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Facts
The assessee, who runs a meat shop, did not file an income tax return for AY 2017-18. The AO noted significant cash deposits in the assessee's bank account during the demonetization period and added Rs.10,13,350/- as unexplained money. The AO also estimated business profit on other cash deposits.
Held
The Tribunal held that since the AO estimated net profit for cash deposits made before and after the demonetization period, the same logic should apply to deposits made during the demonetization period. The Tribunal directed that a 10% net profit rate should be applied to the entire cash deposits across all three periods.
Key Issues
Whether the AO was justified in treating demonetized cash deposits as unexplained money and whether a uniform net profit rate should be applied to all cash deposits.
Sections Cited
Section 144, Section 44AB
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Income Tax Appellate Tribunal, ‘SMC’ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against order dated 15/12/2023 passed by Addl./ JCIT(A)-5, Kolkata for the quantum of assessment passed u/s.144 for A.Y.2017-18.
The assessee has challenged the addition of Rs.10,13,350/- on account of cash deposits in the bank account during demonetization period.
The brief facts are that assessee is operating a meat shop. Since assessee did not had any taxable income so he did not filed income tax return for the relevant assessment year (i.e., A.Y. 2017-18). The ld. AO noted that assessee had deposited Rs.10,13,350/- in his bank account during the demonetization period which included old SBN currency for sums aggregating to Rs.7,33,500/- and despite making cash deposits he did not filed his return of income. The bank account was a current account in the name of M/s. Shalimar Chicken Shop and the return was filed by the assessee only from the A.Y.2018-19 onwards. Accordingly, the ld. AO from the analysis of cash deposits and credit entries appearing in pre-demonetization period, demonetization period and post demonetization period, noted that assessee had made deposits during the entire year aggregating to Rs.49,27,202/- as per the following details given in assessment order. S No Period of Deposit Nature AMOUNT 1 PRE- Cash deposit Rs.23,40,670/- DEMONETISATION PERIOD (From 1st April, 2016 to 8th November, 2016)
2 DEMONETISATION Cash deposit Rs 10,13,350/- PERIOD (From 9th November, 2016 to 30th December, 2016)
3 POST- Cash deposit Rs. DEMONETISATION 14,91,130/- PERIOD (From 31/12/2016 to 31/03/2017)
4 CREDIT ENTRIES Except cash Rs. 82,052/- (01/04/2016 to deposits 31/03/2017) TOTAL Rs.49,27,202/-
The ld. AO has treated the cash deposit during demonetization period of Rs.10,13,350/- including SBN currency of Rs.7,33,500/- as ‘unexplained money’ and has been added to the income of the assessee. Apart from that, ld. AO has also estimated business profit of Rs.3,91,385/- by taking 10% net profit rate for the entire cash deposits excluding deposit made in the demonetization period.
The ld. First Appellate Tribunal has confirmed the said addition on the ground that assessee has not filed any documentary evidences like cash book, copy of computation of total income etc.
Before us, ld. Counsel for the assessee submitted that before the ld. CIT (A) assessee had filed the bank statement, prepared cash book, bank ledger, balance sheet and profit and loss account including the entire amount of cash deposit in the bank account. Assessee had done sales at Rs.44,21,120/- and had declared a net profit of Rs.4,00,720/- which has been offered to tax u/s.44AB. Assessee had declared net profit rate of 9.06%. Thus, when the ld. AO has estimated the net profit for other cash deposits then same should be applied on the deposits made during the demonetization period, because source of deposit is from his business of meat shop. 7. The ld. DR on the other hand relied upon the order of the ld. AO and ld. CIT(A). 8. After considering the relevant finding given in the impugned order as well as material placed before us, we find that ld. AO noticed that assessee has made cash deposits aggregating to Rs. 49,27,202/- during that period. The assessee is running a meat shop and entire sales are in cash. If the ld. AO is estimating net profit for the cash deposits made pre-demonetization period, and post demonetization then, there is no reason as to why the same application of net profit should be made on the cash deposits during demonetization period as noted in the aforesaid chart.
Assessee has already offered in the course of appellate proceedings, net profit of Rs.4,00,720/- on the entire turn over which also includes cash deposits during demonetization period. Since, ld. AO applied net profit of 10% on the other cash deposits whereas assessee has declared 9.06% net profit on the entire turnover, therefore, under these facts and circumstances we hold that the net profit rate of 10% should be applied on the entire cash deposits of all the three periods, i.e., pre-demonetization period, demonetization period and post-demonetization period. Thus, assessee gets consequential relief and no further addition on account of estimation of net profit can be made as already net profit rate has been applied @10% on the entire cash deposits, accordingly, appeal of the assessee is partly allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced on 28th Jun, 2024.