2016 (4) TMI 422 - AT - Income Tax

Undeclared cash deposits - treated as business receipts - Held that - All the sales of the assessee are made in cash, and the assessee failed to substantiate why cash deposit of ₹ 19,93,152/- were only sales of the business receipts and not entire cash deposits. The explanation of the assessee that the withdrawals were re-deposited was not accepted by the AO as well as by the CIT(A) in absence of any evidence in support of its claim that withdrawals were re-deposited in bank account. We find that the ratio of the cases cited by the assessee is not applicable over the facts of the case as the assessee himself has failed to support its claim of re-deposit of withdrawals and its normal human behavior that no prudent person will withdraw the money and re-deposit into banks without any justified reasons. In view of the circumstances of unverified purchases, cash sales and expenses of the business activity etc, we don t find any justification in submissions of the assessee in this regard, and in our opinion , the CIT(A) has rightly held entire cash deposits as business receipts of the assessee. - Decided against assessee N.P. percentage selection - Held that - We agree with the contention of the ld. AR that when the AO has already rejected the sales figure of the assessee declared in the original letter as being on estimate and without any evidence, there is no justification on the part of the Assessing Officer to adopt the net profit rate of 20 percent. shown on the basis of estimate and without any evidences. Further neither the Assessing Officer nor the ld. CIT(A) has brought on record any comparable case having 20 percent net profit rate in the retail business similar to the business carried on by the assessee. In such circumstances, we are of the opinion that the adopting the net profit rate of the eight percent. is most appropriate , which has been provided under section 44AD of Act for retail business having business turnover not exceeding ₹ 60 lacs. As the assessee has also declared its profit from the business under presumptive taxation under section 44AD of the Act, we hold that net profit rate of 8% is appropriate net profit rate and direct the Assessing Officer to apply the net profit rate of 8%, on the business receipt of ₹ 36,05,497/- and compute the net profit of the assessee from business accordingly.

Summary

Issues:
1. Application of profit rate of 20% in contravention of section 44AD.
2. Treatment of total estimated turnover based on bank deposits.
3. Adoption of total deposit in the bank as turnover.
4. Application of profit rate as per section 44AD.
5. Treatment of the amount of turnover in profit and loss account.
6. Passing the appellate order based on suspicion and doubt.
7. Application of section 44AD provisions.

Analysis:

Issue 1:
The Assessing Officer (AO) applied a net profit rate of 20% on sales, contrary to the 8% rate under section 44AD. The appellant argued for the 8% rate, citing lack of verification in the original return and the absence of comparable cases with a 20% rate. The Tribunal agreed, directing the AO to use the 8% rate for computing net profit.

Issue 2, 3, 5-7:
The AO treated the entire cash deposits in the bank account as business receipts, disregarding the explanation that part of the deposits came from withdrawals. The appellant failed to provide evidence of redeposits, leading to the confirmation by the CIT(A) and the Tribunal that the entire cash deposits constituted sales receipts. The grounds related to this issue were dismissed.

Issue 4:
The AO's arbitrary application of a 20% profit rate was deemed unjustified by the Tribunal. The lack of comparable cases and the legislative 8% rate under section 44AD led to a partial allowance of the appeal, directing the AO to use the 8% rate for computing net profit.

Issue 8:
The Tribunal held that the 8% net profit rate under section 44AD was appropriate for the appellant's turnover below Rs. 60 lakhs. The AO was directed to apply the 8% rate on the business receipts and compute the net profit accordingly. This issue was partially allowed in favor of the assessee.

General Issue:
The general ground in the appeal was dismissed as infructuous.

In conclusion, the Tribunal partially allowed the appeal, directing the AO to use the 8% net profit rate under section 44AD for computing the assessee's net profit. The decision was pronounced on 9th March 2016.