The Surat Bench of the Income Tax Appellate Tribunal ( ITAT ) recently clarified the prominence of reasonable estimation, averring that not all bank transactions and credit entries may be treated as taxable income, especially in matters where credited amounts are immediately debited through clearance.
Assessee Kailashnath Arunkumar Dube abstained from filing any returns of income for Assessment Year (2012-13), but was subject to reopening on the basis of Annual Information Return (AIR) data that pointed towards cash deposits of ₹43,99,215 during Financial Year (F.Y.) 2011-12 in the Assessee’s savings bank account held with Oriental Bank of Commerce.
Owing to the Assessee’s inability to explain the source of the cash deposits, along with another credit of ₹1,70,507, the Assessing Officer (AO) deemed both the amounts as ‘unexplained income’ under Section 69A of the Income Tax Act, 1961.
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Appearing before the Commissioner of Income Taxes (Appeals) ( CIT(A) ), the Assessee submitted his activities of taking cash from various parties and used to issue cheques and receive commission on the transaction (Cheque Discounting). The Assessee confessed entering into transactions of ₹45,69,720, earning commission at 1%, amounting to ₹45,697.
CA Chaitali Shah, appearing for the Assessee argued that the bank transactions were entirely business-centric and the immediate debits following cash deposits, indicated that the funds did not constitute income of the taxpayer.
The Revenue, represented by Mr. Mukesh Jain, contended that the taxpayer failed to provide sufficient evidence, such as beneficiary details, while claiming that the transactions remained unexplained.
The single-member Bench of Judicial Member Pawan Singh noted that cash deposits followed by immediate debits were consistent with the Assessee’s claim of operating a cheque discounting business while averring that it was unreasonable to treat the entire amount as taxable income without factoring in the nature of the cheque discounting business and the lack of any unexplained retained funds in the bank.
The Bench upheld the process of reasonable estimation to determine the Assessee’s taxable income to prevent any possibilities of revenue leakage, and proceeded to make a reasonable estimation of the disputed cash credit of ₹43,99,215 and other credit of ₹1.70 Lakhs to be subject to income tax at 10%.
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