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Income Tax Appellate Tribunal, “SMC” “A’’BENCH: BANGALORE
Before: SHRI B. R. BASKARAN
PER B.R. BASKARAN, ACCOUNTANT MEMBER:
The assessee has filed this appeal challenging the order dated 27.9.2021 passed by Ld. CIT(A), National Faceless Appeal Centre, Delhi and it relates to the assessment year 2017-18. The assessee is aggrieved by the decision of Ld. CIT(A) in partially sustaining the addition relating to income estimated by the A.O.
The facts relating to the issue are stated in brief. The assessee is a partnership firm and is engaged in the business of providing financial services. It collects pigmy deposits from public and investing it in fixed deposits and in giving loans. For the year
Asha Financial Services, Nanjangud
Page 2 of 5 under consideration, the assessee filed its return of income declaring a total income of Rs.70,510/-. The assessee had declared gross receipts of Rs.8,81,315/- and declared a net profit of Rs.70,510/-. The A.O. took the view that the assessee has estimated the income on presumptive basis at 8% of the gross receipts declared by it. The A.O. further noticed that the assessee has deposited cash during demonetization period in two bank accounts aggregating to Rs.33,98,000/-. The A.O. took the view that the assessee should have estimated income from the above said deposits also. The A.O. also observed that the assessee has not declared any opening cash balance as on 1.4.2016. Accordingly, the A.O. estimated income at 8% of above said cash deposits of Rs.33,98,000/-, which worked out to Rs.2,71,840/-. Since the assessee had declared income of Rs.70,507/- in its return of income, the A.O. assessed the difference amount of Rs.2,01,333/-.
Before Ld. CIT(A) the assessee submitted that the demonetization period started from 9.11.2016 and the assessee was having cash balance of Rs.6,62,852/- in its books of accounts. Further, it was submitted that the remaining cash balance represented amount collected by way of pigmy deposits from its customers. Accordingly, the assessee submitted that it is maintaining regular books of accounts; pigmy deposits have been shown as liability and the deposits have been made into the bank accounts out of book balances only. Accordingly, it was submitted that the A.O. was not correct in treating the cash deposited into the bank accounts as revenue receipts in the hands of the assessee.
The Ld. CIT(A) accepted the availability of cash balance in the books of the assessee as on 09-11-2016 and accordingly directed
Asha Financial Services, Nanjangud
Page 3 of 5 the A.O. to give credit for cash balance of Rs.6,62,852/- and estimate the income on the remaining amount of cash deposited by the assessee. Aggrieved, the assessee has filed this appeal before the Tribunal.
The Ld A.R submitted that the tax authorities are wrong on facts in observing that the assessee has offered income in its return of income on estimated basis. The Ld A.R submitted that the assessee is maintaining regular books of accounts and has also furnished Profit and Loss account and Balance Sheet along with the return of income. The income arrived at in the Profit and Loss account was declared in the return of income. The Ld A.R submitted that the pigmy deposits have been collected from its customers and shown as liability in the Balance sheet. The Ld A.R invited my attention to the Profit and Loss account and Balance Sheet in support of above said submissions. The Ld A.R further submitted that assessee has used the cash balance available in the books of account, which included the pigmy collections also, to deposit into its bank accounts. Since the collection of funds and their deposits have been accounted in the regular books of accounts, there is no reason for the tax authorities to treat the same as revenue receipts and estimating income thereon.
The Ld D.R, on the contrary, supported the order passed by Ld CIT(A) on this issue.
I heard the parties on this issue and perused the record. Before me, the assessee has produced copies of Balance Sheet and Profit and Loss account filed along with the return of income. Thus, I notice that the tax authorities have fell in error in observing that the assessee has declared its income on presumptive basis.
Asha Financial Services, Nanjangud
Page 4 of 5 Further, the Ld A.R submitted that the collection of pigmy deposits from customers and the money deposited into the bank accounts have been duly accounted for in the books of accounts. Thus the sources for deposits made into the bank accounts are very much available in the books of accounts itself.
The very fact that the Ld CIT(A) has directed the AO to give credit for the cash balance available in the books of account on 09- 11-2016 makes it clear that the Ld CIT(A) was aware of the fact that the assessee was maintaining books of account. In spite of that, the Ld CIT(A) has directed the AO to give credit for the cash balance available on 09-11-2016.
A perusal of profit and loss account of the assessee would show that the income of the assessee consisted of interest income and other receipts. A perusal of the Balance sheet would show that the pigmy deposit collections have been shown as liability. Hence there is merit in the contentions of Ld A.R that there was no reason for the tax authorities to treat the amounts deposited into the bank account as revenue receipts in the hands of the assessee. When the deposits have been made out of book balances, there is no reason to estimate income there from. Accordingly, I set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition relating to income estimated out of deposits made into the bank account, which was sustained by Ld CIT(A).
Asha Financial Services, Nanjangud
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 7th Apr, 2022