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TMI Blog2024 (6) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... cumentary evidence inspite of giving several opportunities is not correct. We hold that the CIT (A) was correct in admitting the additional evidence while deleting the addition on merits of the case. Accordingly, the department s objection in ground no.2, regarding admission of additional evidence under clause (b) to sub rule1 to Rule 46A of I.T. Rules is rejected. Unexplained cash deposit u/s 69A - NP rate determination - appellant explained that the deposits were sale proceeds from his bullion trading business under Riddhi Siddhi Jewels, where he earned a 1% commission - HELD THAT:- As established that during the year under consideration, the appellant frequently deposited sale proceeds in the bank account and there were subsequent withdrawals for making payments against purchases also. From the information and explanation furnished by the counsel for the assessee, we are of the view that the Ld. CIT(A) decision has been most judicious in applying NP rate of 1% on entire sale proceeds/cash deposits to estimate the true and correct profit for the year under consideration in the light of the settled legal position that entire proceeds cannot be regarded as profit or income of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initio, wrong and bad in law. 2. That the CIT(A) has grossly erred in allowing expenses claimed by the assessee in the return of income and treating gross profit declared as the net profit. 3. That the CIT(A) has grossly erred in enhancing the GP ratio declared by the assessee from 1% to 1.2% net profit and also erred in treating gross profit as net profit. 4. The respondent reserves his rights to add, amend, alter or withdraw any ground of cross objection." 4. Ground of appeal in I.T.A. No. 94/Jodh/2020 "1. Whether on the facts and in the circumstances of the case and in law the learned CIT(A) was justified in reducing the addition of Rs. 4,43,07,000/- to Rs. 5,31,684/- made on account of unexplained cash deposit u/s 69A of the I.T. Act. 2. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in admitting the additional evidences under Rule 46A of the I.T. Rule on the ground that the assessee's case is covered by sub-rule (1) clause (b) of rule 46A as he was prevented by sufficient cause from producing the evidences. The Appellant crave, leave or reserving the right to amend modify, alter add or forego any ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious dates in the bank accounts maintained with HDFC (a/c no. 11052560004645) and ICICI Bank (a/c no. 026105005823) respectively opened in the name of Ridhi Sidhi Jewels. Besides, the AO noted that as per Individual Transaction Statement details, the assessee had deposited Rs. 8,60,000/- in his bank account maintained with ICICI Bank Ltd. The AO issued a show-cause notice dated 19-12-2018 wherein he gave details of amounts deposited and dates of deposits in two separate charts for deposits in HDFC and ICICI Banks and required the assessee to explain the sources of such deposits with documentary evidence. In case of assessee's failure to explain the sources of deposits, the AO also proposed the addition of such deposits to the total income of the assessee. But the assessee did not turn up before the AO to explain the sources of deposits or to put forth his case. Accordingly, the AO concluded as under:- "2.5. It will not be out of place to mention here that as per this office record, he assessee never bothered to furnish his return of income prior to issue of notice u/s. 148 of the I. T. Act, 1961 for the assessment year under consideration. Further, the assessee has not furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO for submission of remand report thereof. In response, the AO submitted his report dated 11-09-2019, which was also provided to the appellant for counter comments. The appellant furnished his counter comment on 19-02-2020. In the remand report, the AO objected to admission of additional evidences furnished by the appellant. As regards the merits of the additional evidences, the AO submitted as under:- "Now coming to the merits of the additional evidence, it is submitted that the assessee has furnished copy of some bills of purchase purportedly made by him. Mere purchase bills do not in any way prove the source of cash deposits made by him in the bank accounts. Therefore, there is no merits on the evidences which the assessee furnished before you to be considered as additional evidences for the source of cash deposits made by him in the bank accounts. Hence, on this count also the application of the assessee deserves to be rejected." 5.3 I have considered the facts of the case, assessment order, remand report and appellant's written submissions. At the outset, the issue of admissibility of additional evidence is required to be adjudicated. In the instant case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the [Assessing Officer]) under clause ( a ) of sub-section (1) of section 251 or the imposition of penalty under section 271.]" On perusal of Rule 46A reproduced hereinabove, it is seen that the case of appellant is covered by sub-rule (1) Clause (b) as he was prevented by sufficient cause from producing the evidence which he was called upon to produce by the AO during the course of assessment proceedings. Such additional evidence which goes to the root of the matter has to be entertained in the interest of fairness and natural justice towards the appellant. The details and evidences as furnished/ submitted now as additional evidence are necessary for disposal of the appeal on merits and therefore admission of the same should not be denied. The law on the issue of admission of additional evidences before the first appellate authority is well settled. In the cases of Mr. Shahrukh Khan Vs DCIT (2007) 13 SOT 61 (Mumbai), CIT Vs Suretech Hospital &Reserch Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various sellers and after selling these bullion, made payment to sellers through his bank accounts and his profit came to be about 1% of sales. In this regard, the appellant has furnished various purchase and sale bills and bank account copies which substantiate the appellant's claims. The AO, while treating the entire deposits as unexplained money u/s. 69A, only considered the deposits whereas he totally ignored the debit entries which were payments to sellers of bullion. The appellant has furnished details of bank deposits along with names and details of customers from whom the purchases were made. The appellant has successfully linked all such cash deposits with corresponding payments to actual sellers, confirmations from clients and establishing reconciliation between the payment against purchases andcommission on sale of these purchases. All these details clearly explain the sources of deposits in his saving bank accounts. All these details were also sent to the AO by this office. However, no adverse comment has been made by the AO in the remand proceedings. No defects in the details as submitted by the appellant has been pointed out by the AO. The AO only stated that suffici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed Bank account. We order accordingly." Considering the facts of the case as discussed above and judicial precedents as cited supra, it is held that the AO is not justified in adding the entire deposits to the total income of the appellant, particularly when there is ample evidence to show that deposits were sale proceeds which were later on transferred to actual sellers. Considered the facts of the case, a reasonable NP rate has to be applied on total bank deposits, treating these as sales of the appellant. But since the appellant has not explained that what should be NP rate in his case and only stated that he earned commission @1%, therefore, to cover up possible leakages of revenue in the instant case, the appellant's net profit is estimated @1.2% of total deposits. Accordingly, the AO is directed to apply NP rate of 1.2% on total deposits of Rs. 4,43,07,000/- which works out to Rs. 5,31,684/, the addition made at Rs. 4,43,07,000/- is reduced to Rs. 5,31,684/-, the appellant gets partial relief on this account. The grounds raised by the appellant regarding this issue are partly allowed." 9. The ld. CIT-DR for the department vehemently supported the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause notices issued by the AO have not been served on the appellant assessee. He contended that merely issuing of notices by the AO per se wouldn't amount to service of the notices on the Assessee which culminated in passing the assessment order exparte qua the assessee u/s 144 of the Act. Later, in appellate proceedings before the Ld. CIT(A), the assessee has filed additional evidence under clause (b) to sub-rule 1 of the Rule 46A of the I. T. Rules inclusive of all the copy of the ledger of the purchasers along with the purchase bills reconciling the amount of deposit in the alleged bank account of the assessee. He contended that the additional evidence filed before the ld. CIT(A) has been admitted by the Ld. CIT(A) after taking AO's objection on record by way of remand report and assessee's rejoinder. The counsel submitted that the ld. CIT(A) has decided the issue of disputed cash deposits in the bank accounts on merits of the case, in favour of the appellant. The relevant part of AR's written submission reads as under: "11. Further to submit that the AO has completely ignored the payment side of the Bank account and also not enquired or issue any notice to parties to whom pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 169/K/2009IDel Trib)…. " 15. Considering the facts of the case as discussed above and judicial precedents as cited supra, it is held that the AO is not justified in adding entire deposits to the total income of the appellant, particularly when there is ample evidence to show that deposits were sale proceeds which were later on transferred to actual sellers. Considered the facts of the case, a reasonable NP rate has to be applied on total bank deposits, treating these as sales of the appellant. But since the appellant has not explained that what should be NP rate in his case and only stated that he earned commission @ 1%, therefore, to cover up possible leakages of revenue in the instant case, the appellant's net profit is estimated @ 1.2% of total deposits. Accordingly, the AO is directed to apply NP rate of 1.2% on total deposits of Rs. 4,43,07,000/- which works out to Rs. 5,31,684/-, the addition made at Rs. 4,43,07,000/- is reduced to Rs. 5,31,684/-, the appellant gets partial relief on this account. The grounds raised by the appellant regarding this issue are partly allowed." 16. Further to submit that: i. The bank account is in the name of M/s Riddhi Siddhi J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were made by the assessee and further he is unable to explain the source of deposits. This is the totally wrong and incorrect assumption. The addition made on the basis of presumption and assumption is not judicious and deserves to be deleted. vii. The true nature of the cash deposited is business receipts and not any other else. Once it is established that these deposits are business receipts than it is the duty of the Assessing Officer to compute the income from these business receipts and not treated the entire receipts as income. It is against the basic object of the Income Tax Act. The Act postulates that the income is to be taxed and not the gross revenue. viii. Sir, In the assessee's case, Return of income was not filed the assessing officer himself take steps to procure material for computing the justifiable income. He can call witness and make own enquiries - can called the information from Bank that how these receipts were utilized or applied the funds through calling the information from the respective Sellers who sold Bullion to the assessee. The names of all the suppliers were appeared in the bank statement. This would help him to determine the true nature of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he held that the additional evidence contains vital evidence which was essential for deciding the claim of the appellant assessee in the light of the various judicial precedents. 12. It is seen that the assessee filed a petition before Commissioner (Appeals) for admission of additional evidence stating that the notices under section 142(1) issued by Assessing Officer were sent to the non- functional postal address and e-mail id and that the Assessing Officer did not mention the date of service of notice on the assessee nor the AO call for any further details specifically regarding the cash deposits. The CIT(A), however, did consider the aforesaid reasons as sufficient cause for admission of additional evidence and accepted the petition by rejecting the AO's objection. 13. Further the assessee had filed the bank statement as evidence for the cash deposit out of sales proceeds. The assessee during the course of hearing submitted that from the financial statements where the cash deposit in bank account is reflected and the sales were substantiated by the said bank statements, where the sales consideration received were also reflected. It is further argued by the ld. AR that the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is seen that the AO observed that in absence of any details filed by the assessee to explain the sources of the total deposits of Rs. 4,43,07,000/-, the same is treated as unexplained income u/s. 69A of the Act and added to the total income of the assessee. The Ld. CIT(A) discussed that the appellant has explained that during the year under consideration, he was engaged in the business of trading of bullion in the name of " Riddhi Siddhi Jewels" on commission basis and in the course of his business, he purchased and sold bullions, deposited the sale proceeds into his bank accounts, and these amounts were subsequently withdrawn to make payments to sellers of bullions. The appellant claimed that in these business transactions, he received commission @1% only. Thus, the ld. consel contended that entire bank deposits could not be taken as purchases of the assessee, either it was sale on which profit should be estimated by adopting NP rate or peak credit theory. To buttress his contention, the appellant relied on various judicial precedents. Considering the various evidences and details furnished before the Ld CIT(A) and also reiterated before us, it is apparently clear that the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration in the light of the settled legal position that entire proceeds cannot be regarded as profit or income of the assessee and net profit rate has is to be applied as per standard principle of accountancy as well. 20. Considering the facts of the case and judicial precedents as cited supra, we do not find any infirmity or perversity in the impugned order to the facts on record and hence no interference is required. Accordingly, the order of the Ld. CIT(A) directing the AO to apply NP rate of 1.2% on total deposits of Rs. 4,43,07,000/- which works out to Rs. 5,31,684/ is sustained. 21. ITA No. 153/Jodh/2020: The issues and facts of the case in ITA No. 153/Jodh/2020 in respect of Assessment Year 2012-13 are similar to the facts and issues in ITA No.94/Jodh/2020 in respect of Assessment Year 2011-12 and therefore, our observations and findings given in ITA No. 94/Jodh/2020 in respect of Assessment Year 2011-12 shall be applicable to ITA No. 153/Jodh/2022 in respect of Assessment Year 2012-13 in mutatis mutandis, ordered Accordingly. 22. ITA No. 114/Jodh/2020 AY 2011-12. At the time of hearing, grounds 1 to 3 were not pressed by the counsel, hence therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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