RAJESH HANUMANT PAWAR,,PUNE vs. INCOME TAX OFFICER,,

आदेश / ORDER

PER D. KARUNAKARA RAO, AM

This appeal filed by assessee is directed against the order of Commissioner of Income Tax (Appeals)-2, Pune dated 13.10.2016 for assessment year 2009-10.

ITA No.2910/PUN/2016 A.Y.2009-10

“1. The learned CIT(A) erred in law and on facts in holding that Rs.17,35, 789/- being cash deposited in bank account as addition turnover when the same was forming part of the regular bank account maintained for the business of the appellant. 2. The learned CIT(A) erred in law and on facts in estimating profit at 20% on the additional turnover of Rs.17,35,789/- which amount to double addition. 3. The appellant craves to add, alter, modify or substitute any ground of appeal at the time of hearing.”

reads as under:

“1. The additions made by way of estimating the Income of Rs.17, 35,787/- by the Learned officer is contrary to both facts and law, illogical, impracticable and hence not justified.

business of trading and repairing of electronic goods named “Namrata

Electronics” and filed return of income declaring total income at

Rs.2,66,740/-. As per the data available on the return, the assessee

recorded the total sales amounting to Rs.23,46,110/- and earned net profit

at Rs.3,01,130/-, where Gross Profit rate is worked out @ 12.84%.

ITA No.2910/PUN/2016 A.Y.2009-10

Thereafter, this case was selected for scrutiny under CASS. As per the AIR

information, assessee owns a bank account with Vishweshwar Sahkar Bank

Ltd, Pune and the assessee deposited cash totaling to Rs.15,66,500/- in the

said savings bank account during the year under consideration.

notice u/s.142(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the

Act’) and called for relevant details and information. On finding, the absence

of any compliance, the Assessing Officer passed order u/s. 144 of the Act.

The assessee did not co-operate in respect of furnishing of relevant details

and information. The Vishweshwar Co-op. Bank, Sinhagad Road, Pune was

required to furnish the account extract, account opening form documents

etc. and for this, Assessing Officer issued notice u/s.133(6) of the Act. Vide

letter dated 13.10.2011, the bank confirmed the cash deposit in the said

account and amount is Rs.17,35,787/-. In absence of any satisfactory

explanation in respect of sources of cash deposits from the assessee, the

Assessing Officer made addition of the entire amount of Rs.17,35,787/- as

unexplained cash. Further, the Assessing Officer noted that the assessee

claimed expenditure in P & L account amounting to Rs.19,39,740/- against

the gross receipt of Rs.23,46,110/-. For want of details, the Assessing

Officer disallowed 1/4th of the same and made addition of Rs.4,84,935/-.

Further, Assessing Officer made other additions of Rs.1,59,821/-,

Rs.1,38,185/- and Rs.34,387/- too. Thus, the entire gross addition is

worked out at Rs.25,18,728/- and major addition relates to cash deposits.

Aggrieved with the major addition to the tune of Rs.17,35,787/-, assessee

filed appeal before CIT(A).

ITA No.2910/PUN/2016 A.Y.2009-10

prayed for granting an opportunity to the assessee to file written

submissions along with additional evidences against each of the additions

made by the Assessing Officer. The assessee submitted that the entire cash

deposits relate to the sales proceeds of the business of the assessee.

Referring to the cash withdrawals, the assessee submitted that same were

withdrawn from the banks for making payments to the suppliers. The

assessee is engaged in sales of goods and preparing electronic items.

Assessees filed additional evidences and made a prayer for admitting. After

considering the facts that the assessee had reasonable cause i.e.

illness/accident of the assessee and hospitalization etc, for not submitting

the said evidences, the CIT(A) considered the additional evidences, admitted

the same and adjudicated the grounds raised by the assessee after

considering them. In the impugned order, deviating from the Assessing

Officer’s line of assessment, the CIT(A) considered the said cash deposits of

Rs.17,35,787/-as additional unexplained turnover of the assessee and

determined gross turnover at Rs.40,81,899/- ( Rs.23,46,110/- of sales as

accounted in books plus the sum of Rs.17,35,789/- of cash deposits as

additional turnover). Further, ignoring the approach of Assessing Officer of

making itemized additions, the CIT(A) estimated the profit @ 20% of the said

gross turnover of Rs.40,81,899/- as derived by him. According to his

calculation, the income assessable from the business of the assessee

worked out at Rs.8,16,380/- only. The CIT(A) deleted the other itemized

additions in view of discussion given in Para 6 to 8 of impugned order.

grounds and submitted that the additions made by the Assessing Officer

and the estimations made by the CIT(A) are not sustainable. Referring to the

ITA No.2910/PUN/2016 A.Y.2009-10

cash deposit addition, the Ld. Counsel for the assessee submitted that the

same constitutes the accounted turnover of sales of the assessee and the

sale proceeds are deposited with the bank from time to time. Further,

bringing my attention to the GP rates, the Ld. Counsel submitted that with

itemized additions made by the Assessing Officer, the NP rate was above

40% against the declared NP rate @12.84%. The said NP rate is no existence

at all in the line of business of trading/ repairing of electronic items.

Referring to the addition confirmed by the CIT(A) to the extent of

Rs.8,16,380/-, Ld. Counsel submitted that CIT(A) erred in estimating total

profit around Rs.8,16,380/- (20% total turnover at Rs.40,81,899/-) and the

accounted NP rate worked out at Rs. 3,01,130/- @12.84%. With the

addition of Rs.8,16,380/-, the total GP works out @32% which is also not in

existence in the line of electronic business of the assessee. Therefore, the

Ld. Counsel for the assessee prayed for considering the reasonableness of

the recorded GP rate @ 12.84% and delete the entire addition.

on the orders of Assessing Officer and CIT(A).

made by the Assessing Officer on one side and estimation of CIT(A) of total

turnover at Rs.40,81,899/- on the other. I have also examined adoption of

NP rate of @20% against 12.84% as per books of assessee. On considering

the same, I find itemized additions made by the Assessing Officer are

unsustainable as they were done in the absence of the explanation,

evidences etc. from the assessee in the ex-parte assessment made u/s.144

of the Act. Therefore, in principle, the said additions are unsustainable in

law. Regarding cash deposits, the information was received by the

ITA No.2910/PUN/2016 A.Y.2009-10

Assessing Officer through Annual Information Return and the Assessing

Officer invoked the provisions of section 133(6) of the Act and quantified the

actual cash deposit at Rs.17,35,787/-. The source of cash deposit is a

major contention between the Revenue and the assessee. According to the

assessee, accounted sales proceeds explain the source of the said

remittance. Without deciding the issue by scrutinizing the sale deeds and

various sales documents due to non co-operation, the Assessing Officer

proceeded to make addition at Rs.17,35,787/-. Further, in First Appellate

proceedings, without perusing the books of account, the CIT(A) treated the

cash deposit as unexplained additional turnover of the assessee. CIT(A) has

no evidence to back his findings. CIT(A) did not explain how the source is

unaccounted additional turnover when the amounts are reflected in the

saving bank account/books of account of the assessee. In principle, this

kind of assessment made by the Assessing Officer and adjudication by the

CIT(A) is unsustainable in law. Further, I find making ad-hoc addition,

adoption of profit rate of @20% on the entire turnover at Rs.40,81,899/-

also has no basis. On findings, the CIT(A) has anticipated in adopting said

percentage without brining comparables cases. Relevant submissions made

by assessee is reproduced at page 9 of the order of CIT(A) and same is

reproduced as under:

“4.Additions of Rs.1,38,185/- is made on account of 40% GP ratio to be taken disallowance. The Learned Assessing Officer made additions without stating basis of estimation of GP ratio for the past record also, he cannot act caparoius manner while estimating the income, as compared to last 2 yrs data preceding to this accounting year 2008-09 ( vide point No. 6D of the assessment order). The following information in tabulated format shows the actual position of GP and Net Profit of last 2 preceding years on returns filed basis.

S. Assessment Turnover in Gross Net Tax No. year Rs. Profit Profit Paid in ratio Ratio % Rs.

ITA No.2910/PUN/2016 A.Y.2009-10

1 2007-08 868617.00 31.38 17.28 2239 2 2008-09 12,56,367.47 26.76 16.10 9747 3 2009-10 23,46,110.00 14.92 12.84 12828

As chart shows that the ratio of GP shown in the returned filed for AY 2009-10 by the me is not more than 14.92% and the learned Assessing Officer had calculated GP ration was 34.11% but it has been determined for additions is 40% GP and hence differential amount has been taken for the basis of disallowance. It is totally absurd findings and no rational thinking and totally based on conjectures & surmises because assessee is trading in the electronic goods and post services to clients as labour charges and other customers those had been come for repairing and services, Net profit as shown in the return is high because of labour services and not by trading in electronic goods.”

I have examined the above submissions and find that above extracted

chart indicates Net Profit rate of the assessee and the Net profit rate of

17.28% for the A.Y.2007-08 in assessee’s own case is the highest. As such,

the Revenue did not manage to bring any comparable cases where Net profit

rate is @20% or more. Further, the addition of cash deposit of

Rs.17,35,787/- on account of unexplained cash has no legs to stand for the

reason that they borne out of the accounted saving bank account of the

assessee itself. Therefore, I am of the opinion that there is no case for

making addition of Rs.17,35,787/- where the Assessing Officer failed to

establish any extra source of income. The Assessing Officer and CIT(A)

cannot resort to such imaginations. In view of the absence of any third party

comparables, the profit rate of the assessee is the last resort. In my view,

the profit rate of the own case for the A.Y.2007-08 must help for

adjudication of the issue under consideration. Accordingly, rejecting the

book results as done by the Revenue, I direct the Assessing Officer to

calculate the income of the assessee at Net Profit @15.40% (average to

A.Ys.2007-08, 2008-09 and 2009-10). Thus, grounds raised by assessee

are partly allowed.

8 ITA No.2910/PUN/2016 A.Y.2009-10

In the result, appeal of the assessee is partly allowed. 10.

Order pronounced on 25th day of May, 2018.

Sd/- (डी.क�णाकरा राव/D. Karunakara Rao) लेखा सद�य / ACCOUNTANT MEMBER

पुणे / Pune; �दनांक / Dated : 25th May, 2018. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-2, Pune. 4. The Pr. CIT-1, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy //

आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.