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Facts
The assessee, a distributor of Parle-G biscuits and commission agent for Telenor, declared a total income of Rs. 2,56,350/- on a turnover of Rs. 1,38,12,788/-. The Assessing Officer (AO) added Rs. 7,73,500/- as unexplained cash credit and Rs. 36,58,380/- as profit @ 8% on total bank deposits, treating the latter as turnover after rejecting the books of account.
Held
The Tribunal held that the addition of Rs. 7,73,500/- as unexplained cash credit was not justified as the assessee had sufficient cash in hand and regular cash deposits throughout the year, and the AO ignored the overall deposits. The addition of Rs. 36,58,380/- was also held to be unjustified, constituting double taxation since the net profit was already declared.
Key Issues
Whether the addition of cash deposits as unexplained under Section 68 and the estimation of profit on total bank deposits constitute double taxation and lack proper reasoning, especially when books of account are audited and accepted.
Sections Cited
68, 44AB, 143(3), 115BBE, 270A, 144, 145(3), 272 AAC (1)
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Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
Assessment Year: 2017-18 Ashok Kumar Kushwaha v. The Income Tax Officer 6(1) 557/27G/6, Om Nagar Lucknow - New Alambagh, Lucknow TAN/PAN:AQBPK1644F (Appellant) (Respondent) Appellant by: Shri Jagdish Prasad, Advocate Respondent by: Shri Sanjeev Krishna Sharma, D.R. O R D E R
This appeal has been preferred by the Assessee against the order dated 18.03.2024, passed by the ld. Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi for Assessment Year 2017-18.
2.0 The brief facts of the case are that the assessee is running a proprietary concern under the name and style of M/s Gomti Enterprises and was engaged in the business as distributor of Parle-G biscuit. Besides, during the year under consideration, the assessee had also worked as a commission agent of Telenor Sim Cards and Recharge Coupons and had also provided services related to recharge of Mobile Sims and sale of Mobile Sims on behalf of Telenor. The assessee e-filed his return of income for the year under consideration on 24.03.2018, declaring a total income of Rs.2,56,350/-. The total turnover for the year under consideration declared by the assessee was Rs.1,38,12,788/-. The books of account of the assessee for the year under consideration were audited under section 44AB of the Income Tax Act, 1961 (hereinafter called “the Act’) and the Tax Audit Report along with audited Balance Sheet and profit and loss account were filed by the assessee along with return of income.
2.1 During the course of assessment proceedings, the AO noticed that the assessee had made cash deposits to the tune of Rs.7,73,500/- in his Bank Account No.8874011000869 maintained with Oriental Bank of Commerce, Nirala Nagar Branch, Lucknow, in old Specified Bank Notes (SBN), during the demonetization period. Since the assessee failed to offer any explanation with regard to the source and nature of the aforementioned cash deposits in his bank account, the AO treated the same as unexplained cash credit and added the same to the income of the assessee under section 68 of the Income Tax Act, 1961 (hereinafter called “the Act’).
2.2 The AO further noted that the assessee had made total cash deposits of Rs.4,57,29,757/- during the year under consideration. As per AO, when asked about the source of these deposits, the assessee failed to offer any explanation with regard to the source and nature of such amount. The AO, therefore, treated the total credit entries in the bank account of the assessee, except cash deposit made during the demonetization period, i.e. Rs.4,57,29,757/- as the turnover of the assessee- company during the year under consideration and estimated the profit @ 8% on the same, which came to Rs.36,58,380/- after rejecting the books of account and added the same to the income of the assessee. The AO completed the assessment under section 143(3) of the Act, computing the income of the assessee as under:
Returned income : Rs.2,56,350/- Addition u/s. 68 of the Act : Rs.7,73,500/- Addition on a/c of profit from business: Rs.36,58,380/- Assessed Income : Rs.46,88,230/- 2.3 The AO also invoked the provisions of section 115BBE of the Act and initiated penalty proceedings under section 270A of the Act, separately.
2.4 Aggrieved, the Assessee preferred an appeal before the NFAC, which dismissed the appeal of the assessee on merits.
3.0 Now, the assessee has approached this Tribunal challenging the dismissal of his appeal by the NFAC by raising the following grounds of appeal:
1. Because on the facts and in law, the Ld. CIT(Appeals) has erred in confirming the addition of Rs.7,73,500/-made as unexplained cash credits under section 68 of the Income Tax Act 1961 even though the same are genuine credits.
2. Because on facts and in law, the Ld. CIT(Appeals) has erred in confirming the addition of Rs.36,58,380/- which has been made by applying the profit @ 8% on the credit entries of Rs.4,57,29,757/- found reflected in the bank account of assessee-appellant.
Because on facts and in law, the Ld. CIT(Appeals) has erred in confirming the addition of Rs.36,58,380/- as made by applying the profit rate @8% on the credit entries of Rs.4,57,29,757/- as made in the assessment order in the arbitrary manner & unjustified way and improper.
Because on facts and in law, the Ld. CIT (Appeals) has erred in confirming the action of assessing officer related to the rejection of books of account under section 145(3) of the Act, even though the same are tax audited under section 44AB of the Act.
Because on facts and in law, the Ld. CIT(Appeals) has erred in confirming the action of assessing officer as the return of income was selected for the purpose of limited scrutiny but the assessing officer has made full scrutiny while making the addition of Rs.36,58,380/-.
Because on facts and in law, the Ld. CIT (Appeals) has erred in confirming the impugned assessment order which has been under section 143(3) r.w.s. 144 of the Income Tax Act, 1961 which is not valid in the eye of law.
7. Because on facts and in law, the Ld. CIT (Appeals) has erred for ignoring the principle of natural justice since no reasonable and sufficient opportunity of being heard has been provided to the assessee-appellant.
Because on facts and in law, the Ld. CIT(Appeals) has erred in confirming the penalty proceedings initiated under section 270A and 272 AAC (1) of the Income Tax Act, 1961.
Because on facts and in law, the appellate order dated 18/03/2024 passed by the Ld. CIT (Appeals) confirming the impugned additions are arbitrary, unjustified & bad in law, and therefore deserve to be cancelled. 10. Because on facts and in circumstances of the case, the appellant reserves the right to amend, to introduce / add to other grounds of appeal and new facts with the kind permission of your honour. 4.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the assessee’s case was selected for limited scrutiny for the reason of cash deposit during the year. It was submitted that the impugned cash deposits were out of sales made by the assessee relating to the business of the assessee and the same was duly explained before the Ld. First Appellate Authority, but the Ld. First Appellate Authority did not consider the submission of the assessee and went on to hold that the books of account were rightly rejected by the AO and profit estimated @ 8% on the total credits in the bank account was justified. It was submitted that the appeal of the assessee was dismissed by the Ld. First Appellate Authority without considering the facts on record and the explanations given by the assessee. It was also argued that the assessee’s case was selected for limited scrutiny only for the purpose of verifying the cash deposits, but the AO wrongly started the process of complete scrutiny without taking the required statutory approval from the higher authorities. It was also submitted that both the lower authorities have ignored the basic fact that the cash deposits were made out of business receipts which were duly recorded in the books of account and the books of account were duly audited.
4.1 It was also pointed out that the bank statement, which was filed before the Ld. First Appellate Authority, shows opening debit balance of Rs.26,00,819.96 as on 08.11.2016, i.e., the date on which demonetization was announced and the closing debit balance on that date was Rs.25,79,315.96 and, thus, there was sufficient cash in hand, to have made cash deposit of Rs.7,73,500/-. It was also submitted that during the entire financial year 2016-17, the assessee had made total cash deposits in the bank account to the tune of Rs.4,57,29,757/-. The Ld. A.R. argued that, thus, only making addition of Rs.7,73,500/- on account of unexplained cash deposits was against the facts of the case, given the fact that the assessee had been depositing cash in the bank regularly throughout the year and by no stretch of imagination, the provisions of section 68 of the Act could be applied, as such deposits were not unexplained.
4.2 With respect to the other addition of Rs.36,58,380/- being the net profit rate applied @ 8% on the total deposits of Rs.4,57,29,757/-, it was submitted that the same were deposited in the Current Account of M/s Gomti Enterprises between the period 01.04.2016 and 31.03.2017 after rejecting the books of account on the ground that the assessee had failed to co-operate during the course of assessment proceedings and also because the assessee did not offer any explanation about the source and nature of the amount reflecting in the bank account. It was submitted that this addition had been made without appreciating that the assessee had filed his return of income showing total income of Rs.2,56,350/- along with Tax Audit Report obtained under section 44AB of the Act, wherein the gross receipts of M/s Gomti Enterprises had been shown at Rs.1,38,12,788/- and commission income of Rs.13,54,016/- and interest income of Rs.45,000/- were reflected and after reducing the purchases and expenses, the net profit was calculated at Rs.2,56,350/-. It was argued that, accordingly, the books of account could not have been rejected in view of the Audit Report having duly been obtained and all the credits in the Current Account with the bank having been duly reflected. It was also submitted that, thus, there was double taxation of the entire gross business receipts, because earlier the assessee had already declared a net profit of Rs.2,56,350/- and subsequently the same receipts were again charged to tax at net profit rate of 8%. The Ld. A.R. submitted that, thus, the entire assessment was based on mis- appreciation of facts and even the Ld. First Appellate Authority did not consider the submissions and documents filed before him in the right perspective.
5.0 Per contra, the Ld. Sr. D.R. submitted that there was absolutely no compliance on the part of the assessee during the course of assessment proceedings and, therefore, the AO had no option but to reject the books of account and complete the assessment under section 144 of the Act based on the material available on record. Supporting the order of the Ld. First Appellate Authority, the Ld. Sr. D.R. submitted that the Ld. First Appellate Authority had duly considered the submissions of the assessee and had, thereafter, rejected the contention and had passed a speaking order dismissing the appeal of the assessee, which was based on proper appreciation of record before him and, therefore, assessee’s appeal deserved to be dismissed.
6.0 I have heard the rival submissions and have also perused the material on record. It is seen that the AO had made two additions. First addition is of Rs.7,73,500/- being alleged unexplained cash deposited in bank and the second addition of Rs.36,58,380/- being profit applied @ 8% of total credit entries during the assessment year excluding cash deposits of Rs.7,73,500/-.
6.1 As far as addition of Rs.7,73,500/- under section 68 of the Act is concerned, it is not in dispute that the assessee maintains regular books of account and the accounts were duly audited and the Audit Report had been filed along with the return of income. No discrepancy or adverse remark was found in the Audit Report. A perusal of the assessment order shows that the only reason for the AO to have made the addition of Rs.7,73,500/- was that there was no compliance on the part of the assessee when he was required to explain the source of these cash deposits. This prompted the AO to treat such deposits as unexplained. However, the fact does remains that the AO only added the amount of Rs.7,73,500/-, being cash deposited post demonetization, to the income of the assessee, completely ignoring the fact that the total cash deposits in the bank account were to the tune of Rs.4,65,03,257/- during the entire year. In my considered opinion, if the cash deposit of Rs.7,73,500/- was to be considered as unexplained, there was no reason for the entire deposits of Rs.4,65,03,257/- to be considered as being explained. Thus, in my considered opinion, the only reason for the AO to have made this addition was that it was deposited after the announcement of demonetization. The AO has very well ignored the fact that the audited balance sheet of the assessee was very much before him and even the turnover of the assessee would have justified the making of deposit of small amount of Rs.7,73,500/-. Therefore, this deposit of Rs.7,73,500/- being added to the income of the assessee by the AO and as sustained by the Ld. First Appellate Authority lacks sound reasoning and is void of merit. The same is directed to be deleted.
6.2 Coming to the other addition of Rs.36,58,380/- being addition of profit @ 8% on the turnover of Rs.44,57,29,757/-, it is again seen that the assessee had already declared turnover of Rs.1,38,12,788/- and had also declared commission income of Rs.13,54,016/- and interest of Rs.45,000/- and had declared net profit of Rs.2,56,350/- as per audited profit and loss account and, thus, charging the same receipts again to tax @ 8% is a clear case of double taxation. Although, the AO has rejected the books of account, the reason again for rejection of books of account was non-compliance on the part of the assessee and the Ld. First Appellate Authority has also upheld the rejection of books of account by simply dittoing the action of the AO without considering that the assessee had duly filed copy of bank statements as well as copy of audited accounts and written explanations during the course of first appellate proceedings. In my considered opinion, the second addition is also against the facts on record and the same cannot be sustained. Accordingly, I direct deletion of net profit applied by applying the net profit rate of 8%, i.e., Rs.36,58,380/-, as it is a clear case of double taxation.