2024 (8) TMI 363 - AT - Income Tax

Addition being cash deposits during the demonetization period in specified bank notes (SBNs) - assessee was unable to prove the source of cash deposits - HELD THAT - Cash was available with the assessee as on the date of announcement of demonetization and this should have been accepted as explained cash out of the total cash deposits during the demonetization period of Rs. 11.24 lakhs. Hence to that extent, the cash available with the assessee during the demonetization period has explained. For the balance cash deposits, the claim made by the assessee was that out of the cash sale or realization from debtors. But the assessee could not produce any evidence before me during the course of hearing or there is no evidence in the Paper Book which can co-relate the balance cash that it has come from the realization of debtors or from the cash sales. In the absence of any evidence, confirm this balance cash and to that extent, addition is sustained. Accordingly, this ground is partly allowed. Estimation of net profit @5% on the total turnover - A reasonable profit fate should be estimated as historical data shows that the assessee s profit rate at a lower rate but as admitted by assessee, the profit rate in the line of business is 1 to 2%. Hence we estimate the profit rate at 2%. Accordingly, this ground of appeal is also partly allowed.

Summary

Issues:
1. Addition of cash deposits during demonetization period.
2. Estimation of net profit on total turnover.

Analysis:

Issue 1: Addition of Cash Deposits during Demonetization Period
The assessee appealed against the order of the Assessing Officer confirming the addition of Rs. 11.24 lakhs as cash deposits during the demonetization period in specified bank notes (SBNs). The Assessing Officer required the assessee to explain the source of these cash deposits, as they were unable to prove it. The assessee claimed the cash was from cash sales and realization of trade debtors but failed to provide documentary evidence to support this claim. Both the Assessing Officer and the CIT (A) upheld the addition due to lack of evidence. However, the Tribunal noted that the closing cash balance available with the assessee on the date of demonetization should have been accepted as explained cash. The Tribunal partially allowed the appeal, confirming the balance cash deposits as unexplained due to lack of evidence.

Issue 2: Estimation of Net Profit on Total Turnover
The Assessing Officer estimated the net profit at 5% on the total turnover of the assessee, engaged in manufacturing plastic bottles, due to the inability of the assessee to substantiate VAT returns or cash book. The CIT (A) upheld this estimation, leading the assessee to appeal before the Tribunal. The Tribunal considered historical data presented by the assessee, showing a profit rate of 0.375% in a previous assessment and a profit rate of 1 to 2% in the line of business. The Tribunal, after hearing both parties, estimated the profit rate at 2% instead of the 5% estimated by the Assessing Officer and CIT (A). Consequently, the Tribunal partly allowed this ground of appeal.

In conclusion, the Tribunal partly allowed the appeal filed by the assessee, considering the explained cash balance during demonetization and adjusting the estimated net profit rate on the total turnover based on historical data and industry standards.