Demonetisation-period cash deposits treated as business receipts; ITAT directs 12% net profit on combined turnover to compute business income

ITAT held that cash deposits of Rs.11,10,000 made during the demonetisation period were shown to relate to business receipts and must be treated as such; accordingly the Tribunal directed application of a 12% net profit rate on the combined turnover of Rs.1,11,06,887 to determine business income. The Tribunal disagreed with the Commissioner (Appeals) to the extent the deposits were treated as unexplained non business income and allowed the appeal for statistical purposes. The ruling establishes that demonstrated demonetisation period deposits can be integrated into turnover and taxed by applying an appropriate net profit rate.

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Issues: Whether the Commissioner of Income Tax (Appeals) was justified in confirming the Assessing Officer's treatment of cash deposits made during the demonetisation period and in the resulting assessment computation.

Analysis: The Tribunal examined the Assessing Officer's findings of total credits and the separate treatment of Rs. 11,10,000 deposited during the demonetisation period. The Assessing Officer had applied an 8% net profit rate on business receipts excluding the demonetisation-period deposits and treated the Rs. 11,10,000 as income under unexplained cash deposits rules. The Commissioner (Appeals) had held the turnover at Rs. 99,96,887 and applied 8% profit, while confirming the addition under unexplained deposits. Having considered the parties' submissions on whether the demonetisation-period deposits arose from business receipts and the appropriate profit rate to be applied, the Tribunal directed that the Rs. 11,10,000 deposited during demonetisation be treated as business receipt and that net profit at 12% be applied on the combined amount of Rs. 1,11,06,887 (Rs. 99,96,887 + Rs. 11,10,000) to determine business income. The Tribunal allowed the assessee's grounds for statistical purposes.

Conclusion: The Commissioner of Income Tax (Appeals) is not upheld in the respect of treating the demonetisation-period deposits as non-business unexplained income; the deposits of Rs. 11,10,000 are to be treated as business receipts and a net profit rate of 12% is to be applied on Rs. 1,11,06,887 for determination of business income. The appeal is allowed for statistical purposes.

Ratio Decidendi: Where cash deposits during the demonetisation period are shown to relate to business receipts, they may be treated as business receipts for assessment and a suitable net profit rate may be applied to the combined turnover to determine business income.

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