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Facts
The assessee, engaged in wholesale trading of coconut and copra, received a notice under Section 148A for alleged huge cash transactions in their bank account without filing a return of income. The AO rejected the assessee's books of accounts under Section 145(3) and estimated profit at 8% of the turnover.
Held
The Tribunal held that the addition made by the AO was not sustainable as it was not based on the very reasons recorded for issuing the notice (huge cash deposits), but rather on the turnover declared by the assessee, without the AO having sought explanation for the cash deposits. Therefore, the addition was deleted.
Key Issues
Whether the addition made by the AO on the basis of turnover was sustainable when the reasons for issuing the notice under Section 148A were huge cash deposits, and no explanation was sought or provided for the same?
Sections Cited
147, 148, 148A, 139(1), 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. SOUNDARARAJAN K
Per Laxmi Prasad Sahu, Accountant Member :
This appeal filed by the assessee is against the Order passed by the learned CIT(A) vide DIN and Order No.ITBA/NFAC/S/250/2024-25/1071069491(1) dated 10.12.2024, challenging the addition made by the AO and confirmed by the learned CIT(A) amounting to Rs.97,88,331/- by applying 8% net profit rate on the turnover of the assessee.
Briefly stated, the facts of the case are that assessee is engaged in the business of wholesale trading of coconut and copra. As per specific information received under risk management formulated by the CBDT, it was observed that Page 2 of 5 huge cash transaction was done in Axis Bank account of the assessee but as per the system of the Income Tax Department, assessee had not filed return of income. Accordingly, notice was issued under section 148A of the Act. From the information, it was observed that assesssee has deposited cash as under:
In response to the notice dated 26.03.2022, assessee filed return of income on 30.06.2022 and the return was supported by audited financial statement and Forms 3CD and 3CB. After examining the part reply of the assessee, the AO applied section 145(3) of the Act and rejected the books of accounts maintained by the assessee and applied 8% profit of the turnover amounting to Rs.12,23,54,132/-. The AO also provided various opportunities to the assessee but assessee filed part reply only. After considering the documents available before him and rejected the books of accounts and analysis of the income for the Assessment Years 2017-18 and 2019-20, GP/NP declared by the assessee, he estimated 8% profit on the turnover as the assessee has not maintained books of accounts properly and hence rejected the books of accounts. During the course of reassessment proceedings, video conferencing was provided to the assessee. The assessee has not provided any sales register, purchase register, salary and Page 3 of 5 wages details, cash book and other supporting ledgers, bills, vouchers to substantiate its claims. Various other anomalies were observed. Accordingly, a show cause notice was issued to the assessee. There was no reply from the assessee side thereafter theAO passed order
Aggrieved from the above Order, assessee filed appeal before the learned CIT(A). The CIT(A), after considering the submissions of the assessee, dismissed the appeal of the assessee.
Aggrieved from the Order of the CIT(A), assessee filed appeal before the Tribunal. The learned Counsel for the assessee reiterated the submissions made before the lower authorities and submitted that the AO has wrongly applied 8% profit and has rejected the books of accounts of the assessee. The books of accounts were audited by the Chartered Accountant and requisite audit reports were provided to the AO.
On the other hand, learned DR relied on the Order of the lower authorities and submitted that assessee is having huge cash deposits in his bank account and as per observation under the risk management, assessee did not file return of income as per section 139(1) of the Act and did not get his books of accounts audited within the specified time. During the course of reassessment proceedings u/s 147, the AO observed various anomalies on the submissions made by the assessee. The assessee did not produce various basic details to support his expenditures claimed even for purchase and sales register, salary ledge and other expenditures were not filed. Therefore, he rightly invoked provision of section 145(3) of the Act and rejected the books of accounts of the assessee and correctly estimated 8% profit on the turnover achieved.
Considering the rival submissions and on perusal of entire material available on record and Orders of the authorities below, we noted that assessee Page 4 of 5 was issued notice under section 148 of the Act, after recording reasons and following due procedures for issue of notice under section 148 of the Act, which are extracted in the Assessment Order, observing that huge cash has been deposited in assessee’s Axis Bank account noted supra but there is no return filed by the assessee. Therefore, it has been treated as escapement of income within the meaning of section 147 of the Act. During the course of assessment proceedings, various basic details were not filed by the assessee. Therefore, the AO applied section 145(3) of the Act and rejected the books of accounts and applied net profit @ 8% of the turnover of Rs.12,23,54,132/- and the CIT(A) has confirmed the Order of the AO. On going through the grounds of appeal raised by the assessee, assessee has challenged the estimated income computed by the AO, though, there are no separate legal grounds raised by the assessee regarding addition made by the AO. However, being final fact-finding authority, we noted that the very purpose for issue of notice under section 148 of the Act, there is no addition made by the AO on the basis of escapement of income noted in the 148 notice. We are not restricting only on the addition made by the AO. We have to examine, whether the Ao has completed the reassessment proceedings within the frame work of the provisions to the addition made by the AO which are challenged before us. We noted that the AO has made addition on estimate basis on the turnover declared by the assessee but the AO has not made any addition on the very basis for recording reasons. We noted that neither the AO asked for cash deposits nor the assessee explained anything. The AO has recorded the reasons for issue of notice under section 148 of the Act that is huge cash deposits were made in the bank accounts but the assessee has not explained the source of cash deposits with credible evidence and the addition made is on the basis of the turnover declared. Therefore, there is no addition made by the AO on the very basis of the reasons recorded which is not sustainable in the eyes of law. A similar view has been taken by the Co-ordinate Bench of the Tribunal, Agra Bench, in the case of Asha Kansal Vs. ITO, Ward – 1, Agra reported in (2014) 14 taxmann.com 380 (Agra Tribunal). During the course of hearing, it was
In the result, appeal filed by the assessee is allowed.