ASHARAF,MANNANCHERY vs. INCOME TAX OFFICER , ALAPPUZHA

Brief facts of the case are that the appellant is an individual carrying on the business of pains and hardware. No regular return of income under the provisions of section 139(1) of the Income Tax Act, 1961 (the Act) was filed for AY 2017-18. Based on the information that the appellant made cash deposits of Rs.12,66,000/- in specified bank notes (SBN) during demonetisation period in Federal Bank, Mannancherry Branch, the AO issued a notice u/s. 142(1) of the Act, Ashraf calling upon the appellant to file the return of income. The appellant did not comply with the notice u/s. 142(1) of the Act. However, the appellant had filed certain information called for in response to notice u/s. 142(1) of the Act. Based on the information filed by the appellant, the AO formed an opinion that the appellant had shown lower profit. Accordingly he estimated the profit at Rs. 5,92,823/-. The AO also made addition of cash deposit in SBN during demonetisation period as unexplained money of the appellant vide order dated 05.12.2019 passed u/s. 144 of the Act.

Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.

Being aggrieved, the appellant is in appeal before us in the present appeal.

The learned counsel for the assessee submits that the AO ought not have made addition under the head ‘business’ by estimating the profit at Rs. 5,92,823/- by comparing the profit for the year with subsequent year. It is further submitted that the AO made the addition under the head ‘business’, the cash deposit made during the demonetisation period should have been treated as explained by telescoping such addition into cash deposits.

On the other hand, the learned Sr. DR submits that the order of the CIT(A) is reasoned one and no interference is called for.

I heard the rival contentions and perused the material available on record. Admittedly, the appellant is dealing in the business of paints and Ashraf hardware. No regular return was filed by the appellant. Therefore, in the circumstances the AO was justified in estimating business profit u/s. 44AD of the Act. Thus, the addition made under the head ‘business’ of Rs. 5,92,823/- is hereby confirmed. However, having estimated the income u/s. 44AD, no addition is required to be made under the head ‘income from other sources’. Therefore, I direct the AO to delete the addition of Rs. 3,93,000/- made on account of cash deposits.

In the result, the appeal filed by the assessee stands partly allowed.