Question And Answer
Subject: Cash Deposit in Saving Bank A/c. Addition u/s 68 of IT Act
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Date: August 16, 2022
Query asked by KANIKA AGRAWAL

Assessee was Purchasing kirana items in cash from local market to avail benefit of cash discount. He was supplying the same to retail kirana shopkeepers in remote places & was receiving payment in his SB A/c deposited in cash at respective places of purchasers.
No books of A/c maintained. No purchase & sale bills are available.
Saving bank statement clearly revels that –
(i) Simultaneous deposits & withdrawals in bank A/c
(ii)No capital expense.
(iii) Increase in bank balance about Rs8000
(iv) Peak credit about Rs.500000.

During FY 10-11 on the basis of AIR information that assessee has deposited more than 10 Lac in SB A/c notice u/s 148 was issued.
The said notice was not responded by the assessee due to family & medical problems.
Order u/s 144 was passed making an addition of Rs 3900000 u/s 68 being the total cash deposits in SB A/c.
The assessee in appeal before CIT(A).
Plea before CIT-
(i)For applying reasonable NP rate on sales of RS390000
(ii)Alternatively restricts the addition to peak credit.

Kindly advice with case laws.

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Answer given by

The assessee may have to explain the reasons for not attending before the Assessing Officer . If required the assessee may have to file an affidavit in support of the reasons . The assessee may have to file additional evidence before the CIT(A) by making an application under Rule 46A of the Act . The Assesee may prepare the books of account showing the purchase and sales and actual profit earned . The assessee may also show the past history how the income was assessed . The entire cash deposited cannot be assessed as income of the assessee. Only profit element can be assessed. Even order passed u/ s 144 the income has to be on reasonable basis . In Kachwala Gems v. Jt. CIT (2006) 206 CTR 585/(2007) 288 ITR 10/158 Taxman 71/196 Taxation 738/AIR 2007 SC 487 (SC) the Court held that ,even though there is always a certain degree of guess work in a best judgment assessment, the authority should try to make an honest and fair estimate of the income and should not act totally arbitrarily.
If the peak amount is more than the estimated profit element the CIT(A) may assessee the peak amount . The assesee may refer following case laws . Renukaben Umedsinh Parmar. (Smt.) v. ITO (2021) 191 ITD 672 / 87 ITR 707 (Surat) (Trib.)/Shyam Gidwani v. ITO ( 2021 ) 214 TTJ 862 / 208 DTR 233 /63 CCH 155 (Jaipur )(Trib)

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