NISHANT JAIN,FIROZABAD vs. ITO-1(1)(2), AGRA

The appeal in ITA No. 197/AGR/2026 for AY 2017-18, arises out of the order of the ld National Faceless Appeal Centre, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 08.01.2025 against the order of assessment passed u/s 147 r.w.s. 144 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.03.2022 by the Assessing Officer, ld National Faceless Appeal Centre, Delhi (hereinafter referred to as ‘ld. AO’).

At the outset, I find there is delay in filing of appeal by the assessee before this Tribunal by 355 days. Considering the reasons adduced in the condonation petition, I hold that assessee was prevented from sufficient cause in not filing the appeal in time. In the interest of substantial justice, I am inclined to condone the delay and admit the appeal of the assessee for adjudication.

No arguments were advanced in respect of Ground Nos. 1, 2 and 8 raised by the assessee. Hence the same are hereby dismissed as not pressed.

The Ground Nos. 3 and 4 raised by the assessee are challenging the confirmation of addition made u/s 69A r.w.s. 115BBE of the Act on account of cash deposits in the sum of Rs. 12,07,500/-.

I have heard the rival submissions and perused the material available on record. The ld AO noted that no return of income was filed by the assessee u/s 139(1) of the Act for AY 2017-18. Since, there were some information available in the income tax records reflecting lot of financial transactions carried out by the assessee, the case of the assessee was sought to be reopened vide issuance of notice u/s 148 of the Act on 27/28.03.2021. The ld AO noted that no return of income is filed in response to notice u/s 148 of the Act. To verify the genuineness of transactions entered by the assessee, notice u/s 133(6) of the Act stood issued to the HDFC Bank Ltd and to various parties listed in pages 2 and 3 of the assessment order with whom assessee had transaction of contract receipts. The ld AO noted that 3 out of 6 parties confirmed having made the contract payments to the assessee and these 3 parties are the major parties who had made contract payments to the assessee. Since, there was no response at all from the side of the assessee for the various notices issued u/s 142(1) of the Act, a show cause notice u/s 144 of the Act along with draft assessment order was issued to the assessee show causing as to why the assessment should not be completed u/s 144 of the Act as per the draft assessment order. No compliance was made for the same by the assessee. The ld AO added the entire cash deposit of Rs. 12,07,500/- made in the bank account as unexplained u/s 69A r.w.s. 115BBE of the Act. In respect of contract receipts, the ld AO found that in Form 26AS the total contract receipts reflected was Rs. 3,25,58,189/-. The ld AO applied 8% of such contract receipts as profit as per the Section 44AD of the Act and added a sum of Rs. 26,04,660/- as business income and completed the assessment. This action of the ld AO was upheld by the ld CIT(A).

It is not in dispute that assessee is engaged in construction business on sub-contract business for various larger entities. It is not in dispute that no return of income was filed by the assessee either originally or in response to notice u/s 148 of the Act. The ld AR before me submitted that assessee had maintained 3 bank accounts as under:-

He submitted that there were cash deposits made in all the 3 bank accounts as tabulated here under:-

It was submitted that only sum of Rs. 2,49,500/- stood deposited in cash in the bank account during the demonetization period cumulatively in all the bank accounts. The ld AR also furnished the details of cash withdrawal made from the bank accounts as tabulated under:- Month Cash Withdrawals HDFC Bank PNB 4626000100023125 PNB 4626002100003000 April 900000 May 1080000 June 750000 July 1320000 August 750000 September 1000000 October 70000 November 142000 150000 December 72000 200000 January 72000 100000 February 124000 450000 March 480000 985000

The ld AR also furnished the peak credit workings taking into account the entire cash withdrawals and cash deposits of all the bank accounts in pages 85-87 of the paper book. From the said peak chart enclosed in pages 85-87 of the paper book, the ld AR was trying to establish that there was no negative cash balance at all on any day during the year which goes to prove that cash deposits made in the bank accounts are duly sourced out of cash withdrawals. The ld AR prayed for one more opportunity to be given to the assessee before the ld AO for verification of the said peak credit workings enclosed in pages 85-87 of the paper book. Per contra, the ld DR vehemently opposed to the contention of the ld AR that in spite of giving sufficient opportunity to the assessee, assessee had not resorted to avail the same and the factual documents submitted by the assessee could not be entertained and no opportunity be given to the assessee.

Considering the aforesaid factual documents placed on record and also considering the fact that the ld AO had an occasion to consider only the cash deposits made in HDFC Bank, I deem it fit and fit and appropriate to restore this issue to the file of ld AO for de novo adjudication in accordance with the law. The assessee is at liberty to furnish all the factual evidences before the ld AO in the set aside assessment proceedings.

Ground Nos. 5 and 6 raised by the assessee are challenging the determination of net profit @ 8% of gross receipts u/s 44AD of the Act.

I have heard the rival submissions and perused the material available on record. The ld AR before me submitted that net profit @8% should not be determined by applying the provisions of section 44AD of the Act for the year under consideration. He submitted that the ld AO had resorted to determination of 8% based on past history of the assessee. He placed reliance on the net profit chart of the assessee for subsequent 3 assessment years as tabulated under and accordingly pleaded for adoption of average net profit ratio of 2.90%:-

The ld AR also submitted that in the past, the turnover was less and no accounts were maintained and there was no audit. Whereas in the current year, accounts were audited and their turnover had also substantially increased. Hence, placing reliance on the past trend of the assessee would not be justified according to ld AR. Per contra, the ld DR vehemently objected to the aforesaid arguments of the ld AR by stating that in spite of providing sufficient opportunities, the assessee had not chosen to avail any such opportunities before the lower authorities. Further, when the turnover of the assessee had increased substantially during the year, then the assessee ought to have filed his return in time to prove and justify the actual net profit earned by him. Page | 5

I have given thoughtful consideration to the rival submissions and I find more force in the contention of the ld DR. The profit percentage provided in 44AD at the rate of 8% is an indicator to arrive at the business profit of an assessee, subject to fulfillment of the conditions. Hence, this cannot be summarily ignored. This is a case wherein the assessee had not bothered to comply with the preliminary duty of filing the income tax return either u/s 139(1)/139(4) of the Act or in response to notice u/s 148 of the Act when the turnover had increased substantially during the year, the assessee ought to have got his accounts audited and filed the return in time. I find from the tax audit report dated 18.10.2017 together with all the annexures and audited financial statements, it is stated that assessee had maintained cash book, ledger, journal, purchase bills and vouchers, sale bills and vouchers, debit /credit notes, receipts for payment made/receipt etc. and which were produced before the tax auditor for his examination. Hence, in the interest of justice, I deem it fit and appropriate to provide one more opportunity to the assessee to submit the entire books of account, subsidiary records, bills and vouchers and all supporting evidences before the ld AO to justify the net profit shown by him in the financial statements. The ld AO shall examine the same thoroughly and make a de novo assessment in accordance with law qua the determination of business income of the assessee. Accordingly, Ground No. 5 and 6 raised by the assessee are allowed for statistical purposes.

Ground No. 7 raised by the assessee for non applicability of Section 115BBE of the Act for assessment year 2017-18, has already been decided in favour of the assessee by the decision of the Hon’ble Madras High Court in the case of SMILE Microfinance Limited Vs. ACIT in WP (MD) No. 2078 of 2020 and WMP (MD) No. 1742 of 2020 dated 19-11-2024 wherein it had held that the provisions of section 115BBE of the Act which enhanced the rate of tax could be made applicable only from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier. Hence the enhanced rate of tax @ 60% cannot be applied for the aforesaid additions in Assessment Year 2017-18.

In the result, the appeal of the assessee is allowed for statistical purposes.