2022 (9) TMI 69 - AT - Income Tax

Unexplained cash deposits - difference in turnover as unexplained investments - net profit 8% be applied to the gross turnover instead of making addition of the whole of the gross receipts as income of the assessee - HELD THAT - AO did not accept the contentions of the assessee by holding that the assessee failed to produce any evidence regarding his business activities and did not produce cash book day book etc. While holding so, the AO ignored the provisions of Section 44AD of the Act, which allows the assessee to calculate his income on the basis of turnover and which enables assessee not to maintain books of account. The reasons cited by AO that assessee had failed to file any evidence regarding his business activities is not a good reason as his return of income filed on the basis of same business has been accepted for making additions on account of cash deposits. AO has started with the returned income based on the basis of such business only. Therefore, we do not agree with the findings of AO - Since all the documents supporting the argument of the assessee are available in the file and case is very old which relates to AY 2014-15 there is no point in setting aside the matter to ld. CIT(A) who had passed an ex-parte order and has not decided the issue on merits. Therefore, on the basis of documents available on record, direct the Assessing Officer to calculate the income of the assessee by applying 8% N.P. rate on total deposits made by the assessee.

Summary

Issues: Appeal against assessment order, addition of unexplained account credits, application of net profit rate on deposits.

Analysis:
1. Appeal against assessment order: The appellant filed an appeal against the order of the ld. CIT(A), challenging the assessment completed by the assessing officer. The grounds of appeal highlighted the failure to appreciate the full facts and circumstances of the case, the erroneous addition of unexplained account credits, and the lack of proper reasons provided for the assessment. The appellant contended that the order was based on wrong facts and presumptions, lacking merit and violating the principles of natural justice.

2. Addition of unexplained account credits: The Assessing Officer noted cash deposits of Rs. 53,30,390 in the appellant's bank account, leading to the addition of Rs. 30,34,627 as unexplained investments. The appellant argued that the entire deposits should not be added back to income, as withdrawals and payments were made from the same account. The appellant's representative highlighted that the appellant operated a bakery shop and traded in Khoya, with records supporting business activities. The pattern of transactions indicated legitimate business operations, justifying the application of an 8% net profit rate on the total deposits instead of adding the entire amount to income.

3. Application of net profit rate on deposits: The Tribunal observed that the appellant's return declared income of Rs. 2,15,330 on gross receipts of Rs. 22,95,763. The Assessing Officer's approach of treating the difference in turnover and cash deposits as unexplained investments was deemed incorrect. The Tribunal noted the appellant's withdrawals and payments from the bank account, indicating business expenses and transactions. Emphasizing the acceptance of the net income based on turnover, the Tribunal directed the Assessing Officer to calculate income by applying an 8% net profit rate on the total deposits, rejecting the Assessing Officer's reasoning for not considering the appellant's business activities and the provisions of Section 44AD of the Act.

In conclusion, the Tribunal allowed the appeal, directing the Assessing Officer to calculate the appellant's income based on the 8% net profit rate on total deposits. The decision highlighted the importance of considering all relevant evidence and business activities while making assessments, ensuring a fair and justified determination of taxable income.