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Issues: (i) Whether the assessment contained an incorrect factual finding that the return was filed in response to a notice under section 148 of the Income-tax Act, 1961 when no such notice had been issued; (ii) whether the rejection of books of account and estimation of net profit at 5% should be sustained; (iii) whether the cash deposits in specified bank notes during the demonetisation period could be added as unexplained money under section 69A after estimation of business income.
Issue (i): Whether the assessment contained an incorrect factual finding that the return was filed in response to a notice under section 148 of the Income-tax Act, 1961 when no such notice had been issued.
Analysis: The assessment records showed an incorrect observation that the assessee had not filed the return of income and had filed it only in response to a notice under section 148, although the case was a scrutiny assessment and no such notice had been issued. The finding was held to be prima facie incorrect.
Conclusion: The issue was decided in favour of the assessee.
Issue (ii): Whether the rejection of books of account and estimation of net profit at 5% should be sustained.
Analysis: The books were rejected for want of supporting details and documents. However, the rate of 5% applied by the first appellate authority was found to be without any comparative basis or adequate justification. Having regard to the past declared results and the nature of business, the net profit rate was considered capable of being reduced to a reasonable level.
Conclusion: The issue was partly decided in favour of the assessee by reducing the net profit rate to 2.5%.
Issue (iii): Whether the cash deposits in specified bank notes during the demonetisation period could be added as unexplained money under section 69A after estimation of business income.
Analysis: Once the turnover was accepted as business turnover, the cash deposits could not again be segregated from the same turnover and brought to tax as unexplained money merely because they were deposited during the demonetisation period. The same amount could not be subjected to dual treatment in the manner adopted below.
Conclusion: The addition under section 69A was deleted and the issue was decided in favour of the assessee.
Final Conclusion: The assessee succeeded on the incorrect factual finding and on the addition under section 69A, and the net profit estimation was further reduced, resulting in a part allowance of the appeal.
Ratio Decidendi: Where business turnover is accepted, cash deposits forming part of that turnover cannot be separately taxed as unexplained money under section 69A, and an estimated profit rate must rest on a rational basis supported by the record and past results.
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