Pune-based Income Tax Appellate Tribunal (ITAT) has given big relief to a scrap businessman. The Income Tax Department had considered the Rs 1.28 crore deposited in his bank account as undisclosed income and issued a tax notice of about Rs 44 lakh. Now ITAT has sent the case for re-investigation.
What was the matter?
This case is related to scrap trader Wajid Khan, who has been in this business for the last many years. During the financial year 2015-16, Rs 1.28 crore cash was deposited in his cooperative bank account.
Wajid Khan had declared an income of only Rs 3,00,340 in his Income Tax Return (ITR). But the Income Tax Department’s Insight Portal identified the huge cash amount deposited in the account, after which the department started investigating the matter again.
What explanation did the businessman give?
Wajid Khan said that the money deposited in the bank account had come from the sale of his scrap business. He told that cash transactions are common in this business and their income should be taxed on the basis of 8% estimated profit.
However, he could not produce records of all transactions to support his claims. He said that due to virus entering the computer, the hard disk got damaged and important data was destroyed.
Why was tax of Rs 44 lakh imposed?
The Income Tax officials were not satisfied with his argument. He treated the entire Rs 1.28 crore as money received from unknown sources under Section 69A of the Income Tax Act. After this, tax was imposed on this amount under Section 115BBE, resulting in a tax demand of about Rs 44 lakh. The Income Tax Commissioner (Appeals) also upheld the department’s decision.
How did ITAT give relief?
During the hearing in ITAT, Wajid Khan presented the income tax records of the previous and next years. In these records, the Income Tax Department had accepted his scrap business and 8% profit model. Citing the “principle of consistency”, the tribunal said that if the department has accepted an arrangement in other years, a different approach cannot be adopted in any one year without any major change.
Lessons for small businessmen
Tax experts say that businessmen dealing with cash transactions should maintain sales register, cash book, bank statement, GST records and other documents. With this, such tax disputes can be avoided in future. Also, this decision shows that if a taxpayer’s record has remained the same for many years, then that can also become strong evidence in his favor.
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