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Facts
The assessee, a dealer in Vodafone recharge coupons, filed an appeal with a 65-day delay against additions made under Section 69A for unexplained cash deposits (Rs. 44,54,000/-) during demonetization and estimation of income using a 2% Gross Profit rate under Section 144. The delay occurred because the previous counsel failed to participate, and the assessee was unaware of the CIT(A)'s order.
Held
The Tribunal condoned the 65-day delay, considering it in the interest of justice. It remanded both issues back to the Assessing Officer for fresh adjudication: to verify the source of the cash deposit from sales proceeds despite being SBNs, and to estimate income using the Net Profit ratio based on the assessee's past history rather than the Gross Profit ratio.
Key Issues
Condonation of delay in filing appeal; justification of unexplained cash deposit from demonetization period; appropriateness of estimating income based on Gross Profit ratio instead of Net Profit ratio.
Sections Cited
144, 69A, 142(1)
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Income Tax Appellate Tribunal, Hyderabad ‘ B ‘ Bench, Hyderabad
करदाता का "ितिनिध"/ : Shri Vikram Yadav, CA Assessee Represented by राज" का "ितिनिध"/ : Dr. Sachin Kumar, Sr.AR Department Represented by सुनवाई समा" होने की ितिथ/ : 18.03.2025 Date of Conclusion of Hearing घोषणा की तारीख/ : 20.03.2025 Date of Pronouncement O R D E R PER SHRI VIJAY PAL RAO, VICE PRESIDENT:
This appeal by the assessee is directed against the order dated 13/08/2024 of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (in short “CIT(A)”) for the A.Y 2017-18.
2. There is a delay of 65 days in filing the present appeal. The assessee has filed a petition for condonation of delay which is supported by the affidavit of the partner of the assessee-firm. The Ld. AR of the assessee has submitted that due to non-participation of the Authorized Representative before the CIT(A), the impugned order so passed by the CIT(A) was not in the knowledge of the assessee till the assessee received the copy of the said order. The Ld.AR has submitted that the assessee immediately approached another Counsel for the legal remedy against the impugned order and in that process, there is a delay in filing the present appeal. The Ld.AR has submitted that since the Counsel authorized by the assessee to represent before the CIT(A) has not responded to the notices issued by the CIT(A) as well as not made the assessee aware about the status of the appeal before the CIT(A), the assessee could not file the present appeal within the period of limitation. The delay in filing the present appeal is beyond the control of the assessee as the assessee was dependent upon the Counsel who was authorized to represent before the CIT(A) and therefore, the delay of 65 days in filing the present appeal be condoned and the appeal of the assessee be decided on merits. The Ld.AR has also pointed out that the assessee was facing the proceedings of taken over of the properties mortgaged with the Banks due to the financial problems in discharging the dues to the bank and had to approach the Court of Law for protection of the properties to be sold out by the Banks for recovery of the dues and therefore, the assessee was having a reasonable cause for the delay in filing the present appeal.
3. On the other hand, the Ld. DR has opposed to the condonation of delay and submitted that the CIT(A) has passed the impugned order after considering the submissions of the assessee and therefore, the reasons explained by the assessee for delay in filing the present appeal are not reasonable.
4. We have considered the rival submissions as well as gone through the averments of the affidavit filed by the assessee. The assessee has explained the delay of 65 days in filing the present appeal that the assessee was not aware about the impugned order due to non- participation of the Authorized Representative before the CIT(A). The assessee was dependent upon the Counsel who was authorized to represent before the CIT(A) but due to failure on the part of the Counsel to participate in the proceedings before the CIT(A), the impugned order was passed by the CIT(A) dismissing the appeal and upholding the additions made by the Assessing Officer. Thus, in such situation, the assessee explained that he has to approach another Counsel for taking the legal advice against the impugned order which has caused the delay of 65 days in filing the present appeal. Having considered the explanation of the assessee which is supported by the affidavit and further the addition made by the Assessing Officer while passing the assessment order U/s. 144 of the Income Tax Act, 1961 (“the Act”) whereby the Assessing Officer has made an addition on account of unexplained cash deposit in the bank account to the tune of Rs. 44,54,000/- as well as estimating the income of the assessee by adopting the Gross Profit @ 2% of the turnover of the assessee, we are of the considered opinion that in the interest of justice, the appeal of the assessee be considered on merits instead of technical reasons of delay. Accordingly, the delay of 65 days in filing the present appeal is condoned.
The assessee has raised the following grounds of appeal:
“1. The order of the CIT(A) in confirming the AO's order of making addition U/s. 69A as unexplained cash credits of Rs. 44,54,000/- without going into the facts of the case which is available even in the Assessment Order passed by the Assessing Officer U/s. 144, dated 18/10/2019 wherein held that the appellant is into business of sale of Vodafone recharge coupons which is a cash intensive business and hence even the cash deposits made during the demonetization period would also be sale proceeds of recharge coupon, e-loads etc.
The order of the Learned CIT(A) in confirming the Assessing Officer’s order of computing the taxable turnover considering the gross profit ratio (2%) as base instead of net profit ratio (0.59%) is bad in law and unjust Enrichment.
The appellant craves to submit that all the facts, contentions mentioned in the statement of facts accompanying these grounds, shall be treated as part and parcel of these grounds and shall be dealt with.
For these and other reasons that may be urged at the time of hearing, the appellant prays that Hon'ble Tribunal to kindly delete the addition made by Assessing Officer and sustained by CIT(A).”
The Ld.AR of the assessee has submitted that the assessee is a dealer and in the business of sale of Vodafone recharge coupons. The sale proceeds on sale of recharge coupons is received in cash which was deposited in the bank for further transfer to the Telephone Company (Vodafone). The Ld.AR has further submitted that Assessing Officer has made an addition of Rs. 44,54,000/- on account of unexplained cash deposit whereas the assessee’s turnover as per the VAT return for the year under consideration is Rs. 5,40,54,584/- which was considered by the Assessing Officer for estimating the income. Thus, the cash deposit in the bank account is nothing but out of sales turnover of the assessee, which is even less than 10% of the turnover for which the Assessing Officer has made this addition. He has further submitted that there is no unusual deposit in the bank account of the assessee and there are regular transactions of cash deposits based on the sales from day-to- day transactions in the bank account which was transferred to the Vodafone and the income of the assessee is only the discount / commission on the said transactions on sale of recharge vouchers. He has further submitted that once the Assessing Officer has considered the turnover of the assessee for the year under consideration at Rs. 5,40,54,584/-, then, the source of cash deposit stood explained being the turnover of the assessee. Thus, the Ld.AR has submitted that the addition made by the Assessing Officer on account of unexplained cash deposit in the bank account is highly arbitrary and liable to be deleted.
On the other hand, the Ld.DR has submitted that the deposit in the bank account was made in the Specified Bank Notes (“SBN”) during the demonetization period for which the Assessing Officer has made this addition. Once the SBNs were declared as not a legal tender, the deposit made by the assessee and claiming the same as turnover of the assessee cannot be accepted. He relied upon the orders of the authorities below.
We have considered the rival submissions as well as the material available on record. There is no dispute that the Assessing Officer found from the VAT returns of the assessee is that there is a sales turnover of Rs. 5,40,54,584/- declared from the Vodafone recharge coupons etc. The Assessing Officer after reducing the deposit of Rs. 44,54,000/- taken the turnover of the assessee at Rs. 4,96,00,584/- for estimating the income of the assessee by adopting the Gross Profit @ 2%. Thus, the Assessing Officer has made two additions ie., (i) unexplained cash deposit in the bank account and (ii) estimation of income by adopting 2% as Gross Profit on the balance amount of turnover. Considering the turnover of the assessee at Rs. 4,96,00,584/- itself is not correct on the part of the Assessing Officer when the turnover as per the VAT returns is declared at Rs. 5,40,54,584/-. These details are given by the Assessing Officer in the notice issued U/s. 142(1) of the Act as under:
As there is no response to the notice U/s. 142(1)(ii) served, a show cause notice dated 21/09/2019 amounting to Rs. 44,54,000/- during the period 09/11/2016 to 30/12/2016 in Account No. 912020062798161. Please furnish documentary evidence to establish the genuineness of the transactions; identity and creditworthiness of the persons from whom this amount is received, failing which this amount of Rs. 44,54,000 is proposed to be brought to tax under section 69A of the I.T. Act, 1961. HERE, IT S PERTINENT TO MENTION THAT THESE SPECIFIED BANK NOTES BEING ILEGAL TENDER, THE FIRM HAS NOT AUTHORISED TO CONDUCT TRANSACTIONS IN THE SPECIFIED BANK NOTES. As per the VAT returns filed by the firm for the Fin. Year 2016-17. Sales turnover of Rs. 5,40,54,584/- was declared from Sale of Electronics goods (i.e., Vodafone recharge coupons, e-loads, etc.). A perusal of the firm Axis Bank Accounts also reveal this trading activity. After deducting Rs. 44,54,000/- (ie., cash deposited in Axis Bank Account is SBNs), the balance amount of Rs. 4,96,00,584/- is proposed to be treated as the firm’s Net Sales Turnover and the Net Profit from this Business, after a expenditures, is proposed to be estimated to be Rs. 9,92,012/- (i.e., @ 2% of Rs. 4,96,00,584/- based on the Gross Profit declared by the firm in the ROI for the A.Y 2015-16 and the Nature of business) and brought to tax. Accordingly, the total income proposed to be brought to tax was Rs. 54,46,012. However, till date, there is no response to this Show Cause notice from the assessee firm.
Once the turnover of the assessee was accepted at Rs. 5.40 Crs (supra), and there was regular cash deposit in the bank account of the assessee which was in turn transferred to Vodafone, then the assessee was prima facie able to explain the source of the cash deposit in the bank account. The only objection as could be made by the Assessing Officer is that the deposit was made in the SBNs. However, until and unless it is brought on record that the said deposit made by the assessee was an amount other than the sales proceeds of the assessee, the same cannot be considered as unexplained cash deposit. Thus, in view of the fact that the assessment order was passed ex-parte and there was no representation as well as production of any supporting evidence before the CIT(A), this matter requires a fresh adjudication at the level of the Assessing Officer after considering the bank account statements of the assessee showing the regular deposits of cash as well as corresponding transfer from the bank account to Vodafone Mobile Services. Accordingly, this issue is remanded to the record of the Assessing Officer for fresh adjudication.
The second issue is regarding the estimation of income by adopting the Gross Profit @2%. The Ld.AR of the assessee has submitted that the Assessing Officer applied the Gross Profit @ 2% without allowing any expenditure or instead of applying the Net Profit ratio as declared by the assessee in the preceding years @ 0.59%. Thus, the Ld.AR has submitted that the estimation of income by the Assessing Officer without allowing the expenditure is highly arbitrary and unjustified. On the other hand, the Ld.DR has submitted that the assessee has not filed any return of income nor produced any books of account and therefore, the claim of expenditure cannot be accepted. The Assessing Officer has estimated the income by taking a reasonable view and adopting the Gross Profit ratio @ 2% which is just and proper. He has relied upon the orders of the lower authorities.
We have considered the rival submissions and perused the orders of the authorities below. The Assessing Officer has adopted the Gross Profit @ 2% by taking past history of the assessee. It is pertinent to note that while estimating the income of the assessee, only the profit element in the turnover of the assessee can be assessed as income of the assessee. The Assessing Officer has taken the assessee’s Gross Profit instead of Net Profit declared by the assessee in the preceding years which is not justified in the facts and circumstances of the case when the total turnover of the assessee is not in dispute. The addition by adopting Gross Profit can be made only when the assessee has declared the income on the recorded turnover and subsequently some unaccounted turnover is found by the Assessing Officer. In the case on hand, when the entire turnover is found as reflected from the VAT return and also found deposited in the bank account of the assessee then, instead of Gross Profit, the income of the assessee ought to have been estimated by taking the Net Profit ratio. The past history of the assessee is a reasonable and proper guidance for estimation of the income. Thus, the Net Profit declared by the assessee in the preceding year or the average Net Profit for the past three years would be a reasonable and proper basis for estimating the income for the year under consideration on the total turnover of the assessee. Accordingly, this issue is remanded to the record of the Assessing Officer for estimation of income by taking Net Profit of the assessee based on the Net Profit declared in the preceding year or average of the preceding three years.
In the result, the appeal of the assessee is allowed for statistical purposes.