RAMA RAO KOTHA,KAKINADA vs. INCOME TAX OFFICER, WARD-2, KAKINADA

Brief facts of the case are that the assessee is an individual, doing business in wholesale medical agency, e-filed his return of income of Rs.2,94,190/- along with audit report u/s 44AB of the Act. Subsequently, the case was selected for scrutiny through CASS and it was observed by the department that the assessee had deposited cash of Rs.1,24,01,841/- and Rs.78,68,800/- in his bank accounts. A series of notices were issued to the assessee calling for sources for cash deposits and to produce books of account to verify the sources for cash deposits, but the assessee did not comply with any of these notices. Hence, the Assessing Officer (AO) treated the amount as business income and considering profit margin @8% of turnover of Rs.1,49,63,719/-, estimated the profit at Rs.11,97,100/- and passed an order u/s 144 of the Act.

On being aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) upheld the addtion made by the AO and dismissed the appeal of the assessee, as the assessee failed to respond to the notices issued by the department and produce substantive evidence in support of source for cash deposits.

On being aggrieved, the assessee preferred an appeal before the Tribunal by raising the following grounds :

In the facts and circumstances of appellant’s case, the impugned order u/s 250 of the I.T.Act by Learned Commissioner of Income –Tax (Appeals), National Faceless Centre is not correct both on facts and law applicable to the facts of appellant’s case.

Ground No.1 and 6 are general in nature, which do not require specific adjudication.

Ground No.2 to 4 relate to estimation of income @8% of gross receipts. At the outset, the Ld.AR submitted that the assessee was doing business in wholesale medical agency, closed his business in the month of March 2018 due to personal and financial reasons and vacated the business premises. The assessee was served with an order u/s 144 of the Act dated 05.12.2019 on 06.12.2019, through which the assessee came to know that the notices issued were not delivered to him as the notices were sent to the addresss, which he vacated. He submitted that non responding of the notices is unintentional due to closure of business and vacation of premises. He further submitted that estimation of income on gross receipts @8% by the AO, which was upheld by the Ld.CIT(A) is very high and the Ld.AO has not brought any comparable cases in the line of business with such high rate of profit. He, therefore, pleaded to set aside the orders passed by the lower authorities and estimate the income on gross receipts @2% in view of the principles of natural justice.

Per contra, the Ld.DR relied on the order passed by the Ld.CIT(A) and pleaded to uphold the order passed by the Ld.CIT(A) and dismiss the appeal of the assessee.

I have heard both the parties and perused the material placed on record. It is undisputed fact that notices were issued on the assessee, but the assessee did not respond to the notices issued by the department. Hence, the assessee’s case was dismissed ex-parte by the lower authorities. However, the Ld.AR submitted that the assessee has no knowledge of the notices said to be issued for the fact that the assessee’s business is closed and the assessee vacated the premises to which the notices were sent and his non responding to the notices is not intentional. He, further submitted that estimating profit @8% on gross turnover is very high in this line of business and pleaded to estimate the profit @2% on gross turnover in order to meet the ends of justice. On careful examination of the facts and circumstances of the case and business model of the assessee, I am inclined to direct the AO to estimate the profit @6% on gross turnover. Hence, the ground Nos.2 to 5 raised by the assessee are partly allowed.

Ground No. 5 is related to levy of interest u/s 234B of Rs.62,568/-. The Ld.AR submitted that the levy of interest is not correct in the facts and circumstances of the assessee’s case. He, therefore, pleaded to quash the orders passed by the lower authorities and delete the interest charged.

Per contra, the Ld.DR submitted that charging of interest is consequential and interest is mandatory and not discretionary. He, therefore, pleaded to uphold the orders passed by the lower authorities.

I have heard both the parties. As submitted by the Ld.DR, charging of interest is consequential and interest is mandatory and not discretionary as held by the Hon’ble Supreme Court in the case of Anjuman H Ghaswala (252 ITR 1) and also the decision of the Apex Court in the case of CIT Vs. Hindustan Bulk Carriers (259 ITR 449). Therefore, I direct the AO to restrict the charging of interest on the profit estimated @6% on gross turnover. Hence, the ground raised by the assessee is partly allowed.

In the result, appeal of the assessee is partly allowed.