PRADEEP KUMAR SHET,RAICHUR vs. INCOME TAX OFFICER, WARD-1, RAICHUR

Briefly stated facts of the case are assessee filed his return of income for the Assessment Year 2017-18 on 07.11.2017 declaring a total income of Rs.13,91,540/- and agricultural income of Rs.4,64,081/-. The return was summarily processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS and notice under section 143(2) of the Act was issued and served on the assessee calling for relevant information. The assessee has not complied to the notice. The learned AO required the assessee to explain the cash deposits in the bank account during the Financial Year 2016-17 vide show cause notice dated 19.12.2019. In response, the assessee submitted that cash deposits of Rs.88,86,645/- was made during the demonetization period in the said bank accounts which arise from the sale of gold and jewellery. Assessee also submitted that opening cash balance on 08.11.2016 is Rs.67,65,045/- and sale receipts of Rs.40,51,812/- during the demonetization period were used for the purpose of making cash deposits into bank account. The learned AO issued notice under section 133(6) of the Act on 16.12.2019 to Corporation Bank, Sindhanur calling for details of cash deposits made during the demonetization period by the assessee. On perusal of the submissions filed by the assessee, the learned AO observed that assessee is not authorized to accept SBNs during the demonetization period in exchange for goods and services. The learned AO worked out the SBN deposited in the bank during the demonetization period at Rs.62,85,000/-. He also observed that the assessee has not furnished any documentary evidence / books of accounts to substantiate the opening balance of cash of Rs.67,65,045/-. He therefore made an addition of Rs.62,85,000/- as unexplained under section 69A of the Act. Similarly, the learned AO also noticed that the assessee has declared lower profits which is at 5.36% on the sales declared in the P & L account. Since the assessee did not produce any books of accounts before the learned AO, the learned AO adopted 8% as profit and added the difference amount of Rs.2,46,955/- [Rs.93,89,717 X 8% = Rs.7,51,177 (–) net profit already declared of Rs.5,04,222/-]. However, the learned AO noticed that assessee did not substantiate the agricultural income declared in the return of income with proper evidence like sale pattis, expenditure bills, crop grown certificates from the concerned authorities and therefore added back amount of Rs.4,64,081/- as unexplained under section 69A of the Act.

On being aggrieved by the additions made by learned AO, the assessee carried the matter before the learned CIT(A). Before the learned CIT(A), assessee made written submissions and filed additional evidence. The learned CIT(A) thereafter called for remand report from the learned AO. The learned AO furnished the remand report on 01.11.2024. The remand report received from the AO was forwarded to the assessee for response from the assessee. The assessee submitted his rejoinder on 02.07.2025. Considering the remand report and the rejoinder, the learned CIT(A) sustained the addition made on account of estimating income @ 8% while deleting the addition made by the AO on the agricultural income declared by the assessee. Similarly, the learned CIT(A) accepted the opening balance on 01.04.2016 at Rs.11,53,505/-. However, the learned CIT erroneously sustained the addition of unregistered dealers amounting to Rs.38,55,680/-. Similarly, he also sustained the addition of Rs.41,37,858/- said to have been received from the sundry debtors.

On being aggrieved by the Order learned CIT(A), assessee is in appeal before us by raising various grounds:

With respect to ground No.2.2 wherein the learned CIT(A) has accepted the opening cash balance as on 01.04.2016. The learned AR submitted that cash book was not doubted by the Revenue authorities due to the fact that opening balance as on 01.04.2016 was allowed by the learned CIT(A). However, he submitted that learned CIT(A) erred in considering the opening balance on 08.11.2016 which stood at Rs.67,65,045/-. He further submitted that opening balance of cash was deposited during the demonetization period. The detailed cash book has been submitted before the learned CIT(A). However, the learned AO during the remand proceedings did not consider the cash book by observing that it is an afterthought. He therefore pleaded that since the cash deposits arises out of the opening balance as on 08.11.2016, the addition made by the learned AO under section 69A of the Act towards the cash deposits during the demonetization period amounting to Rs.62,85,000/- shall be deleted.

Per contra, the learned DR relied on the Orders of the Revenue authorities.

We have heard the rival contention and perused the material available on record. It is an undisputed fact that assessee has deposited an amount of Rs.62,85,000/- in cash during demonetization period into bank account of the assessee. Detailed cash book was produced before the learned CIT(A) and also before us. However, the learned AO has not considered the cash book and proceeded to make an addition of Rs.62,85,000/- being the amount deposited during the demonetization period. The Revenue has not disputed cash book whereas it has accepted the opening balance of cash on as 01.04.2016. The learned AO also has not adversely commented on the cash book except stating that it was an afterthought of the assessee. The learned AO however concluded that onus of explaining the transactions with necessary evidence / proof lies on the assessee, and in this case the asessee has failed to discharge the onus with necessary explanation and evidences. We note that the learned AO has failed to examine the cash book submitted for ascertaining the opening balance of cash as on 08.11.2016. The learned AO erroneously concluded that the opening balance as on 08.11.2016 consists of cash balance of Rs.11,53,501/- as on 01.04.2016 and sundry debtors of Rs.46,81,801/-. In support of the sale of jewellery, assessee has also furnished the sales register and VAT returns which was not examined by the learned AO. The learned AO simply observed that assessee has not furnished date wise details of payment from outstanding debtors. However, we find from the cash book submitted by the assessee before us the opening balance as on 08.11.2016 stood at Rs.67,65,045/-. We therefore are of the view that the cash deposits are made out of the balance existing on 08.11.2016 and hence we direct the learned AO to delete the addition of Rs.62,85,000/- made under section 69 of the Act.

Vide ground No.3, the assessee has challenged the estimation of income at 8% of the turnover. On this issue, the learned AR submitted that the assessee objected to estimation of profit and has declared a profit @ 5.36%. The learned AO merely stating that it is not reasonable and too low, proceeded to compute the margin of profit @ 8% as business income of the assessee. He therefore pleaded that since the books of accounts were not questioned by the Revenue, merely making an addition by observing that the assessee has declared lower profits is not valid in law.

Per contra, the learned DR relied on the Orders of the Revenue authorities.

We have heard the rival contentions. The learned AO noted that assessee has not produced the purchase register, purchase bills and sales register including the details of URD purchases and considered the profit declared by the assessee @ 5.36% is not reasonable and too low. However, the learned AO did not bring any material on record to state that assessee is earning 8% margin of profit while simply relying on the provisions of presumptive taxation. It is also noticed that the learned AO has not rejected the books of accounts. In this scenario, we consider that the act of the learned AO estimating the profit @ 8% instead of 5.36% as admitted by the assessee, on the turnover is not justifiable and deserves to be deleted. Thus, the ground raised by the assessee is allowed. Ground 4 is with respect to interest under sections 234B and 234D of the Act which is consequential in nature and hence not adjudicated.

In the result, appeal filed by the assessee is allowed. Pronounced in the court on the date mentioned on the caption page.