Brief Facts of the Case
During assessment the AO unearthed an undisclosed bank account maintained by the assessee. The assessee was asked to explain the source of credit in the Bank account but no explanation was furnished. The A.O. issued show cause notice on 19-11-2009 requiring the assessee to show cause why the credit of Rs.17,45,468/- in the said Bank account be not treated as unexplained money u/s. 69A of the Act. It was submitted that the assessee was doing business of sale and purchase of food-grains in the market yard and was under the impression that this was agricultural income and exempt from tax. It was accepted that the transactions in the bank account pertained to trading and it was offered that 3% of such turnover be considered as income. This explanation of the assessee did not found favour with the A.O and he therefore, made addition of peak credit in the bank account appearing on 22-3-2007 which was Rs.9,62,184/- as unexplained money u/s. 69A. A.O. also made addition of Rs.87,273/- on account of profits calculated at 5% of total deposits in the bank during the year amounting to Rs.17,45,468/- treating the deposits as turnover.
Question of Law
Whether an addition can be made for peak credits from an undisclosed bank accounts after rejecting the books of accounts or examining the records?
Contention of the Assesse
The assessee submitted that he had explained before the A.O. by filing the books of accounts that the amounts deposited in the said bank account represents sale proceeds of food-grain as the assessee was doing the business of sale and purchase of food-grain in the market yard and that the assessee under the impression that this was agricultural income and exempt from tax had not disclosed the same in the return of income. The Assessing Officer did not accept the explanation by observing that it was an afterthought.
Contention of the Revenue
The Departmental Representative submitted that the assessee had not disclosed the bank account maintained by it. The same was detected by the department. The assessee had also now shown any agricultural income for rate purposes. The agricultural income was also not shown in the return of income filed by the assesse. The account was never intended to be disclosed was clear from the fact that the interest earned in the bank account was not offered for taxation. The A.O. analyzed the bank account and has shown that the transactions therein did not appear to be genuine because of heavy deposits and negligible withdrawals during September and January period since the bank account was undisclosed and the genuineness of the trading activity was not established beyond reasonable doubt, the account is held as unexplained. Therefore, the explanation of the assessee that the deposit of Rs.17,45,468/- in the bank account was the receipts of business of Food grains done by the assessee during the year was an afterthought and the books of accounts produced before the A.O. were also an afterthought.
Held by the ITAT
The Assessing Officer was not justified in rejecting the explanation of the assessee who had presented the books of accounts showing the receipts of undisclosed bank account from sale of food grain merely on the ground that it being an afterthought.
It was incumbent upon the Assessing Officer to examine the books of accounts with the related evidences and documents and thereafter should have arrived at a decision. Without verification of books of accounts produced before him and bringing any material on record, the Assessing Officer was not justified in rejecting the books of accounts of the assessee as an afterthought.
We therefore set aside the orders of the lower authorities and remand the matter back to the file of the Assessing Officer and direct him to decide the issue afresh after examining the books of accounts and related documents as per law.
Needless to mention that he shall allow reasonable and proper opportunity of hearing to the assessee before adjudicating the issue.