In a notable ruling, the Surat Bench of the Income Tax Appellate Tribunal (ITAT) proceeded to estimate the taxable income of a cheque discounter at 10% of the cash and other credit amount disputed by the Revenue, in light of probable loss caused to the Revenue.
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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In appeal before the Commissioner of Income Taxes (Appeals) ( CIT(A) ), the Assessee produced details of his cheque discounting business wherein he would receive cash from various parties and issue cheques to them while taking 1% commission on the transacted amount. The Assessee confessed entering into transactions of ₹45,69,720, earning 1% commission of ₹45,697.
Representing the Appellant, CA Chaitali Shah referred to the Assessee’s cheque discounting business, including the consistent pattern of cash deposits followed by immediate debits, an indication of legitimate business activity. On such grounds, the Representative contested the Revenue’s ascription of ‘unexplained income’ under Section 69A of the Income Tax Act, 1961.
Senior Departmental Representative Mukesh Jain contended that the taxpayer did not discharge his burden of proof by providing beneficiary details or adequate documentation.
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The single-member Bench of Judicial Member Pawan Singh observed that the Assessee had failed to furnish complete and unequivocal evidence to steer away all suspicion, but maintained that the attribution of the entire ₹45.69 Lakh as unexplained income was excessive.
Further, the Bench proclaimed that it is a settled position of law that entire transaction or credit entry in bank of assessee cannot be treated as unexplained income when it is immediately debited by way of clearance; in such matters a reasonable estimation shall be undertaken to avert revenue leakage.
Considering the ratio of the Gujarat High Court in CIT vs. Samir Synthetics Mill (2010), ITAT 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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