal partly allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether delay of 16 days in filing the appeal before the Tribunal was liable to be condoned on showing 'reasonable cause'. 1.2 Whether cash deposits in the assessee's bank account amounting to Rs. 15,66,472/- could be sustained as unexplained cash credits under section 68, or were required to be treated as part of business turnover with income to be estimated on that basis. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Condonation of delay in filing appeal Interpretation and reasoning 2.1 The Tribunal noted that the appeal was time-barred by 16 days. An affidavit explaining the reasons for delay was filed by the assessee. After hearing both sides and considering the averments in the affidavit, the Tribunal was satisfied that the assessee had shown 'reasonable cause' for not filing the appeal within the statutory time. 2.2 The Tribunal applied the principles laid down by the Supreme Court in the decision concerning liberal construction of 'sufficient cause' for condonation of delay to advance substantial justice. Conclusions 2.3 The delay of 16 days in filing the appeal was condoned and the appeal was admitted for adjudication on merits. Issue 2: Taxability of cash deposits as unexplained cash credits under section 68 versus estimation of business income Legal framework (as discussed) 2.4 The assessment was framed under section 144 read with sections 254 and 144B, with the Assessing Officer treating cash deposits in the assessee's savings bank account as unexplained and making an addition under section 68. Interpretation and reasoning 2.5 The Tribunal recorded that the assessee was engaged in the business of scrap trading, an unorganised sector where cash transactions are customary because of small vendors and buyers. 2.6 From the bank statement, the Tribunal found that the account reflected both deposits and withdrawals in connection with scrap trading, and that payments for purchase of goods were also made through banking channels, including to concerns such as 'Sai Enterprises'. 2.7 The assessee contended that cash deposits represented payments received from various customers directly into the bank account and formed part of business turnover, and that income should therefore be estimated on the basis of turnover instead of treating deposits as unexplained cash credits. 2.8 The Tribunal noted that, as per the details produced, net turnover was stated at Rs. 24,83,397/-, while the total credits in the bank account aggregated approximately Rs. 38,30,178/-. On perusal of the bank statement, the Tribunal identified contra entries amounting to Rs. 13,46,781/- which were clearly visible and required to be excluded from turnover reckoning. 2.9 After excluding contra entries, the effective credits came to Rs. 24,83,397/-. However, in the absence of regular return filing, proper books, or compliance with notice under section 148, and considering that certain cash sales might not have been deposited in the bank, the Tribunal held that the entire picture could not be gathered from bank entries alone. 2.10 In these circumstances, the Tribunal considered it appropriate to reject a strict cash-deposit-based addition under section 68 and instead proceed on an estimation of income from business turnover, treating the cash deposits as part of the overall turnover of the scrap trading activity. 2.11 Taking a reasonable view on the material available and the deficiencies in records, the Tribunal estimated the total turnover for the year at Rs. 30,00,000/- (enhancing it from the ascertained Rs. 24,83,397/- to factor in probable unbanked cash sales) and applied a net profit rate of 8% on such estimated turnover. Conclusions 2.12 The Tribunal held that the impugned cash deposits formed part of the assessee's business receipts from scrap trading and should not be sustained as unexplained cash credits under section 68 in full. 2.13 The total turnover was estimated at Rs. 30,00,000/-, and net profit was estimated at 8% thereof, resulting in taxable business income of Rs. 2,40,000/-. 2.14 The order of the appellate authority sustaining the section 68 addition was set aside to this extent, and the addition was restricted to the estimated profit of Rs. 2,40,000/-, thereby partly allowing the assessee's appeal.