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Facts
The assessee, engaged in wholesale and retail chicken trading, was selected for scrutiny due to large cash deposits during demonetization. The AO made an addition of Rs.6,77,500/- as unexplained cash and estimated income by applying a 5% net profit rate, leading to an addition of Rs.10,18,877/-. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal dismissed the ground regarding lack of proper opportunity, finding that adequate opportunity was provided. It directed the AO to apply a profit rate of 4% (down from 5%) on the turnover of Rs.3,39,62,568/-, partially allowing this ground. The addition of Rs.6,77,500/- made under Section 69A for cash deposits during demonetization was deleted, as these deposits were considered to be from cash sales whose income was already estimated.
Key Issues
1. Adequacy of opportunity provided to the assessee by lower authorities. 2. Reasonableness of the net profit rate applied for estimating income from chicken trading business. 3. Justification for adding cash deposits during demonetization under Section 69A when income was already estimated.
Sections Cited
Section 69A, Section 143(3), Section 144, Section 145(3)
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Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
O R D E R आदेश आदेश आदेश Per Bench : The present appeal is filed by the assessee against the order of ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, passed in IT Appeal No.CIT(A), Cuttack/10860/2019-20, vide DIN & Order No.ITBA/NFAC/S/250/2023-24/1060675626(1), dated 08.02.2024 for the assessment year 2017-2018, on the following grounds :- 1) That the order passed by learned CIT(Appeals), NFAC vide Appeal No. CIT(A), Cuttack/10860/2019-20 dated 08.02.2024 without considering the statement of facts and grounds of appeal filed with Form-35 and without following the principle of natural justice is illegal, arbitrary, excessive and not in accordance with law. 2) That the addition of Rs. 10,18,877/- by estimating net profit @ 5% by the learned AO and confirmed by the CIT(A), NFAC is on very much higher side and arbitrary considering the nature of business of wholesale and retail trading of poultry chicken where net profit earned is very low and nominal. 3) That the addition of Rs.6,77,500/- in SBN Currency made u/s.69A as unexplained money made by the Id.AO and confirmed by the CIT(A) is illegal and arbitrary as assessee had deposited the said amount in SBN currency during demonetization period and explained before the AO that it was 2 out of sale proceeds of the business and withdrawal from bank accounts but the Id.AO disbelieved the same and added the amount which is not in accordance with law liable to be deleted. 4) That other ground or grounds of appeal if any will be urged at the time of hearing of appeal.
Brief facts of the case are that the assesee is an individual and engaged in the business of wholesale and retail trading of chicken. The case was selected for scrutiny for the reason of large cash deposit during demonetization and the assessment was completed by making addition of Rs.6,77,500/- on account of cash deposit during demonetization by treating it as unexplained and further estimated the income of the assesee by applying the net profit rate of 5% as against the declared profit rate of 2% resulting into the addition of Rs.10,18,877/-. In first appeal, though the appeal was decided ex-parte, however, the ld. CIT(A) has decided the issues on merits after considering the statement of facts filed by the assesee. Since the appeal of the assesee was dismissed by the ld. CIT(A), thus, the present appeal is filed by the assesee before us.
In ground No.1, the ld. AR submitted that the AO as well as the ld. CIT(A) have not considered the issue in right perspective and proper opportunity was not provided to the assesee for making explanation, therefore, he prayed for setting aside the order to the file of the AO.
On the other hand, ld. Sr. DR submitted that the AO as well as the ld. CIT(A) has decided the issue on merits after considering the details filed by the assesee and the statement of facts available for the ld. CIT(A).
Thus, there is no question of non-providing proper opportunity to the assesee.
3 5. After considering the arguments, we find that before the AO assesee has filed certain details based on which the AO has completed the assessment u/s.143(3) of the Act. It is not a case where the assessment was completed u/s.144 of the Act as best judgment assessment. Further the ld. CIT(A) has decided the appeal after considering the statement of facts filed and issues have been decided on merits and it is not a case where the ld. CIT(A) has dismissed the appeal of the assesee in limine for want of persuasion. Under these circumstances, we are of the view that the assesee was provided adequate opportunity and, therefore, the ground No.1 is dismissed.
With regard to ground No.2, the assesee has challenged the addition of Rs.10,18,877/- made by the AO by applying 5% profit rate on the turnover of Rs.3,39,02,568/- declared by the assesee. During the course of hearing, ld. AR submitted that the assesee is engaged in the wholesale and retail trading of poultry chicken where the profit rate is very law as compared to other businesses. He further submitted that the turnover of the assesee has increased multifold as compared to the previous year where the turnover was of Rs.84,87,568/- whereas in the year under appeal it is increased to Rs.3,39,02,568/- and it is settled principle that higher turnover could only be achieved by lowering the profit margin. The ld. AR further submitted that the AO has applied 5% profit rate based on profit rate declared in the immediately preceding year and there is a substantial increase in the turnover, therefore, such a high rate 4 of profit could not be applied. He, thus, prayed for the application of reasonable profit rate.
On the other hand, ld. Sr. DR submitted that the assesee has been engaged in the business for the past few years and the profit rate has decreased substantially as compared to the previous year where the profit rate of 5.09% was declared as compared to 2% in the year under appeal.
Further the assesee has not been able to furnish the complete books of accounts before the AO, therefore, could be said that the trading results declared are true and correct and accordingly the Sr. DR prayed for the confirmation of the addition so made.
We have considered the rival submissions and perused the material available on record. Admittedly, in this case the provisions of Section 145(3) of the Act were invoked by the AO as the assesee has failed to produce the complete books of accounts. The assesee has not challenged such application of provisions of Section 145(3) of the Act.
The only issue is with regard to reasonable profit rate which is to be applied in the present set of circumstances. We are also live to the issue that the turnover of the assesee has increased substantially as compared to the previous year and the higher turnover could only be achieved by lowering the profit margin which fact cannot be denied. At the same time, we also found that the profit rate of the assesee has decreased substantially as compared to the previous year. Under these circumstances, in our considered view, the profit rate of 4.5% would be fair and reasonable looking to the facts of the case, which will meet the 5 end of justice. Accordingly, we direct the AO to apply the profit rate of 4% on the turnover of Rs.3,39,62,568/-. This ground of appeal is partly allowed.
Last ground of appeal is in relation to the addition of Rs.6,77,500/- made u/s.69A of the Act towards the SBN currency deposited during the demonetization period by treating it as unexplained money.
10. The assesee is having six bank accounts and only in Federal Bank Account SBN of 500 and 1000 Rupee notes were deposited during the demonetization to the extent of Rs.6,77,500/- on various dates which has been tabulated at pages 6 & 7 of the appellate order. Though the AO has rejected the books of accounts of the assesee, however, the fact remained that the majority of the sales were made in cash and substantial cash was deposited on regular basis in all the bank accounts which is evident from the monthwise details of cash deposited and withdrawal as tabulated at pages 2 to 7 of the assessment order. It is also a matter of fact that the books of accounts were not accepted by the AO and the provisions of Section 145(3) of the Act were invoked and the income is estimated. Once, the income is estimated by applying the profit rate under these circumstances no further addition is required to be made towards the cash deposited in the bank which were out of the sales made which has already offered for tax.
11. With regard to the reliance placed by the ld. Sr. DR on the decision of the Hon’ble supreme Court in the case of CIT Vs. Devi Prasad Vishwanath Prasad (1969) 72 ITR 194 (SC), it is seen that in that case 6 there were cash credit in the shape of loan which was unexplained and separate addition was made through the income was already estimated as there was no direct relationship between cash credit and income estimated. However, in the instant case, there were cash deposits in the bank account and assesee has claimed that such cash deposit was out of sales made by the assesee and the cash was part of the sale consideration on which the profit has already been offered for tax/estimated by the AO. This claim of assesee remained uncontroverted. Therefore, such cash cannot be treated as unexplained. Thus, the ratio laid down by the Hon’ble Supreme Court in the above case are not applicable to the present facts of the case.
In the instant case, we have already estimated the income by upholding the profit rate of 4.5% and also observed that the cash deposited in SBN during demonetization is out of the cash sales made by the assesee, therefore, no separate addition is required to be made on account of such cash deposited in SBN. Accordingly, the addition so made of Rs.6,77,500/- is hereby deleted. This ground of appeal
is allowed in favour of the assesee.
13. In the result, appeal of the assesee is partly allowed. Order pronounced in the open court on 23/01/2025. (GEORGE MATHAN) (MANISH AGARWAL) लेखा सद"य/ ACCOUNTANT MEMBER "याियक "याियक सद"य "याियक "याियक सद"य सद"य / JUDICIAL MEMBER सद"य कटक कटक Cuttack; "दनांक Dated 23/01/2025 कटक कटक Prakash Kumar Mishra, Sr.P.S.