Rajesh Jain vs ITO Ward-42(3), New Delhi: Appeal Partially Allowed for AY 2010-11

Case Overview: Rajesh Jain vs ITO Ward-42(3), New Delhi

Case Number: ITA 6231/DEL/2019

Appellant: Rajesh Jain, New Delhi

Respondent: Income Tax Officer, Ward-42(3), New Delhi

Assessment Year: 2010-11

Case Filed On: 2019-07-23

Order Type: Final Tribunal Order

Date of Order: 2023-02-14

Pronounced On: 2023-02-14

Introduction

The case of Rajesh Jain vs ITO Ward-42(3), New Delhi revolves around the assessment year 2010-11, where Rajesh Jain, the appellant, challenged the addition of peak credits in his bank accounts and an estimated business income by the Assessing Officer (AO). The Income Tax Appellate Tribunal (ITAT) partially allowed the appeal, focusing on the addition of peak credits while rejecting the estimated business income imposed by the AO.

Background of the Case

Rajesh Jain, a resident of New Delhi, filed an appeal against the order passed by the Commissioner of Income Tax (Appeals)-34, New Delhi, for the assessment year 2010-11. The AO had reopened the assessment based on AIR information that Rajesh Jain had deposited significant amounts of cash in his bank accounts during the financial year 2009-10.

The AO had issued multiple notices under Section 142(1) of the Income Tax Act, 1961, but no response was received from Rajesh Jain. As a result, the AO completed the assessment under Section 144 of the Act, adding Rs.1,00,73,767/- as unexplained cash deposits, estimating the business income at Rs.5 lakhs, and adding Rs.3 lakhs for household withdrawals.

Appellant’s Grounds of Appeal

Rajesh Jain raised several grounds in his appeal, including the following:

• The initiation of proceedings under Section 147, read with Section 148, was bad in law and lacked proper procedure.
• The reasons for reopening the assessment had no live link between the material and the belief formed.
• The addition of Rs.8,14,238/- on account of peak credits in bank accounts was arbitrary and rejected the explanations and evidence provided by the appellant.
• The estimated addition of Rs.5 lakhs as business income was without any basis and amounted to double taxation.
• The addition of Rs.3 lakhs for household withdrawals was made arbitrarily without any basis.

Tribunal’s Decision on Peak Credits

The ITAT noted that the AO had added the entire credit entries without considering the withdrawals from the bank accounts. The appellant argued that the deposits and withdrawals were related to his business of trading zinc, and therefore, only the peak credit should be added.

The CIT(A) had already provided relief by considering the peak credits from both bank accounts, amounting to Rs.8,14,238/-, while deleting the remaining addition of Rs.92,59,529/-. The ITAT agreed with the CIT(A) that the peak credit approach was appropriate, given the circumstances of the case.

The ITAT affirmed the CIT(A)’s order, stating that the appellant had already been granted sufficient relief, and no further reduction was warranted.

Tribunal’s Decision on Estimated Business Income

The AO had estimated an additional Rs.5 lakhs as business income, assuming that the deposits were linked to the appellant’s business activities. However, the ITAT noted that the CIT(A) had already provided relief by only adding the peak credits and deleting a substantial portion of the original addition.

The ITAT found no justification for adding an additional estimated business income when the peak credit approach had already accounted for the cash deposits. Therefore, the ITAT set aside the addition of Rs.5 lakhs as business income, providing relief to the appellant.

Conclusion

The case of Rajesh Jain vs ITO Ward-42(3), New Delhi demonstrates the importance of considering the nature of cash deposits and withdrawals when assessing taxable income. The ITAT’s decision to partially allow the appeal provided Rajesh Jain with significant relief by focusing on the peak credit approach and rejecting the estimated business income imposed by the AO.

The Tribunal’s order highlights the need for a balanced and reasonable approach in assessing income, particularly when there is evidence of business activities involving regular deposits and withdrawals.

Order Pronounced in the Open Court on 14th February, 2023.

Accountant Member: Shamim Yahya

Judicial Member: Astha Chandra

Rajesh Jain vs ITO Ward-42(3), New Delhi: Appeal Partially Allowed for AY 2010-11