SRI MADHAPPA SIVA,HOSUR vs. ITO, WARD-1, HOSUR

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ITA 2327/CHNY/2024Status: DisposedITAT Chennai07 January 2025AY 2012-13Bench: SHRI GEORGE GEORGE K (Vice President), SHRI MANOJ KUMAR AGGARWAL (Accountant Member)6 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found that the assessee was engaged in a systematic business of selling mosquito nets, and the cash deposits were proceeds from sales. Given the absence of proper books of accounts, the Tribunal estimated a net profit of 12% on the admitted cash deposit of Rs.21,64,516/-, thereby confirming an addition of Rs.2,59,742/- and deleting the balance amount of Rs.19,04,774/-.

What were the facts?

The assessee made cash deposits of Rs.33,94,516/- in AY 2012-13 but did not file an Income Tax Return. The AO initiated reassessment proceedings and completed a best judgment assessment under Sections 144 r.w.s. 147, adding the entire amount as unexplained income u/s 69A. The CIT(A) partially allowed the appeal, reducing the addition to Rs.21,64,516/-.

What were the issues?

Whether cash deposits, claimed as business sales, could be entirely added as unexplained income under Section 69A, and if a net profit rate could be appropriately applied in the absence of books of accounts for the relevant assessment year.

Which sections of the Income-tax Act were involved?

Section 250,Section 148,Section 142(1),Section 144,Section 147,Section 69A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI

Before: SHRI GEORGE GEORGE KAND SHRI MANOJ KUMAR AGGARWAL

Hearing: 06.01.2025Pronounced: 07.01.2025

आदेश /O R D E R

PER GEORGE GEORGE K, VICE PRESIDENT:

1.

This appeal at the instance of the assessee is directed against CIT(A) - NFAC order dated 10.07.2024, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2012-13.

2. Brief facts of the case are as follows: The assessee is an individual. The AO had received information that assessee had made cash deposits of Rs.33,94,516/- during the relevant assessment year namely AY 2012-13. Since the assessee did not file the return of income for the assessment year 2012-13, the AO had reason to believe that income had escaped assessment and so, notice u/s.148 of the Act was issued on 28.03.2019. The assessee did not respond to the notice issued u/s.148 of the Act. Hence, notice u/s.142(1) of the Act dated 07.12.2019 was issued. Since there was no response to the notice issued u/s.142(1) of the Act, the AO sent a proposal to complete the assessment on best judgment basis u/s.144 of the Act (proposal / show-cause dated 12.12.2019). The assessee did not respond to the same. Therefore, assessment was completed vide order dated 23.12.2019 u/s.144 r.w.s. 147 of the Act. In the said assessment order, the AO made addition of Rs.33,94,516/- as unexplained income u/s.69A of the Act.

3.

Aggrieved by the assessment completed u/s.144 r.w.s. 147 of the Act, the assessee filed appeal before the First Appellate Authority. Before the First Appellate Authority, the assessee filed evidences to show that cash deposits are out of his business of sale of mosquito nets. In this context, the ld.AR placed on record the SBI bank statement wherein the cash deposits were made, VAT and GST registration certificate, the purchase register and the sample purchase invoices, sales register and sample sales invoices. Further, the assessee had submitted before the CIT(A) that the cash deposits is only to the tune of Rs.21,64,516/- and not Rs.33,94,516/-. It was submitted by the assessee before the CIT(A) that the average net profit up to the date of assessment was only 11.72% and prayed for adoption of the presumptive tax of 8% or 11.72% on the gross receipts (The gross receipts was the total cash deposits). The CIT(A) held that the assessee had not filed his return of income for the relevant assessment year and only for the subsequent assessment year onwards, the assessee has been filing the returns of income and therefore, the subsequent events cannot justify the claim of events which have happened for the relevant assessment year namely 2012-13. The CIT(A) however, accepted the assessee’s plea that the cash deposit is only to the tune of Rs.21,64,516/- instead of Rs.33,94,516/-. Accordingly, the CIT(A) partly-allowed the appeal of the assessee by limiting the addition u/s.69A of the Act to Rs.21,64,516/-.

4. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. The submissions made before the CIT(A) and the relevant annexures which was furnished before the CIT(A) are placed on record. The ld.AR reiterated the submissions made before the CIT(A).

5.

The ld.DR supported the order of the AO and the CIT(A).

6.

We have heard rival submissions and perused the material on record. The assessee’s basically plea before the Tribunal is that the entire cash deposits are out of purchase and sale of mosquito nets and his case should be treated on the basis of estimated profits either under presumptive taxation or at the rate of 11.7% being the average net profit percentage till the date of finalization of the impugned assessment order. In this context, it is relevant to note that assessee had obtained the VAT registration subsequent to the relevant assessment year i.e., on 25.05.2017 and is registered as tax payer under the GST Regulation. The assessee has also filed the return of income from assessment year 2014-15 to 2022-23. The details of the same are as under:-

Assessment Turnover in Taxable Net Profit Date of Filing year Rs. Lakhs Income in Rs. Ratio 2014-15 21.08.2016 18,75,855 2.20 11.73% 2016-17 29.03.2018 17,86,200 2.68 15.01% 2017-18 29.03.2018 20,56,540 3.08 14.98% 2018-19 21.07.2018 39,03,925 3.50 8.97% 2019-20 16.08.2019 61,96,884 4.84 7.91% AVERAGE UPTO THE DATE OF ASSESSMENT 11.72% 2020-21 28.12.2020 82,28,755 5.51 6.70% 2021-22 27.12.2021 86,51,811 5.03 5.81% 2022-23 04.11.2022 1,73,75,830 4.99 2.87% TOTAL AVERAGE OF ALL THE NET PROFIT RATIO 9.25% It has been brought on record that the above income disclosed in the returns filed by assessee has not been disturbed by the Revenue. Considering the aforesaid returns which have been filed much before the passing of the impugned assessment order, we are of the view that the CIT(A) ought to have taken a clue about the nature of activities conducted and could have passed an order to arrive at a fair and reasonable income of the assessee. The ld.AR has placed on record the purchase register, sample purchase record, sale register, sample sales invoices and bank statements. On perusal of same, we find that assessee has been engaged in systematic business of dealing in mosquito nets and deposit in the bank account of the assessee is related to the business activity by way of realization of sale proceeds. Hence, the addition of all credits as unexplained income u/s.69A of the Act is not justified and legally not tenable. Since the assessee has not maintained the books of accounts for the relevant assessment year and based on the average net profit ratio for the assessment years 2014-15 to 2019-20 (average net profit up to the date of impugned assessment order being passed), we are of the view that net profit of 12% on the cash deposit of Rs.21,64,516/- would meet the ends of justice. Accordingly, we confirm the addition of Rs.2,59,742/- and delete the balance addition of Rs.19,04,774/-. It is ordered accordingly.

7.

In the result, the appeal filed by the assessee is partly-allowed.

Order pronounced in the open court on 7th January, 2025 at Chennai.

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