Case Law Details
Asokan Meena Vs ITO (ITAT Chennai)
It is an admitted fact that the assessee has filed her return of income for the AY 2016-17 in ITR-4 and has maintained books of accounts, but for the AY 2017-18, she had filed return of income u/s.44AD of the Act, and estimated net profit without any books of accounts. Admittedly, return of income filed by the assessee for the AY 2017-18 is after demonetization. Therefore, the conduct of the assessee is changing return of income from ITR-4 to u/s.44AD of the Act, should be examined in light of preponderance of human probability. If you examine the conduct of the assessee on the element of preponderance of human probability, there is a serious doubt about the conduct of the assessee, in not maintaining books of accounts. Therefore, the observation of the AO with regard to cash deposits in the return of income filed by the assessee appears to be reasonable and correct.
The AO never disputed the fact that the assessee was trading in paddy and predominantly it was in cash. In fact, the main business activity of the assessee was in cash in the impugned assessment year as well as for the immediately preceding assessment year. The AO accepted these facts. However, rejected the arguments of the assessee for source for cash deposits only on the ground that the assessee has declared more cash sales for the AY 2017-18 when compared to previous AY 2016-17. The Ld.Counsel for the assessee filed month-wise purchase and sales for two Financial Years and argued that for the FY 2015-16 relevant to the AY 2016-17, it is the first year of operations of the business of the assessee and the assessee has commenced business activity in the month of October, 2015. The total sales achieved by the assessee for the FY 2015-16 was at Rs.59,08,400/- and the month-wise average sales works out to Rs.9.85 lakhs per month. The assessee has achieved a turnover of Rs.74,25,360/- for FY 2016-17 and monthly average sales works out to Rs.6.19 lakhs per month. From the above, it is very clear that the observation of the AO is nothing, but a suspicion, because as claimed by the AO, the sales declared by the assessee for the AY 2017-18, is not increased when compared to last Financial Year. Therefore, in our considered view, the reasons given by the AO to make additions towards cash deposits is incorrect. Thus, we are of the considered view that neither the assessee proved its arguments for source for cash deposits nor the AO reached to a conclusion that the explanation offered by the assessee is not genuine. Under these facts and circumstances of the case, the only possible solution is to resolve the dispute by estimation of profit on cash deposits made during demonetization period. The assessee is in the business of trading in paddy and the assessee has declared 11.17% gross profit for the AY 2016-17. The gross-profit declared by the assessee for the AY 2017-18 has worked out by the AO is at 58.92%. If you go by gross-profit declared by the assessee for the immediately preceding assessment year and gross profit worked out by the AO for the impugned assessment year, there is a huge gap. However, if you take average gross-profit, it works out to 35%. Therefore, considering the nature of the business of the assessee and also average gross profit for the last two assessment years, we are of the considered view that estimation of profit on cash deposits would meet end of the justice. Therefore, we direct the AO to estimate 30% net profit on total cash deposits of Rs.24,66,500/- made during demonetization period and delete the balance additions made u/s.69A of the Act.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre, Delhi, dated 29.06.2022, and pertains to assessment year 2017-18.
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