VENKATA SWAMY KATAKAM,JAYASHANKAR BHUPALPALLY vs. INCOME TAX OFFICER, WARD-2, WARANGAL

Brief facts of the case are that the assessee is an Individual dealing in consumable products. For the assessment year 2017-18, he filed the return of income on 30/10/2017 declaring total income of Rs.3,17,130/-. Assessment was complete by learned Assessing Officer under section 143(3) of the Income Tax Act, 1961 (for short “the Act”) on 27/12/2019 making an addition of Rs.27,68,276/-.

Aggrieved, assessee preferred appeal before the learned CIT(A), but according to the learned CIT(A), despite issue of notices, assessee failed to furnish any information to substantiate his case. Hence the learned CIT(A) dismissed the appeal.

Aggrieved by the impugned order, assessee filed this appeal on as many as six grounds, but at the time of arguments learned AR submitted that grounds No. 1 & 6 are general in nature and do not require any specific adjudication. Ground No. 2 relates to the addition of Rs. 11,10,500/- under section 69A of the Act, in respect of the specified bank notes deposited during the demonetization period; Grounds No. 3 & 4 relate to the addition by estimating the net profits of the assessee @8% of the total bank credits during the year and Ground No. 5 relates to the addition by disallowance under section 80C of the Act.

With regard to Grounds No. 3 & 4, the learned AR submitted that the learned Assessing Officer estimated the income of the assessee at Rs. 15,18,951/-, which is calculated @ 8% on the total turnover of Rs.1,89,86,890/- without any supporting documentary evidence. It is further contended that the learned CIT(A) passed the order without providing proper opportunity. Learned AR seek adequate relief from the Bench in this regard.

Per contra, learned DR placed heavy reliance on the orders of the Revenue authorities and submitted that the assessee offered net profit too low at Rs. 4,55,950/- as against the total turnover of Rs. 1,89,86,890/- represented by the credits in the bank account, which constitutes about 2.4% and having regard to the profit earning ratio in the line of business of the assessee, it was too low and, therefore, the Revenue authorities are justified in maintaining the estimate @8% of the total credits. He requested to uphold the order of learned CIT(A).

I have gone through the record in the light of the submissions made on either side. It could be seen from the orders of the authorities that the learned Assessing Officer estimated the income @ 8% which is without any supporting documentary evidence. Keeping in view of the facts and circumstance of the case and to put a quietus to the issue, I am of the view that the ends of justice would be met by estimating the income @ 4% of the turnover, which would be just and proper in the case of the assessee. Accordingly, I hereby modify the order of the learned Assessing Officer and direct him to estimate the net profit @ 4% of the total credit.

Further, it could be seen from the assessment order that the assessee declared his income from business of Rs. 4,54,647/- in the return of income itself. Learned Assessing Officer estimated the net profit @8% which came to Rs. 15,18,951/-. Learned Assessing Officer, however, added this entire amount without considering the amount already offered in the return of income. Perhaps this requires consideration while estimating the net profit of the assessee @4% of the total credits. Learned Assessing Officer will keep it in mind while recomputing the income of the assessee. Grounds No. 3 of appeal is answered accordingly.

With regard to Ground No. 2 & 5 the Learned AR contended that the assessee has cash balance on hand evidenced by the entries in the Cash Book and such cash consisting of the specified bank notes was deposited during the demonetization period. Learned AR submitted that no sufficient opportunity was provided to the assessee to furnish the details with regard to cash deposit in the bank during the demonetisation period. So also he submitted that the assessee is possessing evidence to support his claim in respect of the deduction claimed under Chapter VIA of the Act. It is further contended that the learned CIT(A) has passed the order without providing proper opportunity. Learned AR further submitted that the assessee does not stand to gain by allowing the appeal to be disposed of without any documentary evidence being produced and it is only due to the reasons beyond the control of the assessee, the assessee could not produce the documents. He further submitted that given an opportunity, the assessee is now ready to produce all such material/evidence with regard to cash deposit in the bank during the demonetisation period and deduction claimed under Chapter VIA of the Act and conduct the proceedings diligently and get the matter disposed of on merits.

Per contra, learned DR placed heavy reliance on the orders of the Revenue authorities, and submitted that sufficient opportunity has already been given by the authorities, but the assessee failed to avail the same. He opposed grant of further opportunity to the assessee.

I have gone through the record in the light of the submissions made on either side. It could be seen from the orders of the authorities that the assessee failed to produce the details with regard to deposit of cash in the bank during the demonetisation period like cash book etc., and also in respect of the deduction claimed under Chapter VIA of the Act, which resulted in passing the orders without consideration thereof. It is a fact that the assessee does not stand to gain by not producing such document.

Be that as it may, now that the assessee is ready to produce all such documentary evidence in support of his contentions and get the matter disposed of on merits. The highest that would happen by allowing an opportunity to the assessee is that a cause would be decided on merits. With this view of the matter, I am of the view that fresh opportunity could be given to the assessee and, accordingly, I restore the issue to the file of the learned Assessing Officer for deciding the issue involved in Grounds No. 2 & 5 on merits, after affording the opportunity of hearing to the assessee. Grounds No. 2 & 5 of the appeal are answered accordingly.