Loading judgment…
Facts
The assessee, Kunturu Chinna Narayana Raju, deposited Rs. 12,47,000 in cash during the demonetisation period (Nov-Dec 2016). The Assessing Officer (AO) treated this as unexplained investment under Section 69A and made an addition of Rs. 2,50,000, also invoking Section 115BBE. The assessee did not file a return of income, and notices were not complied with, leading to an ex-parte assessment.
Held
The Tribunal noted that the assessee had deposited Rs. 3,25,000 in old currency notes and the CIT(A) had allowed relief of Rs. 75,000, leaving Rs. 2,50,000 in dispute. Considering the nature of business and the turnover reported, and the fact that the assessee maintained no books of account, the Tribunal allowed the ground related to the addition of Rs. 2,50,000, considering it meagre in relation to the turnover. However, the Tribunal upheld the CIT(A)'s order regarding the estimation of profit at 8% under Section 44AD, finding no infirmity.
Key Issues
Whether the addition of Rs. 2,50,000 on account of unexplained cash deposits during demonetisation is justified, and whether the estimation of profit at 8% of turnover under Section 44AD is correct.
Sections Cited
69A, 115BBE, 44AD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SMT. BEENA PILLAI & SHRI LAXMI PRASAD SAHU
Per Laxmi Prasad Sahu, Accountant Member
This appeal is filed by the assessee against the order dated 28.2.2024 of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC], for the AY 2017-18.
The grounds raised in this appeal are addition of Rs.2,50,000 representing the specified bank notes u/s. 69A of the Act and estimation of income at 8% of turnover of Rs.85,22,740.
Briefly stated the facts of the case are that under Operation Clean Money, it was noticed that assessee had deposited cash in his bank account of Rs.12,47,000 during the demonetisation period from 9.11.2016 to 30.12.2016 in Andhra Bank, Pulivendla Branch, Andhra Pradesh and assessee had not filed return of income. Notice u/s. 142(1) was issued against which assessee did not comply and subsequently other notices were issued on different dates, but there was no response from assessee’s side. Accordingly the AO was bound to proceed ex- parte. The AO called bank statement u/s. 133(6) of the Act on 25.07.2019 which was provided and it was noticed from the details that assessee had deposited cash in old currency notes of Rs. 500 & 1,000 and also deposited new currency notes of Rs.500 & 2,000 during the demonetisation period. The AO treated the entre cash deposits during the demonetisation period as unexplained investment u/s. 69A and section 115BBE was applied and passed assessment order on 11.12.2019.
Aggrieved from the above order, the assessee filed appeal and additional evidence before the CIT(Appeals). The CIT(A) called for remand report and after considering the assessee’s rejoinder, the CIT(A) noted that as per VAT return, turnover of assessee is Rs.85,22,740 and cash deposited during demonetisation period in old currency notes is Rs.3,25,000. The CIT(A) gave relief of Rs.75,000 on the basis of average sales of 3 days and confirmed the balance amount of Rs.2,50,000. He also invoked section 44AD for calculating net profit on the basis of turnover reported in VAT return submitted by the assessee. The assessee submitted that the average net income is only in the range of 2 to 3% on the turnover. The CIT(A) noted that assessee has not maintained any books of account accordingly considered 8% profit on the turnover and partly allowed the appeal of the assessee. Aggrieved, the assessee is in appeal before the ITAT.
The ld. AR reiterated the submissions made before the CIT(Appeals) and submitted that the assessee is engaged in the business of ITC food products as a sub-dealer in the name and style of M/s. Sri Sai Balaji Enterprises at Pulivendula, Kadapa Dist. Andhra Pradesh and due to communication gap as he was residing in Andhra Pradesh, the communication from AO could not be seen. The appellant gets commission only from main dealer and therefore profit was below taxable limit, so assessee did not file return of income. Since the assessee is a sub-dealer and the margin is very low in the range of 2 to 3% depending upon product sales, the profit estimated by CIT(A) is not justified. He further submitted that turnover achieved is Rs.85,22,740. The assessee has deposited cash only in old currency of Rs.3,25,000 upto 17.11.2016, thereafter he has stopped accepting in old currency notes and these are part of the turnover during the demonetisation which is very meagre amount. The CIT(Appeals) has accepted the turnover, therefore it should not be considered u/s. 69A of the Act. The ld. CIT(A) has also given relief to the assessee of Rs.75,000.
On the other hand, the ld. DR relied on the order of the lower authorities and submitted that the assessee was required to maintain books of accounts because his turnover is more than specified guideline for maintaining books of account and opening cash on 09.11.2016 has not been justified by the assessee. The CIT(A) after considering the considering the nature of transactions of the assessee has rightly allowed of Rs.75,000. He further submitted that the assessee is a eligible assesse and carrying eligible business for applying section 44AD of the Act and assessee has not submitted any proof regarding the lower profit earned from business. The assessee is also unable to explain that provision of section 44AD(6)(iii) will apply to the assessee. Therefore he submitted that the order of the CIT(Appeals) should be confirmed.
Considering the rival submissions we note that during the demonetisation period the assessee had deposited cash of Rs.12,47,000 out of which Rs.3,25,000 was in old currency notes and the CIT(A) has allowed considering the nature of business Rs.75,000. During the course of hearing it was stated by the Bench that this issue has to be remitted back to the AO in the light of CBDT Circular. However, we note that the cash deposits during demonetisation is only Rs.3,25,000 and the CIT(A) has allowed Rs.75,000 and only issue is for balance of Rs.2,50,000 is before us. We are of the view no purpose will be served if the issue is remitted to AO since the assesse has not maintained any books of accounts, therefore we proceed to adjudicate the issue on merits. We note from the monthly sales submitted before the CIT(A) that business has been carried out by the assessee only for 10 months which is placed at page 17 of the PB. The sales shown by the assessee is Rs.79,92,740. However, the VAT return filed is Rs.85,22,740. The ld. CIT(A) has accepted that turnover of the assessee is mostly carried out by the assessee in cash. We note that the turnover for 10 months is Rs.85.23 lakhs, as per sales reported in page 17 of PB purchase is Rs.10,29,026 and sales is Rs.10,66,880 for the month of November2016. The purchase & sales are for the month of September is Rs. 9,48,850/- and Rs. 9,34,370/- respectively. In the month of October, purchase is Rs.10,12,198, however sales is Rs.4,35,040 and most part of the business is done through cash. From the purchase and sales for the month of September, October and November 2016 is not extraordinary in trends. Therefore keeping cash of Rs.3,25,000 is meagre and assessee has also submitted that cash deposited is related with the turnover from 9.11.2016 to 16.11.2016 for 8 days and remaining cash was before 8.11.2016. If we consider the average sales per day for 26 days in a month, turnover comes to Rs.32,780. Accordingly turnover for 8 days is Rs.2,62,240 which is more than the disallowed amount of Rs.2,50,000. Since the assessee has not maintained books of account therefore on the basis of calculating arithmetical figure and considering the nature of business and turnover of the assessee and very less amount of cash deposits, we allow this ground.
The assessee has also raised issue regarding invoking of section 44AD for estimating profit @ 8% of the turnover. We do not find any infirmity in the order of CIT(Appeals) and the assessee is unable to prove that it is exempt towards eligible business and eligible assessee is defined u/s 44AD and assessee has also not maintained any books of account. He has not complied other provisions for showing lower profit. We hold that the order of the CIT(Appeals) on this point for estimating profit @ 8% is justified.
In the result, the appeal by the assessee is partly allowed.