2014 (3) TMI 684 - AT - Income Tax

Restriction in addition made u/s 69 of the Act - Net profit @ 5% on total cash deposits made Held that - The decision in Kamal Kumar Versus Income-tax Officer 2014 (3) TMI 627 - ITAT AGRA followed - CIT(A) held that initial stage of assessment clearly prove that the amount deposited in the bank account was in fact sale proceeds of the goods, which were sold by the assessee from time to time against whom the assessee issued cheques to various dealers and earned commission thus, addition u/s. 69 of the IT Act is wholly unwarranted and unjustified - Since the total deposit being the total sales of the assessee are only Rs.31,62,300/-, thus, the turnover of the assessee did not exceed the amount of Rs.40,00,000/- and as such, the provisions of section 40AF of the Act would apply in the case of assessee for the purpose of computing the profit and gains of retail business, which provides that sum equal to 5% of the total turnover in the previous year on account of such business shall be deemed to be the profit and gains of such business thus, 5% of the profit rate is applied - The AO made addition mainly on the basis of finding given in assessment year 2008-09 in respect of the same bank account the CIT(A) had correctly followed the order of the Tribunal thus, there was no infirmity in the order of CIT(A) Decided against Revenue. Net profit @ 6% on bank deposits made Held that - As decided in earlier years also, the order of the CIT(A) is upheld confirmed on merits for applying the profit rate but the same is modified and it is directed that instead of applying net profit rate of 6% - thus, the authorities below shall apply profit rate of 5% for the purpose of computing part addition as was directed in assessment year 2008-09 Decided in favour of Assessee.

Summary

Issues:
1. Application of net profit rate on total cash deposit in bank account.
2. Addition of unexplained deposits in bank accounts.
3. Interpretation of previous tribunal orders for similar issues.

Issue 1: Application of net profit rate on total cash deposit in bank account

The appeal by the Revenue challenged the application of a net profit rate of 5% on the total cash deposit in the bank account for the assessment year 2007-08. The assessment was reopened based on findings from a previous year where unexplained deposits were identified. The AO added Rs. 5,14,600 as unexplained deposits, similar to the previous year. The assessee contended that the deposits were related to trading in Sarees and cited a previous ITAT order supporting a net profit rate application. The CIT(A) directed applying a 5% profit rate on total turnover, resulting in a confirmed addition of Rs. 25,730. The issue was deemed in favor of the assessee based on a previous ITAT order, and the departmental appeal was dismissed.

Issue 2: Addition of unexplained deposits in bank accounts

In another appeal for the assessment year 2009-10, the Revenue challenged the application of a 6% net profit rate on bank deposits, adding Rs. 3,96,974. Similar to the previous year, the AO found unexplained deposits in multiple bank accounts. The CIT(A) followed the previous ITAT order and directed a 6% profit rate application, restricting the addition. Both parties agreed that the issue was covered by the previous ITAT order. The Tribunal confirmed the CIT(A) order but modified it to apply a 5% profit rate instead of 6%, as directed in the previous year. Consequently, the departmental appeal was dismissed, and the cross objection of the assessee was allowed.

Issue 3: Interpretation of previous tribunal orders for similar issues

The Tribunal considered the consistency of issues across assessment years 2007-08 and 2009-10. Relying on previous decisions, the Tribunal confirmed the CIT(A) orders but directed a modification in the profit rate application. The Tribunal emphasized following the rationale of earlier decisions and ensuring uniformity in applying profit rates. Ultimately, both departmental appeals were dismissed, and the cross objection of the assessee was allowed based on the interpretation of previous tribunal orders.

In conclusion, the Tribunal upheld the CIT(A) orders while making adjustments to the profit rate application, ensuring consistency with previous decisions and providing detailed reasoning for the modifications.