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Facts
M/s. Kingstar Enterprises, a plywood dealer, faced additions from the AO for AY 2017-18: 5% of purchase cost (Rs. 32,12,598) for purchases from unregistered dealers and Rs. 11,50,000 for unexplained cash deposits during demonetization under Section 115BBE. The CIT(A) rejected the assessee's books of account, estimated business income, and confirmed both additions.
Held
The ITAT found the CIT(A)'s order arbitrary and unreasoned, citing the absence of comparable instances for rejecting books and the failure to address the assessee's explanation for cash deposits. Consequently, the ITAT remanded both issues back to the CIT(A) for fresh adjudication and a reasonable opportunity of hearing for the assessee.
Key Issues
Whether the CIT(A) was justified in confirming the 5% disallowance on purchase cost without providing reasons, and whether the addition for unexplained cash deposits under Section 115BBE was valid given the assessee's explanation.
Sections Cited
143(3), 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, COCHIN
Before: Shri Inturi Rama Rao
O R D E R This appeal filed by the assessee is directed against the order of the National Faceless Assessment Centre / Commissioner of Income-tax (Appeals) [“CIT(A)” hereinafter] dated 19.12.2023 having DIN & Order No.ITBA/NFAC/S/250/2023-24/1058870664(1) for the assessment year 2017-2018.
Briefly, the facts of the case are that the assessee is a partnership firm, engaged in the business of dealer in plywood. The assessee has filed its return of income for the assessment year 2017-2018 on 14th February, 2018 declaring total income of Rs.3,06,930. Against the said return, the Assessing Officer, i.e., Income Tax Officer, Ward-2, Aluva (“the AO” hereinafter) vide order dated 27.12.2019 passed u/s.143(3) of the Income-tax Act, 1961 (“the Act” hereinafter)assessed the total . Kingstar Enterprises. income at Rs.46,69,530. While doing so, the AO made an addition of Rs.32,12,598 by disallowing 5% of the total cost of purchase by holding that the assessee purchased rubber from unregistered dealer, i.e., agriculturists. The A.O. also made an addition of Rs.11,50,000 for alleged failure of the assessee to explain cash deposits made in the bank account.
Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A), who vide the impugned order rejected the book results and estimated the business income of the assessee at Rs.35,19,528. The CIT(A) also confirmed the addition made as unexplained cash deposit of Rs.11,50,000, under the provisions of section 115BBE of the Act.
Aggrieved with the order of the CIT(A), the assessee is in appeal before us in the present appeal. When the appeal was called for, nobody was present on behalf of the assessee despite due service of notice. Therefore, after hearing the learned Sr.DR, I proceed to dispose of the appeal on merits on the basis of the written submissions filed by the assessee.
I have heard the learned Senior DR and perused the material available on record. The first grounds of appeal
1. , i.e., Ground Nos. A, K and L are general in nature, do not require any specific adjudication. Thus, these grounds are dismissed as infructuous. Ground Nos.B to E are in respect of challenging the addition made by the AO on account of purchase cost.
6. A perusal of the assessment order, it would reveal that the AO made an addition at the rate of 5% of the purchase cost by . Kingstar Enterprises. holding that the assessee made purchases of rubber from unregistered dealers. On appeal before the CIT(A), the CIT(A) by rejecting the books of account of the assessee, estimated the profit at Rs.35,19,528. In the process, the CIT(A) confirmed the addition made by the AO. In my opinion, the CIT(A) had neither given any comparable instances nor the reasons justifying the rejection of book results. Thus, the order passed by the CIT(A) is arbitrary and unreasonable. Therefore, in my considered opinion, the matter requires to be remanded back to the file of the CIT(A) for fresh adjudication in accordance with law after affording a reasonable opportunity of hearing to the assessee. Thus, Ground Nos.B to E stand partly allowed for statistical purposes.
7. Ground Nos.F to J challenges the addition of Rs.11,50,000 being alleged unexplained money. During the course of assessment proceedings, the AO found that the assessee made cash deposits of Rs.31,00,000 with Axis Bank Limited, during demonetization period. Out of this amount, the AO treated a sum of Rs.19,50,000 as explained, since the same was available as cash withdrawn on 10.11.2016, and the balance amount of Rs.11,50,000 was treated as unexplained money. The AO thus made addition of Rs.11,50,000 by invoking the provisions of section 115BBE of the Act. Before the AO as well as the CIT(A), the assessee took plea that the cash deposits were made out of the available cash balance of Rs.34,83,000 as per books of account as on 09.11.2016. The CIT(A) without adverting to the explanation offered by the assessee during the course of appellate proceedings, merely confirmed the addition without assigning any reasons whatsoever. Thus, the order passed by the CIT(A) is arbitrary and an unreasoned order. Therefore, . Kingstar Enterprises. in the facts and circumstances of the case and in order to meet the ends of justice, the matter is remanded back to the file of the CIT(A) for de novo consideration in accordance with law. Needless to say, the CIT(A) shall afford a reasonable opportunity of being heard to the assessee, before passing any order. Thus, these grounds are partly allowed for statistical purposes.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on this 6th day of February, 2025.