AHAMMEDKAKANDAVIDE PUTHIYAPANDIKA ABDULKADER,CALICUT vs. THE ITO WARD 1(1) , CALICUT

This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 20/02/2023 in respect of the A.Y. 2017-18 and raised the following grounds: “1. The appellate order except to the extent modified by the Commissioner of Income Tax (Appeals) is arbitrary against law facts and circumstances of the case.

During the year, the assessee had deposited an amount of Rs. 22,89,000/- in his bank accounts whereas he has not filed any return of income for the said assessment year. Therefore a notice u/s. 142(1) was issued for which also the assessee had not filed the return of income and therefore a letter calling for the books of accounts, bank account statements and source for cash deposits during the demonetisation period was served. The assessee replied to the said notice and informed that his business was closed on 31/03/2019 and furnished the copy of the VAT cancellation order. The assessee had not furnished any of the documents as sought for by the AO. Subsequently, the assessee uploaded form 3CB, audited P&L and balance sheet of the business concern viz., M/s. Edakkulam Traders. The AO found that the assessee is a rice dealer and for the A.Y. he has a huge turnover and shown gross profit at 2.56% and net profit at 0.77%. The assessee also filed the return of income on 27/09/2019 showing an income of Rs. 3,53,380/- and also paid the tax of Rs. 430/-.

The AO had not accepted the said return since the said return was not filed within the period prescribed under the Act as well as within the period given in the notice issued u/s. 142(1) of the Act. Anyhow, the AO had asked the assessee to furnish the books of accounts, bills and vouchers since the books of accounts were audited by a registered Chartered Accountant. The assessee had not filed any reply to the said notice. Subsequently, the AO obtained the bank accounts statements from the bank and thereafter the assessee submitted that he has closed his business on 31/03/2017 and the amounts deposited in the bank account is nothing but the sale proceeds. The assessee inspite of the repeated requests for producing the books of accounts and the other documents, he has not responded to any of the notices. Therefore the AO had treated the cash deposits made during the demonetisation period as the unexplained cash credit u/s. 68 of the Act. Further, the AO had taken the gross profit declared by the assessee as his business income since the assessee had not produced any evidence or books of accounts in support of the audited P&L accounts filed by him. The AO issued a show cause notice consisting of the above said proposals but the assessee had not responded to the said show cause notices. Therefore the AO had confirmed the assessment u/s. 144 of the Act.

Insofar as the income arrived by taking the gross profit as declared by the assessee, the Ld.CIT(A) had took a lenient view and refixed the income at 2% as against the 2.56% reported by the assessee.

Not satisfied with the said order of the Ld.CIT(A), the assessee has filed the present appeal before this Tribunal.

We have heard the arguments of both sides and perused the materials available on record.

It is a fact that the assessee is a non-filer even though he was doing some business and had a turnover of Rs. 4,61,37,528/-. Repeated notices issued by the AO were not responded and no return of income was also filed but suddenly, the assessee had uploaded the form 3CB and the audited P&L account and balance sheet on 14/09/2019. Thereafter, the AO called for the books of accounts and other documents in support of the audited P&L account and the balance sheets for which the assessee had not filed any documents before him. In the audited P&L account, the assessee had shown a gross profit of 2.56% and net profit of 0.77% but in support of the said calculation of the gross profit and the net profit, no documents and no books of accounts were produced by the assessee. The assessee had also not given any details of the cash deposits made during the demonetisation period. In such circumstances, the AO had treated the cash deposits as unexplained cash credit u/s. 68 of the Act. Apart from that, the AO had taken the gross profit declared by the assessee as his income on the ground that no records or documents were produced in support of the audited P&L and balance sheet. From the findings given by the AO, the assessee had not filed his return of income for the A.Y. under dispute and for the A.Ys. 2014- 15, 2015-16 and 2016-17 also. Even though the assessee had carried on the business and transacted a huge turnover, the assessee had opted not to file any return of income. This is not the first year and for the previous three years, the assessee had not filed his return of income. Further, the assessee had also not responded and produced the books of accounts in support of the audited P&L and balance sheets.

Before the Ld.CIT(A) also, except the grounds of appeal and the VAT returns filed for the F.Y. 2016-17, the assessee had not furnished any documents. This shows that the assessee had not maintained any books of accounts or records or documents in respect of the business carried out by him but he was able to prepare the P&L account and the balance sheet without any basic records. Therefore the Ld.CIT(A) had observed that “in the absence of books of accounts, the audit report cannot be accepted as true and correct. In the absence of books and reliable audit report, the profits from business and the total income cannot be accepted. The return is an invalid return. Therefore the audit report filed without books of accounts and the invalid return of income cannot be taken as any basis. In the absence of any vouchers and bills the expenditure debited to P&L account cannot be accepted as fully incurred for business purposes.”

The Ld.CIT(A) had considered the contention in which the gross profit has been taken as income of the business which was worked out at 2.56% of the turnover. The Ld.CIT(A) had took a lenient view and reduced the estimation of the income from 2.56% to 2% and thereby partly granted relief insofar as the estimation of income made by the AO. The Ld.CIT(A) had correctly considered the facts and gave the relief which in our view is a reasonable one. We, therefore confirm the order of the Ld.CIT(A) insofar as the estimation of income made by the AO and reduced by the Ld.CIT(A).

Insofar as the addition made u/s. 68 of the Act, the AO had made the addition based on the cash deposits made during the demonetisation period for which no proper explanations were offered by the assessee. Even before the Ld.CIT(A), the contention of the assessee is that out of the cash deposits of Rs. 22,89,000/-, an amount of Rs. 8,14,500/- were in the old currency and the balance deposits are in the new currency. The assessee also took a plea that Rs. 8,14,500/- comprises of opening balance as on 08/11/2016 and the repayment of the dues from the debtors. But unfortunately, the assessee has not submitted the basic records even before the Ld.CIT(A) inspite of his undertaking that the cash book and ledgers would be provided before the Ld.CIT(A). In such circumstances, the Ld.CIT(A) had considered the issue of the cash deposits made during the demonetisation period and concluded that the audited P&L accounts for the earlier F.Ys. 2013-14 to 2015-16 are also not available on record. The Ld.CIT(A) further observed that even though the assessee had a huge turnover, he is not able to prove that the accounts of the earlier years were audited except the audited accounts for the F.Y. 2016-17. Therefore the Ld.CIT(A) had not accepted the case of the assessee insofar as the addition made u/s. 68 of the Act. The Ld.CIT(A) further observed that in the absence of the books of accounts and financial accounts for the earlier years and for the present year, the explanation of the assessee regarding the debtors returning money during the demonetisation period which is the source for the cash deposited cannot be accepted. To take a different view, even before this Tribunal, the assessee had not furnished any records except the audited financial statements for the A.Y. 2017-18 and the bank statements and the copy of the cash book. From the said financial statements, we are not able to ascertain the genuineness of the cash deposited during the demonetisation period. Further, from the cash book in respect of the A.Y. 2017-18, we are not able to find that the sum of Rs. 8,14,500/- represents the opening balance. The assessee should have produced the earlier A.Ys.’ financial statements in support of their case when the Ld.CIT(A) had clearly observed that the earlier years’ financial statements are not filed before him in support of their explanation offered for the cash deposits made during the demonetisation period. Therefore without any corroborative evidence to substantiate the fact that the opening cash balance arrived by the assessee during the demonetisation period is correct, the claim made by the assessee could not be verified.

In the present case, the assessee had challenged the findings given by the Ld.CIT(A) but without any documentary evidence to discard the findings given by the Ld.CIT(A). On consideration of the facts, we are of the view that the assessee had not maintained any books of accounts otherwise they could have produced the same before the AO or before the Ld.CIT(A) or before us. The mere filing of the audit report is not a valid proof to accept the contention made by the assessee. The assessee neither filed his return of income for the A.Y. 2017-18 nor filed his return of income in respect of the earlier A.Ys. Therefore, we concluded that the assessee is not a regular filer of income tax returns and also not maintained any basic records in support of their grounds raised by him.

We, therefore, do not find any merits in the contentions raised by the assessee and therefore confirmed the findings given by the Ld.CIT(A) and dismiss the appeal filed by the assessee.

In the result, the appeal filed by the assessee is dismissed.