2025 (9) TMI 1245 - AT - Income Tax

Revenue appeal allowed; Section 68 upheld for unexplained demonetisation-period cash deposits and 8% profit addition on turnover

Income Tax Officer 34 (2) New Delhi Versus Kamal Kishore Mishra AJ

ITAT allowed the revenue's appeal, upholding the AO's addition under section 68 for abnormal cash deposits during the demonetization period. The tribunal ... Addition made u/s 68 - cash deposits - Abnormal increase in cash deposits during demonetization period -HELD THAT:- NFAC relied the documents furnished by the assessee without calling the remand report from the AO. Ld. NFAS has observed in his order that the assessee had carried out his business activities under the two proprietorship concerns and the assessee had earned profit from one of his proprietorship concerns and loss from the other. NFAC allowed the appeal without calling the remand report and without verifying the documents. AO rightly added the profit @ of 8% on total turnover. The assessee also failed to furnish the documentary evidence in respect of the source of cash deposit made in the bank account during the demonization period. The addition was rightly made by the AO - Appeal of the revenue is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellate authority erred in restricting the addition of Rs. 1,83,17,097/- comprising (a) Rs. 72,05,547/- as deemed profit @8% on total turnover of Rs. 9,00,69,342/-, and (b) Rs. 1,11,11,550/- as unexplained cash deposits u/s 69A of the Income-tax Act, 1961, when such amounts were not offered to tax for the relevant year. 2. Whether the appellate order could be sustained where it relied upon documents furnished by the assessee without obtaining a remand report from the Assessing Officer and without independent verification of those documents. 3. Whether procedural infirmity (failure to call remand report) vitiates the appellate decision to restrict additions where Assessing Officer had recorded reasons for additions under sections 69A/estimation of profits. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of addition of deemed profit @8% on total turnover (Rs. 72,05,547/-) Legal framework: The Assessing Officer made an addition by estimating profit at 8% on total turnover under the provisions dealing with unexplained income/section 69A (assessment of unexplained money, investments, etc.) and estimation of income where books or explanation are unsatisfactory. The appeal considered whether such estimation was justifiable in absence of convincing documentary evidence to displace the AO's estimate. Precedent treatment: The judgment record does not cite or apply specific judicial precedents; the Court's approach is fact-driven, relying on the statutory power to make additions when sources are unexplained and when returned figures are inconsistent with material on record (e.g., Form 26AS credits exceeding declared turnover). Interpretation and reasoning: The Tribunal noted that the Assessing Officer had applied an 8% profit rate to the total turnover of Rs. 9,00,69,342/- to arrive at the addition of Rs. 72,05,547/- after the AO found discrepancies and lack of supporting evidence for the returned income. The appellate authority (NFAC) restricted this addition by accepting documents produced by the assessee without calling for a remand report or verifying those documents with the AO. The Tribunal held that the AO had rightly made the addition in view of the assessee's failure to furnish documentary evidence to substantiate the turnover and profit position; the AO's estimate was therefore a permissible exercise of the assessment powers where the taxpayer's explanation/documentation was inadequate. Ratio vs. Obiter: Ratio - It is a correct exercise of the AO's powers to estimate profits and make additions when the assessee fails to substantiate turnover/profit; reliance on tribunal/appellate acceptance of unverified documents (without remand) cannot displace AO's findings. Obiter - No detailed elaboration of the appropriate percentage in every case; the decision is grounded on facts showing inadequacy of explanation. Conclusion: The Tribunal concluded that the addition of Rs. 72,05,547/- as deemed profit @8% was justified and that the appellate restriction of that addition without verification was unsustainable; the revenue's ground in respect of this addition is allowed. Issue 2 - Validity of addition u/s 69A in respect of cash deposits of Rs. 1,11,11,550/- during demonetization period Legal framework: Section 69A and allied provisions permit treating unexplained cash credits/deposits as income when the assessee fails to explain the nature and source of such credits. The AO examined abnormal increase in cash deposits during the demonetisation period and the excess of amounts reported in Form 26AS over declared turnover, and made additions under section 69A for unexplained cash deposits. Precedent treatment: The decision does not reference specific case law; treatment follows statutory principle that unexplained deposits during demonetisation require satisfactory explanation/documentary evidence by the assessee to avoid treatment as unexplained income. Interpretation and reasoning: The Tribunal found that the assessee failed to furnish documentary evidence for the source of cash deposits totaling Rs. 1,11,11,550/-. The NFAC accepted the assessee's documents without calling for a remand report and without verification. The Tribunal held that such unexplained cash deposits, particularly when abnormal and unsupported, justified the AO's addition under section 69A. The Tribunal emphasized that the Assessing Officer had rightly required substantiation and that absence of such substantiation supports the addition. Ratio vs. Obiter: Ratio - Unexplained cash deposits during demonetisation, when not satisfactorily explained by documentary evidence, may be rightly brought to tax as income under section 69A; appellate acceptance of unverified documents without remand does not negate AO's addition. Obiter - Specifics of what documentary proof would suffice are not prescribed; the finding is fact-specific. Conclusion: The Tribunal allowed the revenue's ground challenging the appellate restriction and held that the addition of Rs. 1,11,11,550/- under section 69A was justified in absence of documentary explanation. Issue 3 - Procedural correctness: failure to call remand report and reliance on unverified documents by the appellate authority Legal framework: Appellate authorities exercising fact-finding functions may call for remand reports from the Assessing Officer where necessary to verify documents, obtain factual clarification, or to enable a fair adjudication; principles of natural justice and proper appellate procedure may require remand when primary findings of the AO are contested and factual verification is essential. Precedent treatment: No authorities were cited in the text; the Tribunal applied established appellate practice that remand may be required where documents relied upon by an appellate forum have not been examined or where findings rest on contested facts. Interpretation and reasoning: The Tribunal criticized the NFAC for allowing the appeal without calling the remand report and without verifying the documents submitted by the assessee. The Tribunal reasoned that by not obtaining a remand report, the NFAC accepted the assessee's unverified submissions, thereby displacing the AO's reasoned additions made after scrutiny. Because the AO had recorded reasons for additions (abnormal deposits, Form 26AS discrepancy, absence of documentary proof), the appellate authority ought to have sought the remand report to examine or test the veracity and sufficiency of the documents; failure to do so rendered the appellate restriction of additions improper. Ratio vs. Obiter: Ratio - Where an appellate authority relies on documents not previously verified by the AO, it is proper practice to call for a remand report to enable verification; failure to do so can vitiate the appellate acceptance of those documents and justify restoring the AO's additions. Obiter - The Court did not lay down exhaustive criteria for remand in every factual scenario; the conclusion is based on the record-specific procedural lapse. Conclusion: The Tribunal held that the NFAC's failure to call for a remand report and to verify documents was a procedural infirmity that resulted in an improper restriction of the AO's additions; accordingly, the revenue's grounds challenging the appellate order were allowed and the AO's additions were upheld. Cross-references See Issue 1 and Issue 2 for interconnected factual findings: both the deemed profit addition and the section 69A addition rest on the common factual matrix of abnormal deposits, discrepancies between declared turnover and reported credits, and the assessee's failure to produce documentary evidence; Issue 3 addresses the procedural impropriety that led the appellate authority to accept unverified documents and thereby restrict those additions.