2025 (1) TMI 575 - AT - Income Tax

Addition u/s 69A - cash deposits in the bank accounts of the assessee as un-explained cash credit - estimation of income by applying 6% profit rate on declared turnover resulting into the addition - HELD THAT - Since sales were made in cash, the amount deposited during the demonitisation period were the sales consideration and the department has not filed any evidence that the entire amount were SBNs. The turnover declared by the assessee is much higher than the cash deposit during the demonetization period. Estimation of income - We are in agreement with the Assessing officer that in absence of day to day bills and vouchers with regard to cash sales etc, the book results cannot not be accepted, therefore, we uphold the order of the Assessing Officer in rejecting the books of account u/s. 145(3) of the Act. However, looking into the facts of the case, income estimated by applying profit rate seems to be higher side and in our considered view the profit rate @ 3% of total turnover of Rs. 5,16,06,634/- would be reasonable and would meet the ends of justice. We accordingly direct the Assessing Officer to compute the profit rate @ 3% of turnover of Rs. 5,16,06,634/- and the balance addition is hereby deleted. Unexplained cash credit under Section 69A - In the instant case, as it is evident that the bank deposits were made by the assessee out of IMFL business sales proceeds and has direct relationship, therefore, the ratio laid down by Hon ble Supreme Court in the case of Devi Prasad Vishsnnath 1968 (8) TMI 5 - SUPREME COURT are not applicable. It is also an undisputed fact that no other source of income was brought on record, therefore, it could be safely presumed that what has been deposited during demonetization period was out of business receipts only. Source of cash deposit in the bank is fully explained and accordingly, the addition of made u/s. 69A of the Act is deleted. Appeal of the assessee stands partly allowed.

1968 (8) TMI 5 - SC

1. ISSUES PRESENTED and CONSIDERED

The appellate tribunal considered the following core legal questions:

Whether the order by the CIT(A) confirming the addition of Rs. 44,92,000/- as unexplained cash credit under Section 69A of the Income Tax Act was justified.
Whether the estimation of net profit at 6% on the turnover of Rs. 5,16,06,634/- and the consequential addition of Rs. 38,96,392/- was excessive and arbitrary.
Whether the delay of 423 days in filing the appeal should be condoned.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 44,92,000/- as Unexplained Cash Credit

Relevant Legal Framework and Precedents: The addition was made under Section 69A of the Income Tax Act, which pertains to unexplained money, etc. The department relied on the precedent set by the Supreme Court in the case of CIT vs Devi Prasad Vishwanath, where unexplained cash credits could be added even if income is estimated.
Court's Interpretation and Reasoning: The tribunal noted that the assessee was engaged in the business of IMFL, where sales were predominantly in cash. The tribunal observed that the cash deposits during the demonetization period were part of the sales proceeds and had a direct relationship with the business.
Key Evidence and Findings: The tribunal found that the turnover declared by the assessee was significantly higher than the cash deposits made during the demonetization period. The department did not provide evidence that the entire cash deposit was in Specified Bank Notes (SBNs).
Application of Law to Facts: The tribunal applied the reasoning that since the cash deposits were part of the business proceeds and no other source of income was identified, the addition under Section 69A was not justified.
Treatment of Competing Arguments: The tribunal distinguished the present case from the Devi Prasad Vishwanath case by emphasizing the direct relationship between the cash deposits and the business sales, unlike the cited case where the cash deposit had no business relation.
Conclusions: The tribunal concluded that the addition of Rs. 44,92,000/- under Section 69A was not warranted and deleted the addition.

Issue 2: Estimation of Net Profit at 6%

Relevant Legal Framework and Precedents: The estimation was made under the provisions of Section 145(3) of the Income Tax Act, which allows for the rejection of books of account if they are not reliable.
Court's Interpretation and Reasoning: The tribunal agreed with the rejection of the books of account due to the absence of day-to-day bills and vouchers. However, it found the 6% profit estimation to be excessive.
Key Evidence and Findings: The tribunal noted that the assessee's turnover was verified by the Excise Department, and the profit estimation should reflect the business realities.
Application of Law to Facts: The tribunal reduced the profit rate from 6% to 3%, considering it more reasonable and just under the circumstances.
Treatment of Competing Arguments: The tribunal considered the department's argument for a higher profit rate but found no comparable cases to justify such a rate.
Conclusions: The tribunal directed the Assessing Officer to compute the profit at 3% of the turnover, thereby reducing the addition.

Issue 3: Condonation of Delay

Relevant Legal Framework and Precedents: The tribunal considered the reasons for the delay and the principles of condonation of delay in legal proceedings.
Court's Interpretation and Reasoning: The tribunal accepted the assessee's explanation that the delay was due to oversight by the counsel and found it reasonable.
Conclusions: The tribunal condoned the delay of 423 days and admitted the appeal for adjudication on merits.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Looking into the facts of the case, income estimated by applying profit rate seems to be higher side and in our considered view the profit rate @ 3% of total turnover of Rs. 5,16,06,634/- would be reasonable and would meet the ends of justice."
Core Principles Established: The tribunal emphasized the importance of correlating cash deposits with business activities and the need for reasonable profit estimations based on business realities.
Final Determinations on Each Issue: The tribunal deleted the addition of Rs. 44,92,000/- under Section 69A, reduced the profit estimation to 3%, and condoned the delay in filing the appeal.

In conclusion, the appeal was partly allowed, with significant adjustments made to the initial assessments and additions. The tribunal's decision highlights the importance of contextualizing financial transactions within the business framework and ensuring that legal provisions are applied judiciously.

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