2022 (10) TMI 597 - AT - Income Tax

Appeal allowed on unaccounted sales, cash payments disallowed under Section 40A(3). Detailed analysis and legal precedents.

Dipika Kishorkumar Patel Versus The Income Tax Officer, Ward-1 (2), Bhavnagar

The Tribunal partly allowed the appeal, upholding the addition related to unaccounted sales while deleting the disallowance under Section 40A(3) ... Estimation of income - unaccounted turnover - Addition arbitrarily treating a sum as found credited in the banking account maintained with ICICI Bank Ltd., as unaccounted turnover, and then by estimating the net profit at the rate of 8% on the same - HELD THAT:- Even though the balance with ICICI Bank, Bhavnagar was inadvertently shown by the assessee in the balance-sheet under the head “Sundry Debtors” as pointed out by the learned Counsel for the assessee, the transactions reflected therein representing purchase and sales of the assessee’s business were not properly reflected in the books of account of the assessee as found by the authorities below. At the time of hearing before us assessee has not been able to bring anything on record to rebut or controvert this finding of fact recorded by the authorities below. Although he has claimed that the entire credits reflected in the said bank account did not represent sales of the assessee, there is no evidence produced by him to support and substantiate this claim. He has not furnished any details regarding the nature of transactions reflected in the bank account of the assessee to show that the credits reflected in the said bank account did not entirely represent the sales of the assessee as claimed by him. He has also not furnished any details or evidence to show that the net profit rate of 8% applied by the authorities below estimating the income of the assessee from the undisclosed turnover is excessive or unreasonable. Keeping in view all the facts of the case, we do not find any justifiable reason to interfere with the impugned order of the learned CIT(A) on this issue and upholding the same, we dismiss Ground No.1 of the assessee’s appeal. Addition u/s 40A(3) - payments exceeding cash of Rs.20,000/- as reflected in the bank account of the assessee with ICICI Bank were made against the purchases - HELD THAT:- Since the said purchases were pertaining to the undisclosed business transactions of the assessee as held by the authorities below and profit of the said undisclosed business transactions was estimated by them by applying a net profit rate, we find merit in the contention of the learned Counsel for the assessee that the same purchases cannot be disallowed separately under Section 40A(3) - To arrive at this conclusion, we derive support from the decision in the case of CIT Vs. Hindustan Equipment (P.) Ltd.[2013 (3) TMI 221 - MADHYA PRADESH HIGH COURT] cited by assessee wherein it was held that when profit was estimated by applying net profit rate, there was no scope for further disallowance under Section 40A(3) of the Act separately in respect of purchases. To the similar effect is the decision in the case of CIT Vs. Banwari Lal Banshidhar [1997 (5) TMI 37 - ALLAHABAD HIGH COURT] wherein it was held that where income of the assessee was computed applying gross profit rate and when no deduction was claimed by the assessee in respect of purchases, no disallowance under Section 40A(3) of the Act could be made by the Assessing Officer. We accordingly delete the disallowance made by the AO and confirmed by the learned CIT(A) and allow Ground No.2 of the assessee’s appeal. Issues:1. Addition of Rs.27,04,965 made by Assessing Officer2. Disallowance of Rs.40,89,100 under Section 40A(3) of the ActIssue 1: Addition of Rs.27,04,965 made by Assessing Officer:The assessee, engaged in trading, had undisclosed bank account transactions leading to the reopening of assessment. The Assessing Officer rejected the books of account, estimating income at 8% of the total turnover due to improper recording of purchase & sales transactions. The Commissioner of Income-tax (Appeals) partially upheld the trading addition, acknowledging the inclusion of bank balance in 'Sundry Debtors' but upheld the addition of Rs.24,02,815 for unaccounted sales. The CIT(A) found the explanation inadequate and justified the profit estimation. The Tribunal dismissed the appeal, noting the absence of evidence to challenge the findings and upheld the CIT(A)'s decision.Issue 2: Disallowance of Rs.40,89,100 under Section 40A(3) of the Act:The Assessing Officer invoked Section 40A(3) due to cash payments exceeding Rs.20,000 against purchases, making a disallowance. The CIT(A) upheld this disallowance, rejecting the appellant's argument against the rejection of books of accounts. The Tribunal, however, referred to legal precedents and concluded that since profit was already estimated using a net profit rate, no separate disallowance under Section 40A(3) could be made for the same purchases. Citing relevant case laws, the Tribunal deleted the disallowance, allowing the second ground of the assessee's appeal.In conclusion, the Tribunal partly allowed the appeal, upholding the addition related to unaccounted sales while deleting the disallowance under Section 40A(3) concerning cash payments against purchases. The judgment provides a detailed analysis of the issues, considering legal precedents and justifications for the decisions made at each stage of the assessment process.