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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’: NEW DELHI
Before: SHRI I.C.SUDHIR & SHRI O.P. KANT
Date of hearing 29.01.2016 Date of pronouncement 09 .03.2016 ORDER PER O.P. KANT, A.M.:
This appeal of the assessee is directed against order dated 13.08.2015 of the CIT(A)-XVI, New Delhi, raising following grounds of appeal :- “On the facts and in the circumstances of the case and in law, the CIT(A) was incorrect and unjustified in :- 1) Agreeing with the AO of application of profit rate of 20% which is in contravention to the provisions of section 44AD. 2) Agreeing with the AO on total estimated turnover of Rs. 36,05,497/- based on bank deposits whereas these deposits included the amount withdrawn and then again deposited. 3) Ignoring the amount of Rs. 14,47,345/- withdrawn and then re- deposited and has erred in adopting the total deposit in the bank at Rs. 36,05,497/- which is incorrect and wrong since these included the amount withdrawn.
Tarun Bansal 4) In not adopting the profit rate as per the provision of section 44AD and applying 20% arbitrarily which is against law. 5) In treating the amount of Rs. 36,05,497/- as turnover. 6) In not adopting the amount of turnover rin profit and loss account filed during the assessment proceedings. 7) Passing the appellate order on the basis of suspicion and doubt and also ignoring the evidence on record. 8) In not applying the provision of section 44AD which are clearly applicable to the facts and circumstances of this case. 9) The appellant craves to alter, amend or withdraw any of the grounds stated above or to add any other grounds.”
The fact in brief are that the assessee filed return of income declaring total income of Rs. 1,58,250/- on 31.03.2012. In the return of income, the assessee declared profit of Rs. 1,46,290/- from the business of trading of old computer spare parts , under the presumptive taxation scheme for retail business under section 44AD of the Income-tax Act,1961 ( in short the ‘Act’), on the gross sale receipt of Rs. 7,03,450/- , at the net profit rate of 20 percent. The case was selected for scrutiny. During the scrutiny, the Assessing Officer (AO) noticed from the individual transaction statement (ITS), maintained on the data base of the Income Tax Department , that cash amounting to Rs. 31,47,032/- was deposited in the bank accounts of the assessee. The assessee was asked to explain the source of cash deposit along with evidence in support thereof. In response, the assessee submitted re-casted trading and P & L account, declaring sales of Rs. 19,03,150/- and net loss of Rs. 25,880/- from the business activity. The assessee further explained that cash deposits of Rs. 19,03,150/- stood explained by the cash sales and the balance deposits were made out of the withdrawals from the banks on various dates. Further, the Assessing Officer noticed that out of purchase parties shown in re-casted trading account, only one party M/s. S.K.International could be verified and in respect of other parties, the assessee even could not produce purchase bills etc. The Assessing Officer also could not verify the other parties through notices issued u/s 133(6) of the Act. The Assessing Officer did not accept the submission of the assessee that cash
Tarun Bansal sales were only of Rs. 19,03,152/- . According to him, the entire deposit of Rs. 36,05,497/- in the bank account were in the nature of the cash sales. He further applied net profit rate of 20% as was shown by the assessee in the return of income filed and computed a profit of Rs. 7,21,099/- from the business activity of the assessee. Aggrieved the assessee filed the appeal before the ld. CIT(A), who upheld the action of the AO both on amount of sales as well as the net profit rate applied. Aggrieved, the assessee is before the Tribunal.
The grounds No. 2, 3 and 5 to 7 are in respect of holding entire deposits of 36,05,497/- in bank account as cash sales of the assessee and in grounds No. 1,4, and 8 are in respect of applying the net profit rate of 20 percent on sales for computing profit making net addition of Rs. 7,21,099/- u/s 44AD of the Act.
4.1 The ld. AR submitted that the assessee has already declared business receipts of Rs. 19,93,152/- and the balance deposits were out of cash withdrawal from those very bank accounts. The submission of the assessee that the cash was re-deposited in bank accounts, whenever not required and this submission was not accepted by the lower authorities. The ld AR submitted that first, the Revenue had not proved that the assessee has use the money withdrawn any where else and secondly, the Revenue can not challenge the wisdom of the assessee to carry on the business in the manner he likes, relying on the judgement of the Hon’ble Supreme Court in the case of CIT Vs Walchand and Company pvt Ltd 65 ITR 381 and JK Woolen Manufactures Vs CIT reported in 72 ITR 612. Further he submitted that the case of the assessee was of no books of accounts and the return was filed u/s 44AD of the Act, the profit rate of 8% should have been applied in place of profit rate of 20% applied by the AO. The ld AR further submitted that the CIT(A) has not given any comparable case where profit rate of 20% in retail business exists. 4.2 The ld. Senior Departmental Representative ( Sr DR) on the other hand, relied on the order of lower authorities and submitted that in absence of any Tarun Bansal proof or evidences in the hands of the assessee that money withdrawn was re- deposited in bank accounts, the sales of the assessee cannot be limited to Rs. 19,93,152/- . She further submitted that it was the onus on the assessee to submit evidence in support of his claim of re-deposit of money in bank and in failure to do so, the Assessing Officer has correctly taken the entire cash deposits of Rs. 36,05,497 as sales of the assessee for the year under consideration, which has been duly confirmed by the CIT(A). She also submitted that the assessee has failed to verify its purchases and thus it was most probable in the circumstances that use of money withdrawn for purchases or household withdrawal cannot be ruled out.
We have heard the rival submission and perused the material on record. In the case of the assessee, it is undisputed that the cash deposits of Rs. 36,05,497/- were not declared by the assessee for the purpose of income declared in the return of income and on being confronted by the Assessing Officer, the assessee admitted that out of said cash deposits, Rs. 19,93,152/- belonged to the business receipt from sale of old computer parts and balance were out of withdrawals made from the same bank accounts. All the sales of the assessee are made in cash, and the assessee failed to substantiate why cash deposit of Rs. 19,93,152/- were only sales of the business receipts and not entire cash deposits. The explanation of the assessee that the withdrawals were re-deposited was not accepted by the AO as well as by the CIT(A) in absence of any evidence in support of its claim that withdrawals were re-deposited in bank account. We find that the ratio of the cases cited by the assessee is not applicable over the facts of the case as the assessee himself has failed to support its claim of re-deposit of withdrawals and its normal human behavior that no prudent person will withdraw the money and re-deposit into banks without any justified reasons. In view of the circumstances of unverified purchases, cash sales and expenses of the business activity etc, we don’t find any justification in submissions of the assessee in this regard, and in our opinion , the CIT(A) has rightly held entire
Tarun Bansal cash deposits as business receipts of the assessee. The findings of the CIT(A) on the issue of sales receipt are well-reasoned and there is no infirmity in the said findings. Accordingly, we dismiss the grounds No. 2,3, and 5 to 7 of the appeal.
In respect of balance grounds No. 1,4 and 8 of the appeal , the assessee has raised that the Assessing Officer has applied net profit rate of 20 percent on sales to compute profit of the assessee from business activity as against 8 percent net profit rate offered by the assessee in re-casted trading account. The ld. AR has submitted that trading results shown in the original return of income were filed purely on estimate basis without any verification of transactions in bank accounts and other records and in scrutiny proceedings before the Assessing Officer, the assessee prepared correct version of trading result and therefore same may be accepted. He further submitted that the Assessing Officer has rejected the figure of sales declared in the original return of income, whereas, accepted the figure of net profit rate declared in the original return i.e. from the same source, and thus, this action of the AO was not justified. He further submitted that CIT(A) has not given any comparable case having profit rate of 20% in such retail business and ignored the rate of 8% fixed by the legislation for the purpose of provision of Section 44AD of the Act. The ld AR also submitted that in the case of the assessee turn over being less than Rs. 60 lacs , the provisions of section 44AD are applicable and net profit rate of 8 percent should have been applied over the gross receipts. We agree with the contention of the ld. AR that when the AO has already rejected the sales figure of the assessee declared in the original letter as being on estimate and without any evidence, there is no justification on the part of the Assessing Officer to adopt the net profit rate of 20 percent. shown on the basis of estimate and without any evidences. Further neither the Assessing Officer nor the ld. CIT(A) has brought on record any comparable case having 20 percent net profit rate in the retail business similar to the business carried on by the assessee. In such circumstances, we are of the opinion that the adopting the net profit rate of the Tarun Bansal eight percent. is most appropriate , which has been provided under section 44AD of Act for retail business having business turnover not exceeding Rs. 60 lacs. As the assessee has also declared its profit from the business under presumptive taxation under section 44AD of the Act, we hold that net profit rate of 8% is appropriate net profit rate and direct the Assessing Officer to apply the net profit rate of 8%, on the business receipt of Rs. 36,05,497/- and compute the net profit of the assessee from business accordingly. Thus, grounds No. 1, 4 and 8 are allowed partly in favour of the assessee.
The ground No. 9 of the appeal being general in nature is dismissed as infructuous.
In the result appeal of the assessee is allowed partly. The decision is pronounced in the open court on 09 March, 2016.