2024 (4) TMI 490 - AT - Income Tax

Addition u/s 69A - cash deposited during demonetization period - determination of net profit @8% - assessee is the registered dealer under VAT Act - HELD THAT - AO with considering the earlier years net profit and the nature of business has determined the NP @8% which is unjustified. The cash deposit in demonetisation period is also the part of turn over. The turnover is declared in VAT return. Taking power from the order of Surinder Pal Anand 2010 (6) TMI 404 - PUNJAB AND HARYANA HIGH COURT and Rajinder Parshad Jain 2014 (12) TMI 567 - PUNJAB HARYANA HIGH COURT here we direct to restrict the net profit @3% on turnover declared by the assessee. AO without proper verification of fact wrongly determined the turnover of the assessee during the impugned assessment year. DR was unable to place any contrary judgment against the submission of assessee. No challenge was made on veracity of the documents submitted by the assessee. We set aside the appeal order.

Summary

Issues Involved:

1. Addition u/s 69A for cash deposited during the demonetization period.
2. Application of Section 44AD to the receipts other than the amount deposited during the demonetization period.
3. Treatment of deposits as business income and unexplained money u/s 69A.
4. Applicability of Section 69A when no books of accounts were maintained.
5. Restriction of addition to the profit element @ 8% as per Section 44AD.
6. Consideration of debits in the bank account for business purposes.
7. Addition based on surmises and conjectures without material evidence.
8. Justification of the net profit rate of 8% for a distributor.

Summary:

1. Addition u/s 69A for cash deposited during the demonetization period:
The assessee challenged the addition of Rs. 17,22,000/- u/s 69A, arguing that only Rs. 4,31,000/- was deposited in Specified Bank Notes (SBN) during the demonetization period. The CIT(A) accepted the reconciliation but upheld the addition. The Tribunal found that the correct figure for cash deposited during demonetization was indeed Rs. 4,31,000/- and not Rs. 17,22,000/-. The Tribunal deleted the addition of Rs. 17,22,000/-.

2. Application of Section 44AD to the receipts other than the amount deposited during the demonetization period:
The AO applied Section 44AD and calculated net profit @ 8% on the remaining amount of Rs. 41,83,408/-. The assessee argued that the net profit rate of 8% was unjustified for their wholesale business. The Tribunal directed to restrict the net profit to 3% on the turnover declared by the assessee.

3. Treatment of deposits as business income and unexplained money u/s 69A:
The AO treated part of the deposits as business income and the rest as unexplained money u/s 69A. The Tribunal held that the cash deposits were part of the business turnover and not from any undeclared sources.

4. Applicability of Section 69A when no books of accounts were maintained:
The assessee argued that Section 69A could not be applied as no books of accounts were maintained. The Tribunal agreed, emphasizing that the cash deposits were part of the declared turnover.

5. Restriction of addition to the profit element @ 8% as per Section 44AD:
The CIT(A) applied a net profit rate of 8%, which the assessee contested. The Tribunal found the 8% rate arbitrary and directed to apply a 3% net profit rate based on industry standards and past records.

6. Consideration of debits in the bank account for business purposes:
The assessee argued that debits in the bank account represented business expenditures. The Tribunal acknowledged this, supporting the view that the deposits were business receipts.

7. Addition based on surmises and conjectures without material evidence:
The Tribunal noted that the AO's addition was based on conjectures and surmises without substantial evidence. The Tribunal relied on judicial precedents to support its decision.

8. Justification of the net profit rate of 8% for a distributor:
The assessee argued that a net profit rate of 8% was not justified for a distributor, as accepted by the department in subsequent years. The Tribunal agreed and directed to apply a 3% net profit rate.

Conclusion:
The Tribunal allowed the appeal, deleted the addition of Rs. 17,22,000/- u/s 69A, and directed to apply a 3% net profit rate on the turnover of Rs. 77,36,192.33. The cash deposits were considered part of the business turnover, and the addition based on conjectures was dismissed.