2019 (8) TMI 1314 - AT - Income Tax

ITAT directs 5% net profit rate on cash deposits, no additional income beyond returned income

The ITAT partly allowed the appeal of the assessee by directing the AO to apply a net profit rate of 5% on the cash deposits of Rs. 8,70,000, resulting in ... Unexplained cash credit - net profit @5% be applied by AO - HELD THAT:- Finding our self in agreement with the view adopted by the co-ordinate Bench in assessee’s own case we allow the appeal filed by the assessee and directs the Assessing officer to apply net profit rate of 5% on bank deposits of ₹ 8,70,000/- which works out to ₹ 43,500/- giving credit to the income of ₹ 70,050/- already shown under section 44AD of the Act, credit of which was rightly allowed by the AO. In effect no addition over and above the returned income would be warranted. Issues Involved:1. Validity of the assessment order due to an allegedly illegal notice under section 143(2).2. Justification of the addition of Rs. 8,70,000 as unexplained cash deposits.3. Rejection of the assessee's explanation for the cash deposits.4. Consideration of business withdrawals in the assessment.5. Consideration of past history and precedent in the assessee's case.6. Application of net profit rate on cash deposits.7. Jurisdiction of CIT(A) in directing penalty under section 271(1)(c).8. Interest liability under section 234B.9. Overall validity of the assessment order.Detailed Analysis:1. Validity of the Assessment Order:The assessee argued that the assessment order was void ab initio due to an illegal notice under section 143(2) issued by ITO 44(1), Kolkata. However, this ground was not pressed by the assessee during the proceedings and was treated as withdrawn.2. Justification of the Addition of Rs. 8,70,000:The Assessing Officer (AO) added Rs. 8,70,000 as unexplained cash deposits under section 69 of the Income Tax Act, 1961. The AO believed that the assessee failed to prove that the cash deposits represented business turnover. The CIT(A) upheld this addition, rejecting the assessee's contention that the deposits were from the glass bangle business.3. Rejection of the Assessee's Explanation:The assessee's explanation that the cash deposits were from the glass bangle business was rejected by the AO and CIT(A) as arbitrary and based on no evidence. The CIT(A) noted that no books of account or confirmations from customers were produced, and the transactions were made entirely in cash without any banking transactions to support the business claim.4. Consideration of Business Withdrawals:The assessee argued that the entire deposits should not be treated as income without considering the withdrawals made from the bank accounts. The ITAT agreed with this view, noting that the CIT(A)'s attempt to distinguish the case from the previous assessment year (AY 2011-12) was weak. In AY 2011-12, the CIT(A) had treated the deposits as business turnover and applied a net profit rate of 5%.5. Consideration of Past History and Precedent:The ITAT noted that in AY 2011-12, the CIT(A) had treated similar cash deposits as business turnover and applied a net profit rate of 5%. The ITAT found that the CIT(A)'s attempt to distinguish the present case from AY 2011-12 was not justified. The ITAT also referenced the order passed by the ITAT for AY 2011-12, which upheld the CIT(A)'s decision to treat the deposits as business turnover and apply a net profit rate.6. Application of Net Profit Rate on Cash Deposits:The ITAT directed the AO to apply a net profit rate of 5% on the cash deposits of Rs. 8,70,000, resulting in a net profit of Rs. 43,500. The ITAT also noted that the AO had already allowed a credit of Rs. 70,050 shown under section 44AD of the Act. Therefore, no additional income was warranted over and above the returned income.7. Jurisdiction of CIT(A) in Directing Penalty:The assessee argued that the CIT(A) exceeded his jurisdiction by directing the AO to impose a penalty under section 271(1)(c). The ITAT did not specifically address this issue, but the overall decision to allow the appeal on substantive grounds rendered this point moot.8. Interest Liability under Section 234B:The assessee denied liability for interest under section 234B. However, this issue was not specifically addressed in the ITAT's final decision.9. Overall Validity of the Assessment Order:The ITAT concluded that the addition made by the AO was not justified and directed the AO to apply a net profit rate of 5% on the cash deposits, resulting in no additional income over and above the returned income. The appeal was partly allowed, with the substantive grounds in favor of the assessee and the remaining grounds dismissed as not pressed.Final Result:The appeal of the assessee was partly allowed, with the ITAT directing the AO to apply a net profit rate of 5% on the cash deposits, resulting in no additional income over and above the returned income.