GANCHI LAKSHMAN KUMAR,KAKINADA vs. INCOME TAX OFFICER, WARD-2, KAKINADA

This appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC) in DIN & Order No.ITBA/NFAC/S/250/2023- 24/1058024534(1) dated 17.11.2023, arising out of order passed u/s 144 of the Income Tax Act, 1961 (in short ‘Act’) dated 12.12.2019 for the Assessment Year (A.Y.) 2017-18. 2 A.Y.2017-18 Ganchi Lakshman Kumar, Kakinada

Brief facts of the case are that the assessee deals in purchase and sale of mobile phones and accessories like batteries and chargers, both in wholesale and retail. He maintained regular books of accounts and got the accounts audited u/s 44AB of the Act and filed Form 3CB and 3CD in time, but could not file the return of income in time. During the demonetisation period, the assessee has made cash deposits in his bank account. Accordingly, during the assessment proceedings, notice u/s 142(1) was issued to explain the source of cash deposits in the bank accounts during the F.Y.2016-17 with evidence. The assessee did not file return of income till the end of the assessment year and filed return of income belatedly. The assessee filed e-response on 11.09.2019 submitting that he is having bank accounts with Lakshmi Vilas Bank, HDFC Bank, SBI and ICICI bank. The assessee submitted that the deposits were made out of the cash balance of Rs.15,53,868/- as on 09.11.2016 and also out of sale proceeds the total deposits for the period were Rs.16,44,500/-. The assessee further stated that he has filed the return belatedly on 21.09.2019 admitting an income of Rs.5,56,999/-. The AO issued show cause notice to the assessee stating that the assessee is in the habitual practice of uploading the audit report in time and not filing the return in time by paying taxes. Accordingly, the AO estimated the 3 A.Y.2017-18 Ganchi Lakshman Kumar, Kakinada income of the assessee @15% of turnover on the basis of audit report filed on 30.10.2017.

Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) dismissed the appeal of the assessee ex-parte.

Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before the Tribunal by raising the following grounds of appeal :

The learned Commissioner of Income Tax (Appeals) is not justified in upholding the action the assessing officer in rejecting the books of account and in estimating the business income.

It was the submission of the assessee that the notice u/s 143(2) of the Act was issued to the assessee to examine the cash deposits during the demonetization period and after examining the source for cash deposits, the AO has not made any addition on that count. He, further submitted that the only grievance of the AO is that the assessee has not filed the return of income within the time prescribed in the notice issued by the AO u/s 143(2). He, further submitted that the assessee filed the audit report within the time prescribed, but only due to some personal reasons, the assessee was not able to file the return of income within the time prescribed in the notice u/s 143(2) of the Act. The assessee filed the return of income on 21.09.2019 and the assessment was completed on 12.12.2019. The AO had ample time to go through the return of income and elicit further information from the assessee, in case he wanted some more information. He, further submitted that apart from the audited financial statements formed the basis of his return of income, what was made available to the AO on 30.10.2017 itself, i.e. much prior to the issue of notice u/s 142(1) of the Act. Therefore, simply, the AO cannot estimate the income of the assessee @15% on total turnover of the assessee. The assessee also relied on the decision of Cochin Plantations Vs. State of Kerala 227 ITR 38 and CIT & Ors Vs. Delhi Kalyan Samithi & Ors 95 CCH 399 (Del) (HC). He further submitted that in the above said decisions, the Hon’ble High Court of Delhi and Kerala have categorically held that the returns filed by the appellant prior to the completion of assessment has be to taken into consideration. Therefore, he further submitted that the assessee has filed his return of income before the completion of the assessment. Hence, the AO has wrongly estimated the profit of the 5 A.Y.2017-18 Ganchi Lakshman Kumar, Kakinada assessee @15% of the turnover against law. He, therefore pleaded to quash the order passed by the Ld.CIT(A) and allow the appeal of the assessee.

Per contra, the Ld.DR submitted that the assessee has not filed the return of income within the time prescribed in the notice u/s 143(2) f the Act. Therefore, the AO estimated the profit @15% on the turnover of the assessee. The Ld.DR therefore, pleaded to uphold the order passed by the Ld.CIT(A) and dismiss the appeal of the assessee.

We have heard both the parties and perused the material available on record. It is an admitted fact that the assessee maintained the books of accounts and got the accounts audited u/s 44AB and filed Form 3CB and 3CD in time. But he could not file the return of income due to personal reasons. Therefore, the AO estimated the net income @15% on the turnover as per audit report. It is undisputed fact that the purchases are fully supported by invoices and sales are supported by sale bills. But the only grievance of the revenue is that the assessee had filed the income tax return belatedly on 21.09.2019 admitting the income at Rs.5,56,999/- and paid taxes of Rs.57,710/- on 18.07.2019. Therefore, the return was filed beyond the stipulated period, and accordingly, the AO estimated the income of the assessee @15% on the turnover. On this aspect, the 6 A.Y.2017-18 Ganchi Lakshman Kumar, Kakinada assessee has relied on the decision of Hon’ble Delhi High Court in the case of CIT & Ors Vs. Delhi Kalyan Samithi & Ors (supra) and the Hon’ble High Court, wherein, categorically held that even though the return is filed belatedly, but prior to the completion of assessment has to be taken into consideration. In this case also, the return was filed much prior to the completion of assessment and the assessee has explained the source for cash deposits during the demonetization period, therefore, we are of the view that simply, delay in filing the return of income itself is not sufficient reason to estimate the profit of the assessee @15% on the turnover. If the assessee filed the return belatedly, there are other provisions to take action against the assessee, but simply, the AO cannot estimate the profit. Moreover, the assessee has filed audit report financials within the time prescribed under the Act. We find merit in the argument of the assessee, therefore, the grounds raised by the assessee are allowed.

In the result, appeal of the assessee is allowed.