Case Law Details
Sunil Kumar Sawa Vs DCIT/ACIT (ITAT Ranchi)
The Income Tax Appellate Tribunal (ITAT), Ranchi, partly allowed the assessee’s appeal by reducing the estimated net profit rate from 8% to 3% on deposits made in undisclosed bank accounts, holding that the higher rate adopted by the Commissioner of Income Tax (Appeals) [CIT(A)] was excessive considering the nature of the assessee’s business, business volume, and profit margins.
The assessee, engaged in the business of agency and trading of electronic goods under the name M/s Universal Hi-Tech, had originally filed a return declaring income of ₹2,37,660. Following scrutiny assessment under Section 143(3), the taxable income was enhanced, and subsequent appellate proceedings resulted in multiple rounds of adjudication, including a remand by the Tribunal. In the fresh assessment, the Assessing Officer (AO) made additions of ₹35,97,695 towards estimated net profit from undisclosed business, ₹45,09,399 as peak credit in alleged undisclosed bank accounts, and ₹29,893 as interest income earned in those accounts.
The CIT(A) observed that the assessee had maintained audited books only for the disclosed business and had not maintained books of account for transactions routed through two undisclosed bank accounts. According to the assessee, customer advances received in cash were deposited into these accounts and payments were subsequently made by cheque to procure solar energy products. The CIT(A) noted that the assessee had submitted different projected profit and loss accounts at different stages, admitted that no books, ledgers, bills, vouchers, or customer-wise details were available for the undisclosed transactions, and that all explanations were based on estimates.
The CIT(A) held that, in the absence of books of account and verifiable records, it was difficult to determine the actual profit margin or capital deployed in the undisclosed business. While observing that Section 44AD could provide some guidance, the CIT(A) also acknowledged that profit rates vary across businesses. Considering the total undisclosed deposits of ₹6,14,28,008, the CIT(A) estimated the profit component at 8%, amounting to ₹49,14,241, instead of separately sustaining additions for net profit and capital deployment. The addition of ₹29,893 towards interest earned in the undisclosed bank accounts was also sustained, and the request to set off bank charges against such interest was rejected.
Before the Tribunal, the assessee challenged the estimation of profit at 8%. After examining the facts and submissions, the Tribunal observed that the CIT(A) had considered the relevant facts but found that the 8% profit rate was on the higher side in view of the nature of the electronics trading business, the volume of business, and the profit margins generally associated with such business. The Tribunal therefore substituted the 8% rate with a net profit rate of 3% on the undisclosed deposits. Accordingly, the appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT RANCHI
1. This appeal by the assessee is directed against the order of the National Faceless Appeal Centre (NFAC), Delhi/learned Commissioner of Income Tax (Appeals), [in short, the ld. CIT(A)] dated 07/05/2025 for the Assessment Year (AY) 2009-10. The assessee has raised following grounds of appeal:
“1 That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in estimating the net profit of Rs. 49,14,241/- at 8% on Rs. 6,14,28,008/- in respect of the alleged undisclosed bank account, ignoring the assessee’s regular audited accounts which consistently showed net profit margins of 2% to 2.4%.
2. That the learned CIT(A) failed to consider the estimated/projected Profit & Loss account submitted by the assessee, which was based on rational assumptions and aligned with the audited financials, thereby making arbitrary estimation unsustainable.
3. That the CI (A) erred in sustaining profit addition without rejection of books of account or any direct evidence suggesting higher profits from the alleged transactions.
4. That the estimated 8% profit is arbitrary, lacks comparable industry basis, and is contrary to settled judicial precedents, resulting in unjust enrichment of revenue.
5. That the learned CIT(A) erred in confirming the addition of 229,893/- as interest income without allowing set-off of related bank charges or considering that the same was already covered in the profit estimation, resulting in double addition.
6. That the appellant craves leave to add, alter, amend, or withdraw any of the above grounds at the time of hearing.”
2. The facts of the case, in brief, are that the assessee derives his income from agency business of Electronic Goods under the name and style of M/s. Universal Hi-Tech, dealing in electronic goods. Initially, the return of income was filed by the assessee declaring total income of Rs. 2,37,660/-. Subsequently, the case was selected for scrutiny and assessment was completed under Section 143(3) of the Income Tax Act, 1961 (in short, the Act) on 30.12.2011 determining taxable income of ₹ 90,19,220/- and thereafter, appeal was filed before the learned CIT(A) who made enhancement in the net profit determined by learned Assessing Officer. The learned CIT(A), further, vide his order dated 31.12.2013 partly allowed the appeal. The assessee went to Tribunal against the order of the learned CIT(A) and the Hon’ble I.T.A.T. vide its order dated 08.09.2017 set aside the matter back to the file of learned Assessing Officer who made an addition of Rs. 35,97,695/-, being the estimate of net profit as enhanced by the then CIT(A), and further, made addition of ₹ 45,09,399/- which was confirmed by the learned CIT(A) as peak credit in the alleged undisclosed bank account of the assessee. Further, a sum of Rs. 29,893/- was also added as an interest income in the saving bank account alleged to be undisclosed.
3. On appeal filed by the assessee before the learned CIT(A), who vide the impugned order decided as under:-
” I have gone through the facts of the case. There are three items of addition, namely, addition made on account of net profit from 2 undisclosed business of Rs. 35,97,695/-, capital deployed in the undisclosed business of Rs. 45,09,399/- and interest earned on undisclosed bank accounts of Rs. 29,893/-. So far as interest earned on undisclosed bank accounts of Rs. 29,893/- is concerned, there cannot be any doubt about the taxability as it has accrued from the deposits in the two undisclosed bank accounts of the appellant with SBI, Jugsalai, account no. 30303761141 and Indusind Bank, Jamshedpur, account no. 0068H2143001. The ideal head to tax this income should be other sources.
The appellant has audited his books of accounts for that part of the business which was disclosed before the department. No books of accounts were maintained in respect of that part of the business where the two bank accounts, as aforesaid, were used. It has been the contention of the appellant that advances were obtained from the customers in cash, which were deposited in the bank accounts undisclosed to the department. Then cheques were issued to procure to solar energy products as per customer requirements. The appellant has been changing his stand in furnishing different profit & loss accounts from time to time. The fact at the time of original assessment remains unchanged at the time of this set aside assessment also because the appellant has not prepared books of accounts for the unaccounted part of the business, supported by proper bills and vouchers. He has been adopting different ratios and percentages to explain his case to get rid of the additions made. All the proposals are basically estimates which were formulated in the advantage of the appellant. While doing so, it has been candidly admitted that no details, ledgers, agreement for the expenses can be produced and that the appellant does not have books of accounts for the deposit of Rs. 6,14,28,008/- in the two undisclosed bank accounts. The appellant proposed for net profit percentage of 2.41% for the entire business, disclosed and undisclosed and deletion of addition of Rs.21,06,820/- on account of expenses. The appellant also proposed complete deletion of addition of Rs. 45,09,399/- on account of capital deployment computed by the AO. The appellant raised ground against taxation of bank interest of Rs.29,893/- and charging of interest u/s 234A and 234B of the Act.
It is very difficult to make an assessment when no books of accounts are maintained. There is no way to verify and compute expenses incidental to business. In absence of details of customers, it is difficult to ascertain capital deployment or the margin of profit in each individual transaction, assuming that all cash deposits can be linked on a one-to-one basis with the immediately succeeding purchase for the customer. The appellant did not come up honestly with facts and there is no option left but to adopt rates/percentages on some pragmatic estimated basis. The appellant has even objected to the peak credit method on the ground that such a method is suitable when there are cash deposits and cash withdrawals and not in his case where there are cash deposits but withdrawal by cheque.
The AO made additions of Rs. 35,97,695/- and Rs. 45,09,399/- for net profit from undisclosed business and capital deployed in the undisclosed business, totalling to Rs.81,07,094/-, whereas the amount of undisclosed deposit was Rs. 6,14,28,008/-. The addition accounts for around 13.20% of the deposits in undisclosed bank accounts. I believe that for a business with no books of accounts, section 44AD provides for some guidelines, although each business is unique in its own way. The profit may vary from case to case and adopting a rate of 8% may not be accurate. However, there is no other way to arrive at a perfect figure of profit in the facts of the case. Even assuming that the appellant is doing business on the strength of advance from customers and no capital of his own was deployed, the element of profit margin cannot be denied, as otherwise, there cannot be any motive of doing business. In absence of any information, I consider a rate of 8% of the undisclosed deposit of Rs. 6,14,28,008/-, i.e., an amount of Rs.49,14,241/- as the profit component from the undisclosed business activity. The appellant, therefore, gets relief of an amount of Rs. 31,92,853/- in aggregate. So far as bank interest is concerned, the contention that the same should be netted by considering bank charges cannot be accepted because no books of accounts have been prepared and individual deposits and withdrawals have not been considered to determine profit; profit percentage of 8% has been applied to entire deposit of cash in the undisclosed accounts. In this method, no separate addition has been considered for capital deployed. Likewise, no deduction can be considered only for bank charges.”
4. Aggrieved by the order of the learned. CIT(A), the appellant filed the present appeal before this Tribunal.
5. We have gone through the facts of the case and submissions made by both the parties. It is found that the learned CIT(A) duly considered the entire facts of the case involved in this case, applied a profit percentage of 8% which we found to be on the higher side considering the nature of business, the volume of business and profit margin in such type of business. We therefore, apply a profit percentage rate of 3% in place of 8% as applied by the learned CIT(A). Thus, the appeal of the appellant is partly allowed.
6. In the result, this appeal of assessee is partly allowed.
Order announced in open court on 23/04/2026.
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