Debaraj Sahoo Vs ITO (ITAT Cuttack)
Spare Parts Business, Not a 20% Profit Machine
The background: Bank credits trigger reassessment
The assessee, an ex-army man engaged in a small spare parts business, had not originally filed his return for AY 2017-18. The Department received information concerning substantial credits, including cash deposits, in his bank account and initiated reassessment proceedings by issuing notice under section 148.
In response, the assessee filed a return declaring total income of ₹10,51,336. During assessment, he furnished a trading account and other business particulars.
The accounts disclosed turnover of ₹85,42,021, gross profit of ₹7,68,782, and net profit of ₹6,31,489. The Assessing Officer, however, considered the supporting evidence for expenses inadequate and proceeded to estimate business income. viewOrder-4 viewOrder-4
The Assessing Officer adopts a 20% profit rate
The Assessing Officer estimated profit at 20% of turnover, determining business income at ₹17,08,404. After reducing the net profit already disclosed, he made an addition of ₹10,76,915.
The dispute was therefore not merely about whether particular expenses were supported. It concerned the basis for assuming that this spare parts business earned one-fifth of its turnover as profit.
The assessment also included a separate addition relating to another bank account. A cash deposit of ₹98,000 was treated as unexplained money under section 69A.
