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Facts
The assessee, engaged in cloth trading, deposited Rs. 12.89 Lacs in cash during the demonetization period. The AO, rejecting books under section 145(3) due to lack of explanation, estimated income at 8% of gross receipts, which the CIT(A) subsequently reduced to a 5% Gross Profit rate. The assessee appealed, citing lower book profits in previous years and a previous scrutiny assessment accepting returned income.
Held
The Tribunal observed that the assessee had historically shown book profits of less than 2% and that a previous assessment under section 143(3) accepted the returned income. Therefore, it directed the AO to estimate the net income at 2% of the total turnover and re-compute the assessee's income accordingly.
Key Issues
Whether the estimation of business income by the lower authorities was appropriate given the cash deposits during demonetization and the assessee's past financial performance.
Sections Cited
143(3), 145(3)
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Income Tax Appellate Tribunal, ‘DB’, AMRITSAR BENCH, AMRITSAR
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI UDAYAN DAS GUPTA, JM
(िनधा�रणवष� / AssessmentYear: 2017-18) M/s EEH EFF Brothers ITO बनाम/ Vs. Sarai Payeen Amirakadal Ward-1 Srinagar (J&K) Srinagar. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AAGFE-1269-B (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ�कीओरसे/Appellant by : Sh. Bashir Ahmad Lone (CA) –Ld.AR ��थ�कीओरसे/Respondent by : Sh. Charan Dass (Addl. CIT) – Ld. DR सुनवाईकीतारीख/Date of Hearing : 04-08-2025 घोषणाकीतारीख /Date of Pronouncement : 18-08-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of an order of Ld Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 07-06- 2024 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 26-12-2019. The sole grievance of the assessee-firm is estimation of business income. Having heard rival submissions and upon perusal of case records, the appeal is disposed- off as under. The registry has noted delay of 10 days in the appeal which stand condoned.
The assessment has been framed on best judgment basis wherein the assessee was directed to explain the source of cash deposit of Rs.12.89 Lacs in its bank account during demonetization period. In the absence of any reply as forthcoming from the assessee, Ld. AO rejected the books u/s 145(3) and estimated income of 8% on gross receipts of Rs.258.94 Lacs which came to Rs.20.71 Lacs.
During first appeal, the assessee stated that the deposits were out of business receipts. The assessee also assailed estimation of 8% on the ground that it earned book profit of 1.10% in FY 2014-15 and 1.50% in FY 2015-16. The Ld. CIT(A) concurred that the assessee was trading in cloth and accordingly, it estimated Gross Profit (GP) rate of 5%. Still aggrieved, the assessee is in further appeal before us.
It is undisputed fact that the assessee is engaged in trading and Ld. AO has estimated business income. The existence of business is not in dispute. The GP chart as extracted in the impugned order would show that the assessee has earned book profit of less than 2% in earlier years. The case for AY 2015-16 was scrutinized u/s 143(3) on 10-11-2017 wherein returned income has been accepted. On these facts, we direct Ld. AO to estimate net income of 2% of turnover and re-compute the income of the assessee. No other ground has been urged in the appeal.
The appeal stand partly allowed. Order pronounced u/r 34(4) of Income Tax (Appellate Tribunal) Rules, 1963.