2023 (3) TMI 430 - AT - Income Tax

Estimation of income - Rejection of books of accounts - Determination of income - difference in turnover as per Form 26AS and turnover reported in books of accounts - CIT(A) directed the AO to estimate 5% profit on total receipts as per Form 26AS - CIT(A) further directed the AO to determine the income of the assessee on the basis of 5% net profit estimated on total turnover and difference between income offered in the return of income and 5% estimated profit as per directions, should be treated as quantum addition which is liable to be sustained - HELD THAT - CIT(A) while adopting 5% net profit has analyzed previous financial results of the assessee right from AYs 2008-09 to 2013-14 and observed that the average net profit declared by the assessee for all those years works out to 3.25%. If you consider average net profit declared by the assessee for earlier assessment years with income determined by the AO by adding difference in turnover as per Form 26AS, the net profit percentage determined by the AO for the impugned assessment year is exorbitant, which gives distorted figures. Therefore, she has made a fair estimation of 5% net profit by taking into account net profit estimated by the AO for earlier assessment years and also the directions of the JCIT s order u/s.144A of the Act, for the AY 2016-17. The method followed by the Ld.CIT(A) to determine income of the assessee is appears to be reasonable and thus, we are of the considered view that there is no reason to interfere with findings given by the Ld.CIT(A) to estimate 5% net profit on grossreceipts as per Form 26AS. Thus, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the Revenue for the AY 2015- 16. Estimation of profit on cash deposits found in the bank account of the assessee - AO was of the opinion that the assessee could not explain source for cash deposits and thus, treated cash deposits as unexplained income of the assessee - HELD THAT - AO has made addition towards difference in gross turnover as no business income of the assessee. Ideally, when the AO has treated gross-receipts as per Form 26AS as business turnover of the assessee, then addition made towards differential turnover as business income of the assessee, will take care of cash deposits found in the bank account of the assessee. If you telescopic, addition made towards business income to cash deposits, in our considered view, further addition towards cash deposits u/s.69A of the Act, appears to be double addition on very same income. CIT(A) has taken a reasonable view taking into account overall facts and circumstances of the case and has estimated net profit of 5% which is further strengthened by the fact that in earlier assessment years, the AO himself has estimated 5% net profit on total turnover on the basis of directions of the JCIT s order passed u/s.144A of the Act for the AY 2016-17. Therefore, we are of the considered view that there is no error in the reasons given by the Ld.CIT(A) to estimate net profit at 5% on total turnover, including cash deposits found in the bank account of the assessee and thus, we reject the ground taken by the Revenue.

Summary

Issues Involved:
1. Estimation of income by the CIT(A) when the turnover exceeds 2 Crores.
2. Admission of additional evidence by the CIT(A) without remand report from AO.
3. Difference in turnover as per Form 26AS and books of accounts.
4. Addition towards cash deposits in the bank account under Section 69A.

Issue-wise Detailed Analysis:

1. Estimation of Income by the CIT(A):
The Revenue contended that the CIT(A) erred in estimating the income at 5% of the gross receipts when the assessee himself had estimated it at 8%. The CIT(A) justified the estimation by considering the net profit declared by the assessee in earlier years and the directions of the JCIT for the AY 2016-17, where a 5% net profit on business receipts was directed. The CIT(A) determined that the AO should have adopted a figure of 3.25% based on the weighted average of net profit ratios from previous years but accepted the assessee's agreement to a 5% estimation. The Tribunal upheld the CIT(A)'s method, finding it reasonable and dismissing the Revenue's appeal.

2. Admission of Additional Evidence:
The Revenue argued that the CIT(A) admitted additional evidence in the form of bills and vouchers without giving the AO an opportunity to verify them, violating Rule 46A. The CIT(A) considered the detailed submissions and sample invoices produced by the assessee, which were found to be largely in order. The Tribunal noted that the CIT(A) had considered the facts and circumstances, including the lack of proper books maintained by the assessee, and found no reason to interfere with the CIT(A)'s findings.

3. Difference in Turnover as per Form 26AS and Books of Accounts:
The AO identified a difference between the gross turnover reported in the books and the gross receipts as per Form 26AS. The assessee explained that the turnover reported in the books was net of all expenses, causing the discrepancy. The CIT(A) directed the AO to estimate the income at 5% of the gross receipts as per Form 26AS, considering the JCIT's directions for AY 2016-17. The Tribunal agreed with the CIT(A)'s approach, noting that the assessee's explanation was not satisfactorily supported by evidence and that the books of accounts were not properly maintained.

4. Addition towards Cash Deposits in Bank Account under Section 69A:
For AY 2013-14, the AO made an addition of Rs.2,54,40,084/- towards unexplained cash deposits in the bank account, treating it as income under Section 69A. The assessee claimed that the source of cash deposits was from withdrawals and receipts from customers. The Tribunal found that the assessee had withdrawals exceeding the deposits and explained the source of cash deposits. It concluded that when the AO treated the gross receipts as business turnover, further addition under Section 69A would amount to double addition. The CIT(A) had considered the total receipts, including cash deposits, for estimating the business income at 5%. The Tribunal upheld the CIT(A)'s view, finding it reasonable and consistent with the AO's approach in earlier years.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both AY 2013-14 and AY 2015-16, upholding the CIT(A)'s estimation of 5% net profit on gross receipts and rejecting the additional grounds raised by the Revenue. The judgment emphasized the reasonableness and consistency of the CIT(A)'s approach in estimating the income and addressing the discrepancies in the assessee's turnover and cash deposits.