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Facts
The assessee, a partnership firm manufacturing 'Boora', did not file an income tax return for AY 2017-18. During demonetization, it deposited Rs. 61.26 Lacs in cash into its bank accounts. The Assessing Officer (AO) estimated the business income at 8% on these credits.
Held
The Tribunal observed that the assessee is regularly engaged in business and the deposits represent business receipts. Considering the net profit rate in earlier years was below 2%, the Tribunal directed the AO to apply a net profit rate of 3% on the turnover of Rs. 539.79 Lacs and re-compute the income.
Key Issues
Dispute regarding the estimation of the profit rate on business income when the assessee failed to furnish requisite financial statements. Estimation of business income based on cash deposits during demonetization.
Sections Cited
144, 69A, 115BBE
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Income Tax Appellate Tribunal, “DB” BENCH, AGRA
Before: HON’BLE SHRI SATBEER SINGH GODARA, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)
Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of the order of learned Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 19-12-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] on best judgment basis u/s. 144 of the Act on 11-12-2019. The assessee being a partnership firm is stated to be engaged in manufacturing of Boora from sugar. The assessee did not file any return of income for this year.
During assessment proceedings, it transpired that the assessee deposited cash of Rs.61.26 Lacs in its bank accounts during demonetization period. Accordingly, the assessee was directed to explain the source thereof. In the absence of any reply as forthcoming from the assessee, Ld. AO proceeded to estimate the income of the assessee. The summary of bank credits / deposits has been tabulated at Page-5 of the assessment order. The cash deposited during demonetization period in Sepcified Bank Notes (SBNs) was Rs.39.21 Lacs which was added u/s 69A r.w.s. 115BBE. The other cash deposits as well as credit as appearing in the bank accounts were taken to be the business income of the assessee since the same was admittedly relating to manufacturing of Boora and other sugarcane products. The Ld. AO estimated business income of 8% on these credits and determined business income of Rs.37.43 Lacs. Since the assessee was a firm, Ld. AO allowed remuneration and interest on capital against the same and arrived at business income of Rs.30.91 Lacs.
During appellate proceedings, the assessee submitted that the deposits were sourced from regular business receipts. In this line of business, the assessee would normally earn margin of 1.50%. The assessee stated that its sales turnover was Rs.539.79 Lacs out of which the assessee deposited cash of Rs.495.83 Lacs in its bank accounts during the year. Similar cash deposits were made in earlier years which was supported by audited financial statements of those years. The assessee furnished month-wise sales summary and cash summary along with summary of purchase invoices. The Ld. CIT(A) concurred that cash deposited during demonetization period was to be considered as normal business receipts and similar rate of 8% would apply on the same.
On the rate of profit, the assessee furnished comparative chart which is extracted on Page No.14 of the impugned order. It could be seen that the assessee reflected net profit before depreciation and partners’ remuneration at the rate of 1.76% for AY 2015-16 and 1.49% for AY 2016-17. However, Ld. CIT(A) refused to interfere with the estimation of 8%. Finally, the business income has been directed to be accepted at Rs.43.18 Lacs. Aggrieved, the assessee is in further appeal before us.
From the facts, it emerges that the assessee is regularly engaged in business activities and the credit in the bank account represents regular business receipts. The only dispute before us is estimation of rate of profit since the assessee has not furnished the requisite financial statements before lower authorities. The Ld. AR has drawn attention to the net profit rate of earlier years and pleaded for reasonable estimation which has been opposed by Ld. Sr. DR. Considering the fact that the assessee has reflected net profit rate of less than 2% in earlier years as per audited financial statements, since in this year no document is there to substantiate such profit rate, we direct Ld. AO to apply net profit rate of 3% on turnover of Rs.539.79 Lacs and re-compute the income of the assessee. No other expenditure shall be allowed to the assessee.
The appeal stands partly allowed. Order pronounced on 12th February, 2025.
Sd/- Sd/- (SATBEER SINGH GODARA) (MANOJ KUMAR AGGARWAL) 6ाियक सद7 /JUDICIAL MEMBER लेखा सद7 / ACCOUNTANT MEMBER Dated: 12-02-2025 Mks