Yamanappa Bagayi Vs ITO (ITAT Panaji)
Demonetisation Deposits Treated as Poultry Business Receipts; Only 2% Profit Taxable and Section 115BBE Inapplicable: Panaji ITAT
The assessee was engaged in poultry farming and declared income of ₹9.49 lakh for AY 2017-18. The AO made two major additions:
- ₹54.26 lakh deposited during demonetisation as unexplained money under section 69A; and
- ₹93.30 lakh as cash expenditure allegedly violating section 40A(3).
Cash deposits during demonetisation
The assessee explained that the deposits represented cash sales from the poultry business. Cash-flow statements for the preceding, current and subsequent years demonstrated that cash sales and deposits were a regular feature of the business.
The ITAT noted that although deposits had increased sharply during demonetisation, deposits for the corresponding period in subsequent years were even higher. This supported the assessee’s contention that the amounts represented normal business receipts.
However, as the assessee could not produce complete documentary evidence for every sale transaction, the Tribunal estimated profit at 2% of the deposits, consistent with the assessee’s normal net-profit margin of 1–2%. Consequently, only ₹1,08,520 was sustained as business income against the original addition of ₹54.26 lakh.
The Tribunal specifically held that since the sustained amount represented estimated business income, the higher tax rate under section 115BBE was not applicable.
Section 40A(3) disallowance
The ITAT found that the AO had apparently mistaken the amounts of purchase invoices for cash payments. A test check of one supplier’s ledger revealed that the cited amounts were purchase bills, while the payments had been made through banking channels.
