SHRI MOHIT MUNDRA, JAIPUR,JAIPUR vs. ITO WARD-4(1), JAIPUR, WARD-4(1), JAIPUR

This appeal by the assessee is directed against the order dated 27th March, 2019 of ld. CIT (A)-2, Jaipur for the assessment year 2015-16. The assessee has raised the following ground :-

“ 1. Under the facts and circumstances of the case the LD. CIT (A) has erred in confirming the action of the learned AO in invoking the provisions of section 145(3) of the Income Tax Act, 1961 thereby applying the NP rate @ 8% on enhanced turnover of Rs. 79,74,414/- for making addition of Rs. 5,50,329/-. 2. The assessee craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing.”

2. The assessee is an Individual and proprietor of M/s. Mahaveer Chemicals and engaged in the business of retail trading of grocery items and spices etc. The assessee filed his return of income on 17.12.2015 declaring total income of Rs. 5,00,400/-. The assessee has computed Net Profit under the provisions of section 44AD @ 8% on the total turnover of Rs. 10,95,300/- which comes to Rs. 87,624/-. During the assessment proceedings, the AO noted that there was total credits in the bank account of the assessee of Rs. 79,74,414/- including cash deposit of Rs. 55,41,458/-. The AO asked the assessee to explain in respect of the cash deposits in the said bank account which is more than turnover. In response, the assessee has submitted that part of the cash deposit is representing the sales of the assessee and part is earlier withdrawals of cash from the bank account. The AO was not satisfied with the explanation of the assessee and took the entire credit in the bank account of Rs. 79,74,414/- as the turnover of the assessee and applied NP rate of 8%. Accordingly, the AO has arrived at the total income of the assessee at Rs. 10,50,729/- as against the income declared by the assessee at Rs. 5,00,400/-. The assessee challenged the action of the AO before the LD. CIT (A) and submitted that the credit and deposits made in the bank account are mainly representing the loans taken from family members and earlier withdrawals of the assessee. Further, some of the credits are transferred from one bank to another bank and, therefore, the assessee claimed that except the turnover declared by the assessee, all other deposits and credits in the bank account are source from the loans as well as earlier withdrawals. The LD. CIT (A) has confirmed the addition made by the AO based on the total turnover adopted by the AO at Rs. 79,74,414/- as against the turnover of Rs. 10,95,300/- declared by the assessee.

3. Before us, the ld. A/R of the assessee has submitted that the assessee is maintaining cash book, ledger, journal, purchases and sales vouchers. All the entries in the bank account are matching with the cash book as well as ledger account maintained by the assessee, therefore, the assessee has reconciled all the transactions of deposit in the bank account through cash as well as cheque. He has further submitted that the assessee produced the cash book, ledger account as well as bank account statement before the AO. Once the entries in the cash book, ledger account and the bank account are duly matching and no discrepancy is found, then the AO is not justified in treating the deposits and credits in the bank account as turnover of the assessee. He has pointed out that the assessee has explained that the assessee received salary of Rs. 3,87,118/- which is also deposited in the bank account. The said amount is also declared in the return of income and the AO has not disputed the same. The assessee received the loan of Rs. 16,89,100/- from Ms Padma Mundra, sister of the assessee and the details of the said loan was furnished before the AO as part of the cash book, ledger account and bank statements. Further the loan of Rs. 6,47,500/- was taken from Shri Gopal Mundra which is also reflected in the documents produced by the assessee before the AO. Thus the loan taken from the family members is the amount representing the deposits and credits in the bank account. The ld. A/R has further pointed out that a sum of Rs. 12,18,000/- is representing the transfers from one bank account to another bank account. This is a matter of record but the AO has ignored all these facts. These items which include the turnover, salary income, loans taken from the relatives/family members, transfer from one bank account to another bank account comes to Rs. 49,92,447/- and the balance amount of Rs. 29,81,967/- is source from the cash withdrawals by the assessee from the bank which was subsequently deposited in the bank. Thus the ld. A/R has submitted that the assessee has explained the entire deposit made in the bank account but the AO as well as LD. CIT (A) has failed to consider the facts which are duly reflected in the record including the bank account statement and made the addition on the entire credit in the bank account of the assessee. Hence the ld. A/R has also challenged the net profit of 8% applied by the AO and submitted that the Coordinate Bench of this Tribunal in the case of Shri Gopal Mundra vs. ITO in vide order dated 2nd April, 2019 has applied the Net Profit at 6%.

“ 3. During the proceedings, assessee was asked to furnish explanation in respect of “cash deposit in saving bank account is more than turnover”. On perusal of bank accounts, it has been noticed that total credits in bank accounts are Rs. 79,74,414/- including cash deposit of Rs. 55,41,458/-.”

Therefore, the AO himself has asked the assessee to explain the deposit in the bank account in cash and not the entire credit in the bank account. The balance amount was credited in the bank account but not a deposit in cash, therefore, the source of the balance was not doubted or disputed by the AO while issuing the show cause notice.

Even otherwise the deposit made in the bank account through cheque is self- explanatory and could have been verified from the details. The AO has accepted this fact that the entire sale of the assessee is in cash. Therefore, the deposit in the bank account through cheque is otherwise not on account of not representing the turnover of the assessee. The assessee has explained the source of entire deposit in the bank account as under :-

Gross receipts/Turnover declared by the assessee Rs. 10,95,300/- Salary income Rs. 3,87,118/- These two amounts are not in dispute as declared by the assessee in the return of income. The assessee has also explained loan of Rs. 16,89,100/- taken from Smt.

Padma Mundra, sister of the assessee. In support of this loan, the assessee has produced the loan ledger account, cash book and bank account statement. The transactions shown in the ledger account, cash book and bank statements are duly matched and reconciled. Even the AO has not pointed out any discrepancy in respect of any transaction shown in the loan ledger account, cash book and bank account statements of the assessee. The assessee has given each and every transaction date- wise, bank account details in the narration of the transaction in the ledger and the corresponding entries are also recorded in the cash book and matching with the assessee’s bank account statements. Therefore, once these amounts are reflected in the bank account statements, ledger account and cash book produced by the assessee, then in the absence of any contrary material brought on record by the AO by conducting an enquiry, the source explained by the assessee cannot be rejected merely on surmises. In case the AO was not satisfied with the documentary evidence produced by the assessee regarding the correctness, then a further enquiry would have been conducted from the other parties whom from the assessee have claimed to have obtained the loan. Further a sum of Rs. 6,47,500/- is also a loan amount taken from one Shri Gopal Mundra and the assessee has produced all the documents being ledger account, bank account statement and cash book wherein the entries are tallying in all three accounts. Therefore, once the assessee has explained the source of deposit of cash in the bank account, then taking the entire credit in the bank account as turnover of the assessee is highly arbitrary and unreasonable on the part of the AO. The assessee has explained that a sum of Rs. 12,18,000/- is transferred from assesee’s own savings bank account to another account, and therefore, the same cannot be treated as a turnover of the assessee or unexplained deposit. The AO has not conducted the bare minimum enquiry even to exclude such transactions which are inter-transfer of bank account of the assessee. The assessee has also explained the deposit to the extent of Rs. 29,81,967/- being the prior cash withdrawal by the assessee though the said amount of withdrawal may not be entirely re-deposited in the bank account. However, once the AO has taken up the scrutiny only with respect to the cash deposit of Rs. 55,41,451/-, then the explanation of the source to the extent of said amount were needed. Therefore, we find that since the assessee has already explained the source of amount of turnover declared by the assessee, salary income and loans from the relatives, then the action of the AO by taking the entire bank amount as turnover of the assessee is contrary to the facts. Accordingly, in the facts and circumstances of the case when the assessee has discharged his onus of explaining the source of deposit in the bank account and the AO has failed to conduct any further enquiry or bring any contrary material on record to disprove the explanation and evidence produced by the assessee, the addition made by the AO is not sustainable. Accordingly, the said addition made by the AO on account of turnover of the assessee is deleted.

5.1. As regards the net profit rate applied by the AO at 8%, since the main issue of enhancing the turnover of the assessee is decided in favour of the assessee, therefore, this issue becomes infructuous. We may clarify that the AO has not enhanced the NP rate but applied the same NP rate which was declared by the assessee in the return of income. Therefore, the assessee has no merit on this issue.

Order is pronounced in the open court on 11/08/2020.