M/S. GURUSIDESHA RACHAPPA HATROTE,HUBBALLI vs. THE INCOME TAX OFFICER, WARD- 1(3), HUBBALLI

The common issue in appeals for Assessment Years 2013-14, 2014-15 is with regard to whether the Revenue authorities were justified in estimating income of the assessee at 8% of the turnover. The facts as far as these two Assessment Years are concerned is that that the assessee is an individual. He carries on business in the name and style M/s. Hi-Tech Business Communications. Originally the assessee was carrying on business of running STD booth, providing fax, data entry work, etc. He thereafter started the to 1310/Bang/2019 Page 2 of 5 business of trading of sanitaryware materials. He also started selling herbal medicines. For Assessment Years 2013-14 and 2014-15, the assessee filed return of income declaring a sum of Rs.2,08,960/- and Rs.3,19,150/- respectively. In the course of assessment proceedings, the AO called upon the assessee to provide details of purchase bills, sales bills, commission receipts and proof of expenses along with vouchers and books of accounts. The assessee produced books of accounts but did not file bills and vouchers for verification of purchases and sales and expenses. For Assessment Year 2013-14, the assessee filed confirmation from Sri Banashankari Women’s and Rural Development Samasthe in respect of sales of Rs.1,74,18,073/- which was the turnover of the assessee for the aforesaid Assessment Year. As far as the Assessment Year 2014-15 is concerned, the total turnover of the assessee was Rs.2,37,67,847/-. The assessee explained the modus operandi as purchase through credit card. The sale proceeds would be withdrawn from the bank account and cash would be used to settle the credit card payment.

The AO rejected the income returned by the assessee in the return of income and proceeded to estimate the income of the assessee at 8% of the turnover and by doing so, the addition of Rs.10,89,946/- and a sum of Rs.16,76,818/- was made to the total income in Assessment Years 2013-14 and 2014-15 respectively. The amount so added was arrived at by the AO as follows: For Assessment Year 2013-14: “I hereby estimate at 8% on the turnover of Rs.1,74,18,073/, which comes to Rs.13,93,446/- and already declared taxable income of Rs.3,03,500/- is reduced and the balance of Rs.10,89,946/- is brought to tax.”

On appeal by the assessee, the CIT(A) confirmed the order of the AO. Learned Counsel for the assessee submitted that the estimate of income at 8% of the turnover is on the higher side. He brought to our notice that owning to non-recovery, the business of the assessee suffered serious set back and ultimately the assessee had to file an insolvency petition No.30/2015 before the Principal District and Sessions Judge, Dharwad on 07.07.2015. He also brought to our notice that in the confirmation filed in respect of sales for Assessment Year 2013-14, Sri Banashankari Women’s and Rural Development Samasthe has even mentioned that 2% is the margin that the assessee gets as a dealer. He therefore prayed that the addition made by the Revenue authorities should be restricted to 2% of the turnover. Learned DR relied on the order of the CIT(A).

After considering the rival submissions and taking into consideration all the circumstances of the case including the set back the assessee suffered in the business and the margins that the assessee might earn in this line of busienss, we are of the view that it would be just and appropriate that the income of the assessee be estimated at 4% of the turnover. In our view, the estimation as above would meet the ends of justice.

As far as Assessment Year 2015-16 is concerned, the assessee filed a return of income declaring total income of Rs.96,230/-. The turnover of the assessee for the relevant previous year was a sum of Rs.1,88,00,000/-. The assessee declared 1% of the turnover as an income and the total income declared by the assessee in the return of income was after deduction under chapter VI-A of the Act. The AO noticed that the assessee had made total payment of to 1310/Bang/2019 Page 4 of 5 Rs.1,38,21,959/- through credit card. The AO invoked the provisions of section 69C of the Act and added the entire sum by which credit card payment was made as unexplained in the following observations:

Over and above the aforesaid addition, the AO also found that the assessee deposited a sum of Rs.39,90,000/- with HDFC Bank Ltd., Chennai. The assessee was asked to explain the source of funds out of which the aforesaid deposit was made in the bank account. According to the AO, the assessee failed to explain the source and therefore the aforesaid sum was also added to the total income of the assessee under section 69A of the Act. On appeal by the assessee, the CIT(A) confirmed the order of the AO.

Aggrieved by the order of the CIT(A), the assessee has preferred the present appeal before the Tribunal. We have heard the rival submissions. As we have already observed while deciding the earlier appeals, the modus operandi of the business was to effect purchases through credit card and withdraw the sale proceeds in the bank account and make payment of the credit card dues in cash. By doing so, the assessee get a period of more than one month to settle the credit card bills through which the assessee makes purchases. This being the modus operandi of the business of the assessee, we are of the view it would be just and appropriate to estimate 4% of the credit card payments as well as the deposit in HDFC Bank Account i.e., Rs.1,38,21,959/- and Rs.39,90,000/- respectively. The assessee has already declared a sum of Rs.1,97,140/- as to 1310/Bang/2019 Page 5 of 5 income from business and to this extent, the assessee should get credit and the balance sum as estimated above should be added to the total income of the assessee. The aforesaid conclusion in our view would be just and proper taking into consideration the facts and circumstances of the present case.

In the result, all these appeals are treated as partly allowed.