M/S K.C. AUTOS,NAWANSHAHR vs. INCOME TAX OFFICER, NAWANSHAHR

None appeared for the assessee. We have rejected the adjournment application, filed by the appellant as it has no merits. The reason for seeking adjournment was mentioned that the appeal defect as regard to the challan deposit under the wrong head has been removed and copy was awaited from the Income Tax Officer. After hearing, the ld. DR and considering the minor issue of addition on account of profit on estimated sales based on deposit in the Central Bank of India, as addition of Rs.40,676/- and unexplained deposit of Rs.4,20,000/- in the loan a/c of PNB, Phagwara, it is decided to hear the appeal on merits based on the material available on the record.

During the course of scrutiny, the AO has treated the total credit of Rs.27,71,159/- in the bank account of the appellant assessee maintained with the Central Bank of India as total sales and adopted net profit @ 5.1% of these sales. Thus, the AO has computed Rs.1,41,330/- as net profit of the assessee, and by giving credit for the income declared from such net profit, he added Rs. 40,676/- (1,41,330 – 1,00,654), to the return income of 3 K.C. Autos v. ITO the assessee as undisclosed profit on the sales of scooter and their spare parts which has been confirmed by the ld. CIT(A) by holding that the AO has adopted fairly reasonable net profit rate inasmuch as, the AO has considered deposits in the bank account in the sales and restricted himself to only the net profit on the sales although the assessee has not been able to substantiate the deposits in the bank account.

Having heard the ld. DR, perusal of the record and the impugned order. We find that the AO and the ld. CIT(A), has not given any concrete basis or criteria such as past history of the assessee or comparable case of assessee who has been engaged in the similar business activity on parity of facts for the application of the net profit rate at 5.1% so as to disprove the profit rate declared by the assessee while showing net income on the sales turnover. In our view, such adoption of the profit rate, in arbitrary manner based on assumption and presumption without corroborative evidence cannot be approved. Accordingly, the addition of Rs.40,676/- is hereby deleted.

The next issue, pertains to the cash deposit of Rs.4,20,000/- in the loan account of the appellant with the PNB, Phagwara. The AO being not satisfied with the explanation of the assessee added back, this amount to 4 K.C. Autos v. ITO the assessee’s income as unexplained cash credit. The ld. CIT(A) has confirmed the addition by holding that the assessee has filed return of income of Rs.51,680/- and therefore, it was not possible that the repayment of loan of Rs. 4,20,000/- is made out of his income earned as per the return of income.

After hearing, the ld. DR and perusal of record, we find that the assessee has been in the business of sales of scooters and their spare parts by the name of M/s K.C. Autos, Banga Road, Nawanshahr.

Accordingly, we accept the grievance of the assessee is accepted as genuine and therefore, the addition of Rs.4,20,000/- is hereby deleted.

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