Loading judgment…
Facts
The assessee, a proprietor of Noor Egg Centre, declared an income of Rs. 3,02,870 for AY 2017-18. The AO made additions of Rs. 38,17,000 on account of unexplained cash deposits during demonetization and Rs. 12,04,445 on account of estimated profit.
Held
The Tribunal held that the assessee's business is primarily cash-based and directed the AO to apply the provisions of Section 44AD of the Act to the gross receipts and re-compute the profit and tax liability.
Key Issues
Whether cash deposits made during demonetization are unexplained and if the AO's method of estimating profit is correct.
Sections Cited
143(1), 115BBE, 69A, 44AB, 44AD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI “SMC” BENCH, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY
आदेश / O R D E R The assessee has preferred this appeal against the order dated 18.12.2023, impugned herein, passed by the CIT(A)/ National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2017-2018, u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
In the instant case, the Assessee being a proprietor of M/s. Noor Egg Centre, during the AY under consideration was dealing in buying and selling of eggs and had declared his total income of Rs.3,02,870/- by filing his return of income on dated 30.03.2018, which was processed u/s 143(1) of the Act.
3. Subsequently, the case of the Assessee was selected for scrutiny and the Assessing Officer (AO) issued statutory notices, in response to which the Assessee submitted purchase and sales details amounting to Rs.1,17,89,133/- and Rs.1,23,49,332/- respectively. The Assessee from business, had also shown the gross receipts, amounting to Rs.21,81,513/- in the return of income, wherein the amounts of Rs.5,67,060/- and Rs.3,52,813/- were shown as gross and net profit respectively, after claiming the expenses of Rs.2,14,247/-.
The AO, by considering the aforesaid claim of the Assessee observed that the Assessee has failed to produce any evidence to establish that cash deposits in his bank accounts during the demonetization period amounting to Rs.38,17,000/- was out of known source and therefore only purchase and sales details, cannot prove the claim of the Assessee or also not justified, as during the demonetization period, the purchase and sales shown, are much higher as compared to the rest period of the year. The AO ultimately made the addition of Rs.38,17,000/- on account of un- explained amount deposited by the Assessee in his bank account during the demonetization period and taxed the same u/s 115BBE of the Act, by observing holding as under:
1. “That prior to demonetization, the Assessee has made cash deposit of Rs.4,92,000/- only. Therefore, in view of the same, the cash deposited during demonetization period is not in line of previous record of cash deposit and in the absence of any reasonable explanation, the source of these cash deposits remained un-explained. Even the Assessee has not made compliance to the show cause notice mentioned above by explaining “as to why the amount of Rs.38,17,000/- should not be treated as unexplained”. Therefore, the Assessee has no objection in respect of addition on account of cash deposits during demonetization period in his bank account, as discussed above”. 5. The AO also made the addition of Rs. 12,04,445/- on account of estimated profit and added the same in the income of the Assessee by observing and holding as under:
“From the bank statement of the Assessee, it is seen that the Assessee has made total turnover during the year under consideration for Rs.1,24,68,432/- out of which cash deposit amount during the demonetization period is at Rs.38,17,000/-. Thus, the turnover excluding cash deposits during demonetization period is at Rs.86,51,432/- during the year under consideration and in the absence of books of accounts of the Assessee the amount of Rs.86,51,432/- is being considered as the total business receipt of the Assessee and therefore by considering the gross net profit for the A.Y. 2016-17 and 2017-18 to the tune of 19.70% and 16.17 % respectively, the business profit is estimated @ Rs.15,57,258/- being 18% of Rs.86,51,432/- and by deducting the amount of Rs.3,52,813/- declared by the Assessee, as income from business, the amount of Rs.12,04,445/- also added in the income of the Assessee”.
The Assessee, being aggrieved, challenged the said additions before the Ld. Commissioner, however could not get any relief, as the Ld. Commissioner almost on the same footing/reasoning as of the AO, affirmed the aforesaid additions, by dismissing appeal of the Assessee.
The Assessee, therefore being aggrieved, has challenged the said additions by filing instant appeal and at the outset has submitted that the Assessee during the assessment proceedings, has filed the following documents:
Copy of Relevant Bank Statement of the assessee 2. Copy of ITR Acknowledgement, Computation of Total Income & Balance sheet with schedules of the assessee.
Month wise details of sales and purchases for AY 2017-18 (Page No.13-14 of Paper Book) 4. Details of sample purchase bill for Mumbai (Page No. 18-34 of Paper Book) 5. Monthly sale summary (Page No. 14 of Paper Book) 6. Cash Book (Page No. 45-50 of Paper Book) 7. Cash Book summary has been attached as a part of this submission (Pg 21) ).
Sales summary has been attached as a part of this submission (Pg22) 9. Computation of Gross Profit ratio has been attached as a part of this submission (Pg20) 8. The Assessee further submitted that he has maintained books of account in the form of computers ledger, cash book, bank book, sales register, purchase register and stock book and also maintaining monthly purchase and sales chart. The Assessee further submitted that without purchases, there cannot be any sale. The Assessee also claimed that the Assessee generated cash from his business and deposited the same in the bank account and disclosed and offered the same to tax in the return of income and paid the tax applicable thereon. As the Assessee has already offered his income to tax in the return of income and therefore, any addition on this count, shall tantamount to double taxation.
On the country the Ld. D.R. refuted the claim of the Assessee.
Heard the parties and perused the material available on record. It is observed from the orders passed by the authorities below that the Assessee during the assessment year under consideration, had shown the purchases and sales to the tune of Rs.1,17,89,133/- and Rs.1,23,49,223/- respectively. The AO on “ a. The Assessee has deposited a huge cash in his bank account during the demonetization period b. The Assessee has failed to explain the source of cash deposit during the demonetization period. c. The Assessee has failed to substantiate the source of cash deposit made during the demonetization period and also failed to explain cash deposits and other credits along with access turnover as per bank statement”.
Thus the AO observed that in this case provision of section 69A of the Act is clearly attracted in the cash deposits during demonetization period and also profit margin attracted on the cash deposits and other credits in the bank during the demonization period. The AO on perusing the bank statement, noticed that the gross receipt/turnover credit in the bank accounts of the Assessee is of Rs.1,24,68,432/- including cash deposit of Rs.38,17,000/- during demonetization period and therefore he asked the Assessee to produce the evidence to establish the known source of such cash deposit, against which the Assessee has produced purchase and sales details, however, the same were not found justified by the AO on the ground that the purchase and sales shown during the demonization period is much higher as compared to the rest period of the year and therefore the AO by holding that the accounts of the Assessee are not audited and therefore gross receipt shown by the Assessee in his return of income, is not acceptable, brought the amount of Rs.38,17,000/- to tax in the hands of the Assessee, as unexplained money u/s 69A of the Act.
12. On the contrary, the Ld. A.R. has claimed that the Assessee has filed various documents as mentioned above in order to establish the genuineness of the purchases and the sales made thereon. It is not the case of the department that the Assessee is doing any other business than what the Assessee has disclosed and therefore the addition of Rs.38,17,000/- is un-sustainable.
This Court has given thoughtful considerations to the peculiar facts and circumstances of the case. Admittedly the Assessee had filed the relevant documents, as not disputed by the department and offered a reasonable explanation qua amount of Rs.38,17,000/- deposited during the demonetization period in his account. Further the Assessee is not doing any other business, except of eggs trading on the cash basis mainly and during the AY under consideration has shown total turnover to the tune of Rs.1,24,68,432/- and therefore availability of cash amount of Rs.38,17,000/- which was deposited by the Assessee in his bank account on declaration of demonization period, cannot be ruled out. Thus the amount Rs.38,17,000/- cannot termed as unexplained and/or alternatively at max can be subjected to the estimation of profit by adding the same in gross turnover shown by the Assessee. Thus, the same is treated as part of the total turnover of the Assessee and hence the AO is directed to treat the amount of Rs.38,17,000/- as part of the total turnover, while estimated the profit.
Coming to the second addition, it is observed by this Court that the AO by considering the total deposits/ turnover made by the Assessee to the tune of Rs.1,24,68,432/- and by taking the amount of Rs.38,17,000/- deposited during the demonetization period, considered the remaining amount of Rs.86,51,432/- (Rs.1,24,68,432/- - Rs.38,17,000/-) as the total business receipts/sales of the Assessee during the A.Y. under consideration and estimated the business income @ 18% (Rs.15,57,258/-) of the said amount of Rs.86,51,432/- and by deducting the amount of Rs.3,52,813/-, as declared by the Assessee, ultimately made the addition of Rs.1,20,445/-.
The AO while perusing the credit increase in the bank accounts maintained by the Assessee noticed that the credit in the bank accounts does not match with the turnover declared by the Assessee and therefore, he show caused the Assessee to submit the explanation on 26/11/2019. In the show cause notice, the AO specifically pointed out that in the return of income for the A.Y. 2017–18, the Assessee had shown gross receipts / turnover for the AY under consideration at Rs.21,81,513/- and declared income from business at Rs.3,52,813/-. However, as per credit in the bank account, turnover during the year, worked out at Rs.1,24,68,432/- and therefore the Assessee was show caused to reconcile the gross receipts shows in the return of income and credit made in the bank during the year.
The Assessee, in response, submitted copy of return of income, nature and place of business, computation of total income, profit and loss account, capital account and balance sheet.
By perusing the profit & loss account, the AO observed that the Assessee has shown sales at Rs.21,81,513/- and purchases at Rs.16,18,843/-, however, as per sales and purchase registers for the period 01.04.2016 to 31.03.2016, it is seen that the Assessee has made purchases and sales of Rs.1,17,89,133/- and Rs.1,23,49,332/- respectively during the year under consideration.
The AO therefore on the said difference, observed that the Assessee has not maintained his books of accounts and has also not furnished the same during the assessment proceedings and therefore the Assessee failed to get his accounts audited, as per the provisions of section 44AB of the Act, even though his turnover exceeded the limit to do so. The Assessee has failed to reconcile the aforesaid difference/variation.
The Assessee in response to said variation and queries raised by the AO, has submitted “that there was an error in declaring the correct sales in the ITR on the part of his accountant”.
19. Thus the AO by considering the peculiar facts and circumstances specific to the effect that the gross turnover/receipts credit in the bank accounts of the Assessee is at Rs.1,24,68,432/- including cash deposit during demonetization period amounting to Rs.38,17,000/- and therefore determined the total turnover as under:
“Total turnover/business receipts (sales) during the AY under consideration of Rs.86,51,432/- (12,48,65,132/- – Rs.38,17,000/-)”
The AO, by considering the gross receipts and net income/profit of Rs.3,21,802/- and Rs.3,52,813/- respectively @ 19.70% of gross receipt of Rs.16,32,817/- and @ 16.17% of gross receipt of Rs.21,81,513/-, shown by the Assessee during the AY 2016-17 & 2017-18, considered the average profit shown at 18% and consequently determined the income of the Assessee to the tune of Rs.15,57,258/- being 18% of Rs.86,51,432/-.
As the Assessee has declared income from business at Rs.3,52,813/- and therefore the AO by deducting such amount from the total income of Rs.15,57,258/-, ultimately made the addition of Rs.12,04,445/- being difference between the amount determined/gross profit at Rs.15,57,258/- – Rs.3,52,813/- being profit declared by the Assessee and added the same to total income of the Assessee.
Admittedly, there is a difference between the gross total income shown by the Assessee and the gross income as appears in the profit & loss account. Further, the Assessee during the AY under consideration, in the profit & loss account, has shown the purchase and sale amounts at Rs.1,17,89,133/- Rs.1,26,99,332/- respectively, as it clearly appears from profit & loss account.
Thus, considering the peculiar facts and circumstances of the case in totality, this Court observe that the Assessee’s business of trading of eggs is almost on the cash basis and therefore it would be more appropriate to apply the provisions of section 44AD of the Act for determining the total income of the Assessee. Consequently, the additions made by the AO and affirmed by the Ld. Commissioner are deleted and the AO is directed while estimating the profit, to apply the provisions of section 44AD of the Act to the gross receipts/sale of Rs.1,24,68,432/- made by the Assessee and to re-compute the profit and the tax liability accordingly.
Order pronounced in the open court on 26/05/2025.