Case Law Details
ITO Vs Nileshkumar Jayantilal Patel (ITAT Surat)
The Income Tax Appellate Tribunal dismissed two appeals filed by the Revenue against the order of the National Faceless Appeal Centre (NFAC) for Assessment Years 2010-11 and 2011-12. The dispute related to additions made by the Assessing Officer under Section 68 of the Income-tax Act on account of unexplained cash credits appearing in multiple bank accounts maintained by the assessee.
For Assessment Year 2010-11, the assessee had filed a return declaring income of Rs. 2,50,520. Information was received from the ADIT (Investigation), Surat that the assessee maintained five ICICI Bank accounts in the names of proprietary concerns, with total credits of Rs. 3,22,46,830 during the relevant year. During investigation, the assessee was reportedly not traceable and summons remained unserved with remarks “Party Left.” The investigation wing observed that the assessee prima facie appeared to be engaged in cheque discounting business, though no corroborative evidence was found during inquiry.
The case was reopened and assessment proceedings were conducted under Sections 144 read with 147 of the Income-tax Act because the assessee did not comply with notices issued during assessment proceedings. The Assessing Officer completed the assessment by adding Rs. 3,16,45,470 as unexplained cash credits and assessed total income at Rs. 3,18,95,990.
In appeal, the Commissioner (Appeals) partly allowed relief to the assessee. During appellate proceedings, the assessee filed confirmations and ledger accounts of some parties. The Commissioner (Appeals) observed that although confirmations for all lenders and borrowers were not furnished, the material on record indicated that the assessee was engaged in cheque discounting business. The assessee had stated that the gross amount on which discounting income was earned during the year was Rs. 5,09,07,495. Considering this, the Commissioner (Appeals) held that commission income should be estimated at 0.15% of the cheque discounting turnover and confirmed an addition of Rs. 76,361.
Regarding embroidery job work income, the Commissioner (Appeals) noted that the Assessing Officer had treated the entire receipts as unexplained credits without discussing job work charges received through cheques. As per the remand report, total turnover of Rs. 6,01,360 included embroidery job work receipts of Rs. 5,26,545. The Commissioner (Appeals) held that the Assessing Officer was not justified in making additions on assumption and presumption basis and estimated net profit at 8% on the embroidery job work receipts, confirming an addition of Rs. 42,124.
Accordingly, out of the total addition of Rs. 3,16,45,470, the Commissioner (Appeals) sustained additions aggregating to Rs. 1,18,485 and granted relief of Rs. 3,15,26,985.
Before the Tribunal, the Revenue argued that the Commissioner (Appeals) had erred in accepting the assessee’s claim of cheque discounting business without adequate supporting evidence. It was contended that taxation of commission income and taxation of unexplained credits are distinct issues and that unexplained bank credits should not have been treated merely as turnover from cheque discounting business.
The assessee supported the order of the Commissioner (Appeals).
After examining the bank statements and the discounting charges earned by the assessee, the Tribunal held that the bank entries established that the assessee was engaged in cheque discounting business and earning commission income. The Tribunal declined to interfere with the findings of the Commissioner (Appeals) on both the cheque discounting transactions and embroidery job work income.
Since the facts for Assessment Year 2011-12 were identical, the Tribunal dismissed the Revenue’s second appeal as well. Both appeals filed by the Revenue were accordingly dismissed.
FULL TEXT OF THE ORDER OF ITAT SURAT
These two appeals filed by the Revenue against the order dated 17-06-2025 passed by National Faceless Appeal Centre (NFAC), Delhi for Assessment Years 2010-11 & 2011-12.
2. The Revenue has raised following grounds in ITA No. 898/SRT/225 for A.Y. 2010-11:
“(1) On the facts and circumstances of the case and in law the Ld CIT has erred in deleting the addition made of Rs. 3,16,45,470/ by the AO on account of unexplained cash credits within the meaning of section 68 of the Act for not substantiating the source & genuineness of such substantial credits.
(ii) On the facts and circumstances of the case and in law the Ld. CIT has erred in accepting the additional evidences although there was no valid reason for the same as per Rule 46A of Income-Tax Rule.
(iii) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in treating the unexplained credits of as turnover of the assessee from cheque discounting and estimated commission @ 0.15% on the same despite the Assessing Officer’s detailed findings clearly establishing substantial unverifiable transactions during remand proceedings.
(iv) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in treating the unexplained credits of Rs.5,26,545/- as his embroidery job work turnover and estimated NP @ 8% of the same without any supporting evidences and confirmations of the parties.
(v) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in appreciating the fact that after through verification, the AO had observed that the assessee failed to provide necessary documentary evidences viz. Name, Address, PAN, and confirmations of the parties with respect to transactions appearing into his bank account statements to substantiate the source & genuineness of such substantial credits.
(vi) On the basis of the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer.
(vii) It is therefore prayed that the order of Ld. CIT(A) may kindly be set aside that of the Assessing Officer be restored.
(viii) The appellant craves leave to add, alter, amend and/or withdraw any ground of appeal either before or during the course of hearing of the appeal.”
2. The brief facts of the case are that in this case, the assessee has filed his return of income for the A.Y. 2010-11 on 18.08.2010 declaring total income at Rs.2,50,520/-. In this case, information has been received from the ADIT(Inv.)-1, Surat that assessee was having five bank accounts bearing No.058405500365, 005205005378, 58405000812, 58405000610 & 058101510247 maintained with ICICI bank, Surat in the name of Jashraj Creation, Shree Krishna Enterprise. The total credits in these accounts were of Rs.3,22,46,830/- for the year under consideration. The assessee was not traceable during the course of inquiry made by the ADIT(Inv.)-1, Surat and even summons issued by the ADIT(Inv.)-1, Surat was remained unserved and returned with remarks Party Left’. Moreover, it is observed by the ADIT(Inv)-1, Surat that essessee’s nature of business prima facie appears as a cheque discounter but no corroborative evidence could be seen to establish the business genuineness. Accordingly, the case of the assessee was reopened for assessment. During the assessment proceedings, the assessee did not comply to the notices issued by the assessing officer and the proceedings were completed u/s 144 r.w.s. 147 of the Act assessing total income of the assessee at Rs.3,18,95,990/- after adding all credit entries of Rs.3,16,45,470/- to the income of the assessee on account of unexplained cash credit.
3. Aggrieved with the assessment order, the assessee preferred appeal before the Ld. CIT(A) who has partly allowed the appeal of the assessee by observing as under:
Appellant during the course of appellate proceedings has filed confirmations and ledger account of few of the individuals/firms/companies. Since the appellant failed to furnish confirmations and other evidences of all the lenders/borrowers, in support of his contention, investment of money of the appellant cannot be ruled out and therefore, profit earned by appellant from its investment should be charged to tax. The appellant in his written submission stated that during the year under consideration the total gross amount on which discounting income was earned is Rs. 5,09,07,495/ Thus, in view of the above discussion and case laws cited, as 0.15 is a rational rate taken, the addition made by the AO to the extent of Rs. 76,361/ (0.15% of Rs. 5,09,07,495/-) is Confirmed.
Further, regarding the addition made by the AO on account of embroidery job work income, I find it necessary to mention that the AO has picked up transactions which have been received as job work charges, however, did not even discuss about the job work charges received through cheques. As per the remand report submitted by the AO the assessee had shown total turnover of Rs. 6,01,360/- for AY 2010-11 wherein embroidery job work of Rs. 5,26,545/- was included. Therefore, the AO was not justified in making additions of total amount on assumption and presumption basis. In such type of business, the NP rate varies from 5 to 15%. In the absence of any satisfactory documents submitted nor brought on record by the AO, I deem it fit to apply a NP rate of 8%. Therefore, the addition made by the AO to the extent of Rs. 42,124/- (08% of Rs. 5,26,545/-) is Confirmed.
Therefore, the additions made by the AO to the extent of Rs. 1,18,485/ ( Rs.76,361 Rs. 42,124) is Confirmed. The appellant gets relief of Rs. 3,15,26,985/- (Rs: 3,16,45,470 Rs: 1,18,485). Therefore, the appeal on these grounds is Partly Allowed.”
4. Aggrieved with the order of the Ld. CIT(A), the Revenue preferred appeal before us.
5. Before us, the Ld. DR argued that the Ld. CIT(A) has also erred in accepting the contention of the assessee merely on the basis of his statement of having engaged in the business of cheque discounting. Under the circumstances as well as absence of any supporting evidences to prove the source & genuineness of the transactions appearing into his bank accounts cannot absolve the assessee from his obligation to provide the details. It was argued that the taxation of commission income and taxation of unexplained credits are two different things. Ld. DR argued that the Ld. CIT(A) has erred in treating unexplained credits as assessee’s turnover from cheque discounting business and estimated commission @ 0.15% as cited by the assessee, which is unjustified and warrants reconsideration.
6. On the other hand, Ld. AR relied on the order of the Ld. CIT(A) and submitted that the addition was rightly deleted by the Ld. CIT(A).
7. Heard the arguments of both the parties and perused the material available on record.
We have perused the bank statements and the discounting charges earned by the assessee. Based on the entries in the bank statements, it can be held that the assessee is in the cheque discounting business and earning commission income. Hence, we decline to interfere with the order of the Ld. CIT(A) on both the counts.
8. In the result, appeal filed by the Revenue is dismissed.
9. As regards ITA No.899/SRT/2025, the facts are identical to that of ITA No.898/SRT/2025, hence, the appeal is dismissed.
10. In the combined result, both appeals filed by the Revenue are dismissed.
Order is pronounced in the open Court on 07.04.2026
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