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Facts
The assessee, operating a cold storage, failed to file an ITR despite a notice u/s 142(1), leading to an ex-parte assessment u/s 144. The AO made two additions: ₹1,62,88,300/- as unexplained cash deposits (including demonetization period) u/s 69, and ₹5,72,978/- by estimating income at 8% on other bank deposits aggregating ₹71,62,220/-. The CIT(A) upheld these additions.
Held
The Tribunal found that the assessee's business involved huge operational expenses, resulting in a meagre net profit. Review of bank statements showed no substantial money accumulating, discrediting the AO's theory of unexplained investments u/s 69. Furthermore, the 8% estimation of income lacked any reasonable basis. Consequently, both additions were deleted.
Key Issues
1. Whether cash deposits in bank accounts constitute unexplained investments u/s 69 of the Act. 2. Whether an ad-hoc estimation of income on bank deposits is sustainable without a reasonable basis.
Sections Cited
142(1), 144, 69
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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 26.10.2023 for the AY 2017-18.
At the outset, we note that there is delay of 117 days for which condonation petition along with affidavit was filed, explaining the reasons for delay. It was stated in the affidavit that assessee received the demand notice on 08.04.2024 by speed post, but did not receive any appeal either by register post or on email, which is general mode of communication. It was only noticed only after taking the print out
The ld. DR on the other hand strongly opposed the condonation of delay on the ground that the delay is not properly explained.
After hearing the rival contentions and perusing the materials available on record, we find that the reasons for delay appear to be sufficient and bonafide and accordingly, the delay is condoned.
The only issue raised against the confirmation of addition of ₹ 5,72,978/- and ₹ 1,62,88,300/- by the ld. CIT (A) as made by the ld. AO in respect of estimation of income at the rate of 8% on total deposit in bank account amounting to ₹71,62,220/- and cash deposit in the bank accounts of the assessee during the year of ₹1,62,88.300/-, respectively.
The facts in brief are that the assessee is engaged in the business of renting cold storage for which it used to charge rentals. During the year the assessee did not file any return of income despite notice u/s 142(1) of the Act issued to the assessee on 05.12.2017, requesting the assessee to furnish the return of income but there was no compliance from the assessee ‘s side and finally, the assessment was framed ex-parte u/s 144 of the Act. The ld. AO noted that on the basis of online records that assessee has two bank accounts (i) with United Bank of India, Hoogly and (ii) State Bank of India, Arambagh Branch, in which there were huge deposit of cash during the year which was split into two part (i) cash deposit during demonetization period of ₹39,49,000/- and (2) total cash deposit during the financial year of ₹1,62,88,300/-. It was noted by the d AO in para 3.2 that the total cash deposits of ₹1,62,88,300/- included cash deposits of
Similarly, the ld. AO computed the other amounts deposited in the bank accounts which aggregate to ₹71,62,220/- in both the bank accounts. The details were given in para 4.1.1, which according to the ld. AO was a business turnover and accordingly, the income was estimated at 8% of the said amount which worked out to ₹5,72,978/- and added as undisclosed income of the assessee.
In the appellate proceedings, the ld. CIT (A) dismissed the appeal of the assessee by upholding the order of ld. AO, deciding the issues based on the facts available, when the assessee failed to file any written submission.
The ld. AR vehemently submitted before us that the assessment passed by the ld. AO is bad in law and nullity for the reason that no addition has been made in the assessment order and therefore, the same is bad in law and may be quashed on merit. The ld. Counsel for the assessee submitted that assessee is operating a cold storage and derive income by way of rental income from the storage space let out. The ld. AR referred to the audited accounts of the assessee and submitted that during the year, the total income from operation was ₹1,80,64,642/- and the total expenses against the said income were 1,80,52,273/- and net profit was only ₹12,368/-. The ld. AR while taking the Bench through the Schedule no.12 (other expenses)
The ld. DR on the other hand submitted that the assessee was non- co-operative before the lower authorities and therefore, the arguments made by the ld. AR are devoid of any merit.
After hearing the rival contentions and perusing the materials available on record, we find that the assessee is running a cold storage and receiving rentals for renting out the space. During the year, the assessee’s total receipt was ₹1,80,64,642/- and total expenses was ₹1,80,52,273/- and thus, the net profit was only ₹12,368/-. We note that the assessee has incurred huge expenses on the electricity and various other expenses which aggregated to ₹1,80,52,273/-. We have also observed from the perusal of the bank statements of the two banks that assessee at no point of time has any substantial money accumulating in these bank accounts. Therefore, the theory invoked by the ld. AO that assessee has unexplained investments u/s 69 of the Act is wrong and against the facts on record. It is only for this reason the addition made by the ld. AO u/s 69 of the Act is ordered to be deleted by setting aside the order of ld. Commissioner of Income-tax (Appeals).
So far as the second addition on estimation is concerned, we note that the ld. AO has applied 8% on other deposits in the bank accounts/ aggregate to ₹71,62,220/-. We observe from the profit and loss account, that the assessee has a very meagre profit of ₹12,368/- and therefore, such estimation which is devoid of any basis cannot be sustained. Accordingly, the addition made by the ld. AO is ordered to
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 28.02.2025.