NAGENDRA GUPTA,KUSHINAGAR vs. ITO, WARD - 2(4), KUSHINAGAR

SHRI VIJAY PAL RAO, JUDICIAL MEMBER: This appeal by the assessee is directed against the order dated 16.07.2019 of CIT(A), Gorakhpur for the assessment year 2011-12. The assessee has raised the following grounds:- “

1. That on the facts and in the circumstances of the case, the ld. CIT(A) was not legally justified to estimate 4% NP Rate on total credit in bank of Rs. 1,19,38,023/- actually credited in bank amounting to Rs. 1,16,18,023/- till 31.03.2011 and allowing relief of Rs. 477521/- in appeal.

2. That on the facts and in the circumstances of the case, the ld. CIT(A) was not legally justified to hold the business of the appellant as a retail trade in fresh fruits as against disclosed business of commission agency of various principals and provisions of Sec 44AD is not applicable and returned net income of Rs. 201027/- showing 1.75% NP rate minus 80C deduction of Rs. 29656/- has been illegally disbelieved on wrong reasonings.

3. That on the facts and in the circumstances of the case, the ld. CIT(A) was not legally justified to hold to apply 4% NP rate wherein the regular books of accounts is maintained and application of 4% NP rate is on very higher side as also accepted by ld. CIT(A) in last Para of the order that considering the amount of turnover and nature of business 8% NP rate applied is on higher side.

4. That on the facts and in the circumstances of the case, the ld. CIT(A) was not legally justified to apply 4% NP rate when income and expenditure statement was filed showing net income of Rs. 2,01,027/-. Nagendra Gupta

5. That on the facts and in the circumstances of the case, the ld. CIT(A) was not legally justified not to record any finding with regard to charge of interest U/s 234A, 234B and 234C of IT Act when adhoc 4% NP Rate has been applied by ld. CIT(A) which was never anticipated.

6. That on the facts and in the circumstances of the case, the ld. CIT(A) was not legally justified to adopt 4% NP Rate and at any rate the same is arbitrary and excessive in the line of business carried on by the appellant of perishables items.”

2. The Assessing Officer has issued a notice under section 148 on 28.3.2018 on the basis of the AIR information regarding the deposit of cash in the saving bank account of the assessee to the tune of Rs. 1,15,19,200/-. In response to the notice, the assessee vide his reply dated 6.9.2018 submitted that the return filed under section 139 may be considered as return filed in response to the notice under section 148. The Assessing Officer has completed the assessment by making the additions on account of estimation of the income by applying 8% net profit on the total receipt of Rs. 1,19,38,023/- as found credited in the bank account of the assessee. Thus, the Assessing Officer took the entire deposits in the bank account as turnover of the assessee and applied 8% net profit to estimate the income. On perusal, the CIT(A) has restricted the net profit to 4% as against the 8% applied by the Assessing Officer.

3. Before the Tribunal, the learned AR of the assessee has submitted that even the net profit applied by the CIT(A) at 4% on the total receipts taken from the bank account is arbitrary and excessive when the assessee has declared the net profit at 1.75%. The learned AR has submitted that as far as the total receipts shown by the assessee, the same are matching with the bank account entries except the two entries dated 2.4.2011 and 4.11.2011 pertain to next year of Rs. 1,20,000/- and 2,00,000/- respectively total amounting to Rs. 3,20,000/-. If the said amount is reduced from the total amount taken by the Assessing Officer, the net receipts as declared by the assessee are matching with the bank account. The learned AR has further submitted that the Assessing Officer has taken even the entries of the next financial year while computing the total receipts from the year under 2 Nagendra Gupta consideration. Thus, the learned AR has submitted that the net profit @ 2% may be applied for estimation of the income on the correct turnover of the assessee. 4. On the other hand, the learned DR has submitted that the assessee has not explained the correct facts before the Assessing Officer but took the stand that the income of the assessee is in the nature of commission business whereas the Assessing Officer noted that the profit and loss account and balance-sheets revealed that the assessee has shown closing balance of sundry creditors, closing stock (inventories) etc,. Therefore, the explanation of the assessee was found to be contrary to the record. He has relied upon the orders of the authorities below and submitted that in the absence of any other guidance of estimation of the income, the CIT(A) has applied a reasonable rate of net profit at 4%. 5. I have considered the rival submissions as well as relevant material on record. Though the Assessing Officer has reopend the assessment based on the deposits made in the bank account of the assessee however, while computing the total receipts / turnover of the assessee, the Assessing Officer took some of the entries of the subsequent financial year which is evident from the bank account of assessee that two entries of deposits in the bank account on 2.4.2011 and 4.4.2011 were also taken by the Assessing Officer while arriving to the total receipts of the assessee. Thus, it is apparent that there is a mistake in the calculation which requires to be rectified. The Assessing Officer is directed to calculate the correct amount of total receipts / turnover of the assessee by excluding the entries of the next financial year. 6. As regards, the estimation of the income while applying 4% net profit, it is evident from the record that the Assessing Officer has taken the net profit at 8% by relying on the provisions of section 44AD. However, the same is not applicable in the case of the assessee when the assessee himself declared a turnover of more than 1 Crore for the year under consideration. The CIT(A) restricted the net profit Nagendra Gupta to 4% but that too without bringing on record any comparative case of net profit in the same business or the past history of the assessee. The assessee has also not furnished the details of showing the past history of the net profit of the assessee which is accepted by the Revenue or the fair and reasonable rate of the net profit which is prevailing in the business. 7. Therefore, in the facts and circumstances of the case when the relevant guiding factors are not brought on record, it is not possible to accept the stand of the either party. The assessee has pleaded that 2% net profit is reasonable and fair whereas the department has contended that 4% of net profit is reasonable. Accordingly, in the facts and circumstances of the case, the average of two rates being 2% and 4% would be fair and reasonable net profit in the case of the assessee. 8. Accordingly, the Assessing Officer is directed to apply 3% net profit while estimating the income on the correct receipts / turnover of the assessee. It is clarified that this 3% of net profit is not based on any parameters or any guiding factors but it is only a fair and reasonable estimation in the peculiar facts of the case under consideration. Hence, it will not operate as precedent. 9. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court after conclusion of hearing on 22.03.2022.