Jasbir Singh Vs ITO (ITAT Delhi)
Delhi ITAT : Once Sales Are Accepted, Entire Cash Deposits Cannot Be Taxed Again – Only Reasonable GP Addition Sustainable
The Delhi ITAT granted major relief to the assessee by holding that once the Revenue accepts the assessee’s turnover and business activity, the entire cash deposited in bank accounts cannot again be treated as unexplained cash credits u/s 68. The Tribunal accordingly deleted most of the addition of ₹11.52 crore and restricted the addition only by estimating a reasonable gross profit rate.
The assessee had declared meagre income of about ₹1.59 lakh, whereas huge cash deposits exceeding ₹11.52 crore were found in two bank accounts. Based on this mismatch, the assessment was reopened and the AO treated the entire cash deposits as unexplained credits u/s 68.
Before the Tribunal, the assessee explained that he had started a new business of importing Chinese mobile phones and selling them in the local wholesale and retail market. The assessee furnished IEC registration certificate, import invoices, airway bills, shipping documents, bills of entry, audited financial statements, tax audit report and sample sale invoices to demonstrate that the deposits represented business turnover.
The Revenue argued that the assessee could not properly explain the modus operandi of the mobile business during statements recorded years later and therefore the alleged business activity was merely a camouflage. However, the Tribunal observed that the AO had failed to point out any defect in the import documents, sales invoices or audited books of account. The ITAT also noted that the business activity had taken place in 2011 whereas statements were recorded much later in 2018, and therefore inability to explain minute operational details after several years could not by itself render the business non-genuine.
A crucial observation made by the Tribunal was that the AO had never invoked section 145(3) nor rejected the books of account, yet simultaneously accepted the sales turnover while treating the corresponding sale proceeds deposited in bank as unexplained cash credits. The ITAT held that such an approach was legally unsustainable because once sales are accepted, the corresponding receipts cannot ordinarily be treated as unexplained.
The Tribunal held that at best the case could involve suppression of profits and not taxation of the entire turnover. Since the assessee had disclosed GP rate of only 0.70% on turnover of ₹15.76 crore, the ITAT estimated a reasonable GP rate of 1% to cover possible leakage of revenue and directed the AO to recompute income accordingly. The balance addition out of ₹11.52 crore cash deposits was deleted.
FULL TEXT OF THE ORDER OF ITAT DELHI
