2025 (3) TMI 1261 - AT - Income Tax

Recomputation of income - applying a net profit rate of 8% on the entire gross business receipts - HELD THAT - We have gone through the finding of the lower authority whereby we note that the assessee has already filed the additional evidence in the appellant proceeding thereby the AO after verifying the cash book so submitted accepted the cash deposit as part of the turnover offered by the assessee while filling the ITR. From the same set of cash book so filed the assessee contended that the cash contains the re-deposit of cash into the bank account out of cash balance available in that cash book and that re-deposit amount cannot be considered as turnover and thereby cannot be considered to estimate the income of 8 % on that amount. While doing so we also directed the assessee on 17.12.2024 to file a cash book making the total available with the assessee on each day and the assessee has finally filed it on 19.12.2024 which shows that the assessee was having the sufficient cash on hand to the extent of Rs. 33, 68, 166/- which was deposited out of the cash balance available from withdrawal or cash sales already considered for turnover from the copy of the cash book so filed and therefore the ld. CIT(A) was not justified in directing to considered the income to the extent of 8 %. In the light of the discussion so recorded herein above ground no 1 2 raised by the assessee are allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this legal judgment are:

• Whether the delay of 29 days in filing the appeal by the assessee should be condoned.
• Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in applying a net profit rate of 8% on the entire gross business receipts of Rs. 79,95,179/- instead of only on the business receipts of Rs. 46,27,013/-.
• Whether the CIT(A) erred in not providing telescopic benefit for the amount of Rs. 33,68,166/- which was claimed to be redeposits from prior withdrawals.

ISSUE-WISE DETAILED ANALYSIS

Condonation of Delay

• Relevant Legal Framework and Precedents: The legal framework involves the application of the principle of "sufficient cause" for condonation of delay as laid down by the Supreme Court in cases such as State of West Bengal v. The Administrator, Howrah Municipality.
• Court's Interpretation and Reasoning: The Tribunal noted that the reasons advanced by the assessee for the delay were sufficient and meritorious. The Court emphasized a liberal approach for condonation to advance substantial justice.
• Key Evidence and Findings: The assessee's affidavit and application for condonation, supported by legal precedents, were crucial in establishing the bona fide nature of the delay.
• Application of Law to Facts: The Court applied the principle of liberal interpretation to condone the 29-day delay.
• Conclusions: The delay in filing the appeal was condoned.

Net Profit Rate Application

• Relevant Legal Framework and Precedents: Section 44AD of the Income Tax Act, 1961, which allows presumptive taxation based on a percentage of turnover, was central to this issue.
• Court's Interpretation and Reasoning: The Tribunal questioned the CIT(A)'s decision to apply an 8% net profit rate on the entire gross receipts, including redeposits, instead of only on actual business receipts.
• Key Evidence and Findings: The Tribunal considered the cash book, bank statements, and evidence of cash withdrawals and redeposits submitted by the assessee.
• Application of Law to Facts: The Court found that the CIT(A) erred in treating redeposits as business receipts and applying the 8% profit rate to them.
• Treatment of Competing Arguments: The Tribunal weighed the assessee's argument of redeposits against the CIT(A)'s application of Section 44AD, ultimately siding with the assessee.
• Conclusions: The Tribunal ruled that only Rs. 46,27,013/- should be considered for the 8% profit rate, not the entire Rs. 79,95,179/-.

Telescopic Benefit for Redeposits

• Relevant Legal Framework and Precedents: The concept of telescoping allows for the adjustment of unexplained cash deposits against explained sources of income.
• Court's Interpretation and Reasoning: The Tribunal agreed with the assessee's contention that Rs. 33,68,166/- was redeposited from prior withdrawals and should not be subjected to the 8% profit rate.
• Key Evidence and Findings: The Tribunal relied on the cash book and evidence of prior cash withdrawals to support the assessee's claim.
• Application of Law to Facts: The Tribunal found that the redeposits were adequately explained and should not be treated as fresh business receipts.
• Conclusions: The Tribunal allowed the appeal, granting relief for the redeposited amount.

SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The scope of expression 'sufficient cause' for the condonation of delay should receive a liberal construction as to advance substantial justice."
• Core Principles Established: The judgment reinforced the principle of liberal interpretation for condonation of delay and the correct application of Section 44AD only to actual business receipts.
• Final Determinations on Each Issue: The delay was condoned, and the appeal was allowed in favor of the assessee, restricting the application of the 8% profit rate to Rs. 46,27,013/- and not on the entire gross receipts.