2017 (7) TMI 655 - AT - Income Tax

Addition applying net profit rate of 12% instead of 8% on the gross receipts as declared by the assessee - Held that - Application of net profit rate of 12% for the purpose of estimating business income of the assessee. It is admitted fact that assessee did not maintain any books of account and any detail to show as to how the business income have been computed. The issue is, therefore, covered against the assessee on identical facts by order of ITAT Chandigarh Bench in the case of the same assessee. Addition of cash deposits - Held that - As proved by the assessee on record that assessee has made cash withdrawals during the year under consideration from various banks in a sum of ₹ 7.65 Cr and made re deposit of cash of ₹ 4.30 Cr in the same year out of such cash withdrawals. Thus, assessee proved that assessee was having availability of the cash for re deposit in other bank accounts. The Assessing Officer has not brought any evidence on record to prove that assessee has spent the amount of withdrawn of cash somewhere else. Therefore, in the absence of any adverse material against the assessee on record, authorities below should not have rejected the explanation of the assessee. The onus upon revenue has not been discharged in any manner. Authorities below were not justified in considering the re-deposit of cash of ₹ 3.13 Cr as unexplained cash deposit. Therefore, set aside the impugned orders and delete the addition of ₹ 3.13 Cr in assessment year 2009-10. In assessment year 2010-11, the Assessing Officer made identical addition of ₹ 2,03,99,700/-. It is admitted fact that in this year, cash deposits were of ₹ 4,20,83,700/- against cash withdrawals of ₹ 7,60,15,550/-. This issue is admittedly same as have been considered in preceding assessment year 2009-10, therefore, following reasons for decision for assessment year 2009-10, we set aside the orders of authorities below and delete the entire addition. - Decided in favour of assessee and against revenue.

Summary

Issues Involved:
1. Application of net profit rate of 12% instead of 8% on gross receipts.
2. Addition of cash deposits of ?3.13 Cr and ?2,03,99,700/- in bank accounts as unexplained cash deposits.

Issue-wise Detailed Analysis:

Issue No. 1: Application of net profit rate of 12% instead of 8% on gross receipts

1. The assessee challenged the order of the CIT(A) upholding the addition made by the Assessing Officer (AO) by applying a net profit rate of 12% instead of 8% on the gross receipts for the assessment years 2009-10 and 2010-11. The assessee, a proprietor of M/s R.D. Construction Co., did not maintain any books of account, bills, vouchers, or details of parties from whom purchases were made. The AO applied a net profit rate of 12% based on the judgment of the Hon'ble Punjab & Haryana High Court in the case of Prabhat Kumar 323 ITR 675.

2. The CIT(A) upheld the AO's decision, noting the lack of records maintained by the assessee. The Tribunal had previously dismissed the assessee's appeals for the assessment years 2007-08 and 2008-09, confirming the application of a 12% net profit rate based on similar facts.

3. The Tribunal, after considering the facts, found no merit in the assessee's grounds for both appeals, as the issue was already decided against the assessee in the previous order dated 17.09.2015. The Tribunal confirmed the application of a 12% net profit rate for estimating the business income due to the absence of maintained books of account and details.

Issue No. 2: Addition of cash deposits of ?3.13 Cr and ?2,03,99,700/- in bank accounts as unexplained cash deposits

1. The assessee challenged the addition made by the AO of cash deposits in the bank accounts for the assessment years 2009-10 and 2010-11. The AO did not accept the assessee's explanation that the cash deposits were re-deposits of amounts withdrawn in earlier years as bayanas for immovable property deals that did not mature. The AO treated the entire amount as unexplained cash deposits due to the lack of evidence provided by the assessee.

2. The CIT(A) rejected the assessee's contention and upheld the AO's decision. The assessee argued that there was sufficient cash in hand available as per the cash flow statement prepared from cash deposits and withdrawals in the banks during the year. The assessee also referenced previous ITAT orders and decisions to support the contention that the cash flow statement should be accepted.

3. The Tribunal considered the rival submissions and noted that the assessee did not maintain books of account, and the profit was estimated by applying a higher profit rate. The total receipts of the assessee from the business were ?6.78 Cr, which were received through banking channels and entered into the bank accounts. The AO found cash deposits of ?6.60 Cr in various bank accounts over three financial years and asked the assessee to produce a cash flow statement, which was submitted and not doubted by the authorities.

4. The Tribunal found that the assessee had made cash withdrawals of ?7.65 Cr and re-deposited ?4.30 Cr during the year. The authorities did not find any negative cash or discrepancies in the cash flow statement. The Tribunal referenced several ITAT orders and decisions, emphasizing the importance of the cash flow statement as vital evidence in the absence of maintained books of account.

5. The Tribunal concluded that the authorities were not justified in considering the re-deposit of cash of ?3.13 Cr as unexplained cash deposits. The onus on the revenue to disprove the explanation was not discharged. Consequently, the Tribunal set aside the impugned orders and deleted the addition of ?3.13 Cr for the assessment year 2009-10.

6. For the assessment year 2010-11, the Tribunal noted that the issue was identical, with cash deposits of ?4,20,83,700/- against cash withdrawals of ?7,60,15,550/-. Following the reasons for the decision for the assessment year 2009-10, the Tribunal set aside the orders of the authorities and deleted the entire addition for the assessment year 2010-11.

Conclusion:
The appeals of the assessee were partly allowed, with the Tribunal confirming the application of a 12% net profit rate and deleting the additions of unexplained cash deposits for both assessment years.