The Surat bench of the Income Tax Appellate Tribunal ( ITAT ) reduced an addition on unexplained cash deposits to 25% concerning the assessment years 2011-12 and 2013-14. The assessee, Bajrangbali Tufanbhai Das, a wholesale vegetable trader, was scrutinised by the Income Tax Department after failing to file his original income tax returns for the AY 2011-12.
Upon reopening the assessment, it was found that he had deposited ₹13 Lakhs in an undisclosed savings bank account. The department also identified total credit entries of ₹89.6 Lakhs in his disclosed current account and sought to estimate profit at 35% of this turnover. In the 2013-14 AY, a similar issue arose with cash deposits and total income turnover under examination.
Due to non-compliance, the AO added 100% of the cash deposit of ₹13 Lakhs as unexplained income. The AO also estimated profit at 35% of the turnover of ₹89 Lakhs, assuming unreported income, and initiated penalty proceedings under Section 271B for failing to get accounts audited under Section 44AB.
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Aggrieved by the order passed by the AO, the assessee moved on with an appeal to the Commissioner of Income Tax [CIT(A)], where the assessee challenged the reopening of the assessment, arguing that Section 148 was not justified. The CIT(A) upheld the reopening, stating that the then-on-disclosure of the savings account justified the reassessment. The CIT(A) reduced the estimated profit rate from 35% to 8%, matching it with the presumptive taxation scheme under Section 44D. The CIT(A) confirmed the complete addition of cash deposits as unexplained income since the assessee failed to provide sufficient proof regarding the source of the revenue.
Dissatisfied with the CIT(A) order, the assessee moved the ITAT, where the tribunal upheld the reopening of the assessment under Section 147, citing a reason to believe the basis for undisclosed income. It dismissed the assessee’s challenge, asserting that non-disclosure of a savings account with significant cash deposits justified the reassessment. While the AO initially proposed a 35% profit rate, the CIT(A) revised it to 8%, aligning with the presumptive taxation provisions of Section 44AD. The ITAT supported this view, stating that 8% was a reasonable profit margin for the wholesale vegetable business.
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Further, for the 2011-12 AY, instead of taxing the entire ₹13 lakhs, the ITAT ruled that only 25% should be considered taxable income. A similar reduction was applied for the 2013-14 AY, where 25% of the income assessed was treated as unexplained income. The tribunal considered the frequent deposits and withdrawals in the savings account and reasoned that some funds had originated from legitimate business transactions.
The ITAT consisting of Pawan Singh (Judicial Member) and Bijayananda Pruseth (Accountant Member) upheld the penalty of ₹44,816 imposed under Section 271B, as the appellant’s turnover exceeded the audit threshold under Section 44AB and rejected the assessee’s claim of ignorance of tax laws as a reasonable cause for non-compliance. As a result, the assessee’s appeal was partially allowed.
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