Unexplained Bank Deposits Remanded for Fresh Assessment

Unexplained Bank Deposits Remanded for Fresh Assessment to Evaluate Profit Estimation Based on Past and Succeeding Years

Issue

Whether the Assessing Officer was justified in treating the entire cash deposit of ₹1.28 crore as unexplained money under Section 69A read with Section 115BBE, or whether the matter should be remanded to estimate income at an 8% net profit rate, given that the Department had accepted the assessee’s scrap business and applied the same 8% profit rate on turnover in both preceding and succeeding assessment years.

Facts

Assessment Year: 2016-17.
Original Return & Reopening: The assessee, engaged in the scrap business, initially filed a return of income declaring ₹3 lakh. The case was subsequently reopened under Section 147 after the Department’s Insight Portal flagged bank deposits totaling ₹1.28 crore.
Assessee’s Explanation: The assessee explained that a severe computer system crash had corrupted their accounting data. They contended that the deposits represented their business turnover from scrap trading and requested the Assessing Officer (AO) to estimate income by applying an 8% net profit rate on these transactions.
AO’s Action: Rejecting the explanation, the AO completed the best judgment assessment under Section 147 read with Sections 144 and 144B, treating the entire ₹1.28 crore deposit as unexplained money under Section 69A, bringing it to tax at the higher rate specified under Section 115BBE.
Rule of Consistency: Upon review, it was highlighted that the tax department had explicitly accepted the existence of the assessee’s scrap business in Assessment Years 2014-15 and 2017-18, where income was determined by applying an 8% net profit margin on gross turnover.

Decision

Matter Remanded: The Court/Tribunal held that since identical facts and similar circumstances existed across the years, the treatment of the current year required alignment with past and future assessments.
Fresh Assessment Directed: The impugned assessment order was set aside, and the matter was remanded to the Assessing Officer to pass a fresh assessment after thoroughly examining the records, turnover models, and accepted profit percentages of the preceding and succeeding years.

Key Takeaways

Principle of Consistency in Tax Law: While the principle of res judicata does not strictly apply to income tax proceedings as each assessment year is independent, the Revenue cannot take a completely contradictory stand on identical facts in an intermediate year without new material evidence.
Turnover vs. Unexplained Income: Large bank deposits matching the nature of an established business trading activity should ideally be evaluated as business turnover rather than being summarily taxed as unexplained investments under Section 69A, especially if records show a history of cash-heavy operations.
Reasonable Estimation Over Harsh Taxation: Where books of account are lost or corrupted due to data crashes, estimating business income using a reasonable net profit percentage (akin to presumptive taxation rules) is an accepted legal recourse, provided the business footprint is authentic.

IN THE ITAT PUNE BENCH ‘B’

Pathan Wajeed Khan Manzoor

Income-tax Officer, National Faceless Assessment Centre, Delhi

Vinay Bhamore, Judicial Member
and Manish Borad, Accountant Member

IT APPEAL No. 2158 (PUN) OF 2025
[Assessment year 2016-17]

JUNE 1, 2026

Umesh Ruparel for the Appellant. Manoj Tripathi for the Respondent.

ORDER

Vinay Bhamore, Judicial Member.- This appeal filed by the assessee is directed against the order dated 15.07.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2016-17.

2. Facts of the case, in brief, are that the assessee is an individual and claimed to be involved in scrap business and has furnished original return of income on 11.05.2016 by declaring an income of Rs.3,00,340/-. On the basis of information received in category of high risk transaction on insight portal of the Department that the assessee has deposited an amount of Rs.1,28,26,078/- in the bank account maintained with Shri Renuka Mata Multi State Urban Cooperative Credit Society Ltd., the case of the assessee was reopened u/s 147 of the IT Act and notice u/s 148 of the IT Act was issued to the assessee on 31.03.2021. No return was furnished by the assessee in response to above notice. Subsequently, notices u/s 142(1) and show cause notice respectively were issued to the assessee. In response to above notices, the assessee submitted that due to technical reasons i.e. computer system crashed due to virus and hard-disk corrupt, the assessee was unable to trace the details saved on the system, therefore, the transactions appearing in the account maintained with Shri Renuka Mata Multi State Urban Cooperative Credit Society Ltd. could not be considered at the time of filing of income tax return, accordingly, it was requested by the assessee to consider 8% net profit from the above transactions. Not being satisfied with the submissions of the assessee, the Assessing Officer vide order dated 28.03.2023 completed the assessment proceedings u/s 147 r.w.s. 144 r.w.s. 144B of the IT Act by determining income of Rs.1,31,26,418/- as against the income of Rs.3,00,340/- returned by the assessee. The above assessed income includes addition of Rs.1,28,26,078/- being unexplained money u/s 69A r.w.s. 115BBE of the IT Act.

3. Being aggrieved with the above assessment order, the assessee preferred an appeal before Ld. CIT(A)/NFAC. After considering the reply, submissions of the assessee and remand report sent by the Assessing Officer, Ld. CIT(A)/NFAC dismissed the appeal filed by the assessee.

4. It is the above order against which the assessee is in appeal before this Tribunal.

5. Ld. Counsel appearing from the side of the assessee supported the grounds of appeal and Ld. DR appearing from the side of the Revenue relied on the orders passed by the Assessing Officer as well as by Ld. CIT(A)/NFAC.

6. We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book furnished by the assessee. In this regard, we find that admittedly the assessee is engaged in the business of scrap sale and purchase, since last many years and the assessment orders u/s 143(3) were also passed by the Assessing Officer (NFAC) for the assessment year 2014-15 and assessment year 2017-18 wherein the business of scrap was accepted and net profit @ 8% was applied on the turnover determined by the Assessing Officer. Copy of the above assessment orders are produced in the paper book. It is the claim of the counsel of the assessee that the Assessing Officer has not provided any opportunity to the assessee before forwarding the remand report which was called by Ld. CIT(A)/NFAC. It was also the contention that the assessee is involved in scrap business since last 12 years and due to hard-disk failure the turnover appearing in Shri Renuka Mata Multi State Urban Cooperative Credit Society Ltd. could not be considered while preparing the income tax return. It was also the contention that under identical facts and similar circumstances net profit of 8% on the gross turnover was calculated and accepted by the Assessing Officer during 143(3) r.w.s. 147 proceedings in the previous and subsequent assessment years therefore, there is no reason to deviate from the decision already taken by the Assessing Officer in the case of the assessee for earlier and subsequent assessment years. It was also the contention that turnover upto the limit of Rs.2 crore was covered u/s 44AD of the IT Act, & it was fairly accepted that the limit of Rs.2 crore was applicable from Asstt Year 2017-18 however it was requested to provide benefit of section 44AD of the IT Act in the instant case also.

7. We find force in the above arguments of Ld. Counsel of the assessee that the action of the Assessing Officer as well as of Ld. CIT(A) is not justified since under identical facts and similar circumstances net profit of 8% on gross turnover was accepted as reasonable profit in previous and subsequent assessment years. Considering the totality of the facts of the case and in the interest of justice, we deem it appropriate to set-aside the order passed by Ld. CIT(A)/NFAC and restore the matter back to the file of the Assessing Officer with a direction to pass assessment order afresh and as per fact and law and also after keeping in mind previous and subsequent assessment year’s record of the assessee and after providing reasonable opportunity of hearing to the assessee. The assessee is also hereby directed to respond to the notices issued by the Assessing Officer in this regard and to produce relevant documents, submissions and evidences, if any, in support of grounds of appeal without taking any adjournment under any pretext, otherwise Ld. CIT(A)/NFAC shall be at liberty to pass appropriate orders as per law. Thus, the grounds of appeal raised by the assessee are allowed for statistical purposes.

8. In the result, the appeal filed by the assessee is allowed for statistical purposes.