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Income Tax Appellate Tribunal, DELHI BENCH “A”, DELHI
ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)] dated 09.02.2024, for the Assessment Year 2017-18.
2. The assessee in appeal has assailed the order of CIT(A) on two counts:- “(i) confirming addition of Rs.24,77,940/- u/s. 69A of the Act, on account of cash deposits during the period of demonization; & (AY 2017-18) (ii) Confirming addition of Rs. 62,67,952/- by thus, estimating profits of the asessee at the rate of 8% on bank credits of Rs.7,83,49,399/-.”
Shri Dhruv Goyal, appearing on behalf of the assessee submits that the assessee was engaged in the retail trade business of mobile phones and accessories. During the period relevant to assessment year 2017-18, the assessee had run into losses due to which he had to close down his business. Hence, no return of income was filed for AY 2017-18. Prior to AY 2017-18, the assessee was regularly filing his return of income along with audited books of account. In the case of assessee, the assessment for AY 2017-18 was completed u/s. 144 of the Income Tax Act,1961(hereinafter referred to as ‘the Act’) making following additions:- (i) Cash deposit during demonization period in the bank account Rs. 59,61,440/- & (ii) Estimated 8% business profit u/s. 44AD of the Act considering bank credits of Rs.7,83,49,399/- as turnover and making addition of Rs.62,67,952/-. In addition to the above, while computing tax liability, the Assessing Officer (AO) applied tax rate of 60% u/s. 115BBE of the Act on both the above additions. Aggrieved, by the assessment order dated 27.12.2019 passed in the u/s. 144 of the Act, the assessee carried the issue in appeal before the CIT(A). The CIT(A) granted part relief to the assessee in restricting deposits during demonetization to Rs.24,77,940/-. On the issue of estimation of business profits at 8% u/s.44 AD of the Act, the CIT(A) did not adjudicate the issue, stating that no specific ground of appeal has been raised by the assessee.
(AY 2017-18) 2.2. The ld. AR of the assessee submitted that the assessee has been consistently depositing cash in his two bank accounts, maintained with UCO bank and Oriental Bank of Commerce (OBC). It is not the case where the cash deposits were made only during demonetization. The assessee deposited total cash of Rs.5,95,73,960/-in both bank accounts out of which only Rs.29,77,940/- was deposited during demonetization period. And out of the aforesaid amount only Rs.2,00,000/- were deposited in old currency notes of Rs.500/- and Rs.1,000/- that were demonetized. He referred to the bank statements of UCO Bank at pages 13 to 43 of the paper book and the bank statement of Oriental Bank of Commerce at pages 44 to 55 of the paper book to show that the assessee has been depositing cash on regular intervals throughout the year. He asserted that even with regard to the cash deposits during demonetization, the entire cash cannot be added and only profit element embedded in such cash deposits be taxed. 2.3. With regard to addition of Rs.62,67,953/- u/s. 44AD of the Act by applying 8% profit rate on bank credits of Rs.7,83,498,699, the ld. AR submits that the CIT(A) has erred in coming to the conclusion that no ground was raised on this issue. The ld. AR pointed that detailed submissions were made before the CIT(A) on this issue. He referred to written submissions filed before the CIT(A) at pages 2 to 12 of the paper book. The ld. AR pointed that specific submissions were made on the issue in para no.2 and 3 of the written submissions. Hence, the issue was brought to the notice of CIT(A) and he ought to have adjudicated the same. On merits of the issue, the ld. AR pointed that the actual bank credits in account were to the tune of Rs.7,60,75,300/- and not Rs.7,83,49,399/-. As far as the application of profit rate at 8% u/s.44AD of the Act is concerned, the provisions of section 44AD of the Act are not applicable as the total turnover of the assessee is much more than Rs.1,00,00,000/. Placing reliance on the decision rendered in the case (AY 2017-18) of Shri Ram Jhanwar Lal, 321 ITR 400 (Rajasthan) he argued that provisions of section 44AD of the Act would not apply where the turnover exceeds the limit specified u/s.44AD of the Act. The ld.AR submitted that the average net profit of the assessee for the last three years is 1.85%. The addition can be made on the basis of net profit of the immediate three preceding assessment years. He furnished a summary of turnover and net profit percentage for the A.Ys 2014-15, 2015-16 and 2016-17. 2.4. With regard to rate of tax at 60% u/s.115BBE of the Act, he submitted that the rate of 60% would not apply to the impugned assessment as the tax rate has been revised w.e.f 01.04.2017 and would apply prospectively. To support of his submissions, he referred to decision of Delhi Bench of Tribunal in the case of the DCIT vs. Tapesh Tyagi in decided on 27.10.2023.
Per contra, Shri Ashish Tripathi representing the department vehemently defended the impugned order and prayed for dismissing appeal of the assesee. The ld. DR submitted that the assessee is a non filer. Notice u/s. 142(1) of the Act was issued to the assessee to file return of income for AY 2017-18. Despite service of notice neither any return of income was filed nor any reply was sent by the assessee. Repeated notices were served on the assessee, the assessee did not participate in assessment proceedings, hence, the AO was constrained to complete the assessment invoking provisions of section 144 of the Act. The ld. DR further pointed that in so far as the issue of addition based on estimation of profit at the rate of 8% treating the bank credits as the turnover since no such ground was raised by the assessee before the CIT(A) the same was not adjudicated, accordingly, the ground raised before the Tribunal on the issue does not emanate from the impugned order.
(AY 2017-18) 4. Both sides heard orders of the authorities below examined. The assessee in appeal has raised three issues. The first issue is with respect to addition of Rs.24,77,940/- u/s. 69A of the Act, confirmed by the CIT(A)on account of cash deposits during the period of demonetization. The contention of assessee is that the cash deposits in the bank are from the sales turnover of the assessee. And it is not only during the period of demonetization, but throughout the year that the assessee has been depositing cash in his two bank accounts i.e. current account maintained with UCO Bank and the saving bank account with Oriental Bank of Commerce. The assessee has furnished month wise cash deposits in his bank accounts during the period relevant assessment year 2017-18, the same is reproduced herein below:-
Cash Deposits Month UCO Bank OBC Bank Total April 6,684,670 4,167,000 10,551,670 May 8,292,430 1,751,000 10,042,430 June 4,662,960 5,441,950 10,104,910 July 6,334,380 703,080 7,037,460 August 7,559,600 763,000 8,322,600 September 2,055,070 294,000 2,349,070 October 1,932,540 407,000 2,339,540 November 704,420 485,000 1,189,420 December 597,400 1,252,290 1,849,690 January 382,960 2,568,380 2,951,340 February 74,790 1,486,650 1,561,440 March 741,370 533,020 1,274,390 Total 39,722,590 19,851,370 59,573,960 5. The AO had made addition of Rs.59,61,440/-, the CIT(A) granted part relief to the assessee and restricted the addition to Rs.24,77,940/- that is to the extent cash deposited during the period of demonetization. A perusal of the above table indicating cash deposits during FY 2016-17 shows that there were regular cash deposits around the year by the assessee and it was not only restricted to the cash deposits when the demonetization of currency was declared. Since, cash (AY 2017-18) deposits throughout the year (except demonetization period) has been accepted by the Department, we see no plausible reason to exclude cash deposits during demonetization especially when there is no abnormal rise in cash deposits. Therefore, we are of considered view that the addition of Rs.24,77,940/- made on account of cash deposits during demonetization is unwarranted. Hence, the same is directed to be deleted. The assessee succeeds on ground no. 1 of appeal.
In ground no. 2 of appeal, the assessee has assailed addition of Rs.62,67,952/- resulting from estimation of profits at the rate of 8% on bank credits of Rs.7,83,49,399/-. The AO has invoked the provisions of section 44AD of the Act and has estimated business income of the assessee at the rate of 8% of total turnover. The total turnover has been computed by the Assessing Officer treating all bank deposits, excluding the amount deposited during demonization period. The provision section 44AD of the Act as they were applicable to the assessment year under appeal mandates that the provisions of section would apply where the gross receipts does not exceed Rs.1,00,00,000/-. In the impugned assessment year, gross receipts of the assessee are more than Rs.7,00,00,000/-. Hence, the provisions of section 44AD would not apply. The assessee has furnished a summary of net profit percentage for the last three years. The same is tabulated here in under:- AY Net Profit % 2014-15 2.84% 2015-16 1.42% 2016-17 1.29% Average Net 1.85% Profit 7. The contention of the assessee is that in the preceding assessment years the books of assessee were subject to audit and the assessee has returned (AY 2017-18) income based on the audited accounts. The assessee has placed on record copy of audited balance sheet of the assessee for the Financial Years 2015-16 & 2014-15. Considering entire facts of the case, we find merit in the submissions of the assessee, the AO is directed to re-compute profits of the assessee by adopting average net profits of the three preceding assessment years. Thus, ground no. 2 of assessee’s appeal is allowed, pro tanto.
In ground no. 3 and 4 of appeal, the assessee has assailed computation of tax at the rate of 60% u/s.115BBE of the Act. The issue has now been settled by the Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Ltd. vs. ACIT in WP(MD) No. 2078 of 2020 decided on 19.11.2024 holding that the tax rate of 60% u/s. 115BBE of the Act applies prospectively from 01.04 2017. In other words prior to the said date the rate of tax would be 30%. The coordinate Bench in the case of DCIT vs. Tapesh Tyagi (supra) has taken a similar view. Hence, in light of aforesaid decisions the AO is directed to apply 30% rate of tax u/s.115BBE of the Act in the impugned assessment year. The ground of appeal
no. 3 & 4 are allowed.