AWADESH B. PANDEY,MUMBAI vs. I.T.O.24(3)(1), MUMBAI

The assessee has filed this appeal challenging the order dated 17.8.2012 passed by the ld. CIT(A)-34, Mumbai for the assessment year 2008-09 on the following issues: a) Estimation of profit from spare parts business Rs.1,27,560/-. b) Estimation of profit from sale of mixer-grinders Rs.4,50,000/-.

We heard the parties and perused the record. The assessee filed return of income for the year under consideration declaring a total income at Rs.1,17,004/-. During the course of assessment proceedings, the AO recorded a statement on oath from the assessee with regard his business

In the appellate proceedings, the ld. CIT(A) took the view that the deposits made in the bank account represent sales proceeds relating spare parts business and accordingly estimated income from spare parts business at 12% thereof, instead of confirming the addition made u/s 68 of the Act. However, he confirmed the income of Rs.4,50,000/- estimated from sale of mixer-grinders. Aggrieved, the assessee has filed this appeal before us.

The first issue relates to the income estimated by the ld. CIT(A) on the cash deposits found in the bank account of the assessee. The ld. CIT(A) was of the view that the deposits made by the assessee in the bank account represents business transactions pertaining to spare parts business and accordingly estimated profit there from at the rate of 12%, since the assessee had admitted in the statement that he has been making profit at 10 to 12% from trading in spare parts. Since the assessee is carrying on business in the mixer grinders and spare parts and since there has been successive deposits and withdrawals, we are of the view that the ld. CIT(A) was justified in considering the bank deposits as relating to business transactions. However, we are unable to understand as to why he considered them as relating to spare parts business and not related to mixer grinder business. Be that as it may, we notice that the Ld CIT(A) has estimated the rate of profit on the basis of statement given by the assessee and hence we do not find any reason to interfere with his order on this issue.

The next issue relates to estimation of income from sale of mixer- grinder. We notice that this addition has also been made on the basis of statement given by the assessee, wherein he had stated that he is selling approximately 1500 pieces of mixer-grinders in a year. The net profit from sale of one piece of mixer-grinder was stated by him as Rs.300/- approximately. He has further stated that he has been earning a sum of Rs.5000/- to 6000/- per month from a sale of spare parts. Thus, we notice that the assessee has stated the details about his business transactions on an approximate basis. It is further noticed that the assessing officer did not ask any specific question about the expenses incurred by the assessee. We have already noticed that the AO did not make any addition with regard to the profits earned from spare parts business and the Ld CIT(A) has estimated the same as 12% of the aggregate amount of cash deposits.

Thus we notice that the assessing officer has placed full reliance on the statement given by the assessee, which he has given on approximate basis. Further, the AO has not allowed any deduction towards expenses. We have noticed that the assessee has also stated that his income from spare parts business ranges from Rs.5000 to 6000/- per month approximately, meaning thereby he is earning a sum of Rs.60,000/- to 72,000/- per year from the business of spare parts. The ld. CIT(A) has, however, estimated the income from spare parts at Rs.1,27,560/-, which is contrary to the statement given by the assessee.

Further, the Ld CIT(A) has not explained as to why he has considered the bank deposits as representing the transactions relating to spare parts business alone. In our view, the possibility of depositing the sale proceeds relating to mixer grinders cannot be ruled out.

Accordingly, we are of the view the income of the assessee has to be estimated by considering all the facts in a holistic manner. Accordingly, we proceed to estimate the profit of assessee as under: (a) We adopt the net profit on sale of one piece of mixer-grinder at Rs.225/- after allowing administrative expenses @ 30%, i.e., Rs.75/- per mixer-grinder. Accordingly, the profit earned from sale of mixer– grinder shall be (1500 x Rs.225/-=3,37,500).

Accordingly, we modify the order of Ld CIT(A) and direct the AO to restrict the addition relating to bank deposits and sale of mixer grinders to Rs.4,02,500/-.

In the result, the appeal filed by the assessee is partly allowed.