Introduction: In a recent decision by the Income Tax Appellate Tribunal (ITAT) Hyderabad, the case of Puligilla Purnachander vs ITO for the assessment year 2017-18 was addressed. The ITAT held that when profit is estimated, the cash deposit during demonetization cannot be brought to tax separately.
Background: The Assessing Officer (AO) had issued notices to the assessee based on a deposit of Rs. 18,88,000 during the demonetization period. The AO estimated the income at 8% of the gross sales and additionally treated the cash deposit, including demonetized currency, as ‘unexplained’ under section 69A of the Income Tax Act.
ITAT Decision: The ITAT found that the assessee, conducting business as Balaji Fertilizers, Bachannapet, had not filed a return of income for the assessment year 2017-18. The AO estimated the income due to the absence of audited statements. The ITAT, considering the smallness of the amount involved, opted for a pragmatic view, directing the AO to adopt a net profit of 6% of gross sales.
Regarding the addition of Rs. 6,97,000, the ITAT observed that the cash deposit, including demonetized currency, was part of the gross sales. Since the net profit was estimated, the ITAT ruled that the specific deposit in specified notes could not be taxed separately. The AO was instructed to delete this amount.
Conclusion: The ITAT Hyderabad, on November 8, 2023, partially allowed the appeal, emphasizing that in cases where profit is estimated, specific cash deposits during demonetization should not be taxed separately. This decision provides clarity on the treatment of cash deposits during the demonetization period when profit estimation is involved.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
Aggrieved by the order dated 16/08/2023 passed by the learned Commissioner of Income Tax (Appeals)- National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), in the case of Puligilla Purnachander (“the assessee”) for the assessment year 2017-18, assessee preferred this appeal.
2. Brief facts of the case are that by looking at the deposit of Rs. 18,88,000/- in the accounts of the assessee, during the demonetization period, the learned Assessing Officer issued notices to the assessee to file the return of income. In response, assessee filed e-proceedings, stating that he is running business in the name and style of Balaji Fertilizers, Bachannapet and furnished computation of income statement, P&L account and other financial statements for the assessment year 2017-18, but failed to file the return of income for the assessment year 2017-18. As per the P&L account furnished gross sales of Rs. 1,24,57,139/- was admitted by the assessee with a net profit of Rs. 3,39,879/-. In the absence of return of income and audited statement, the learned Assessing Officer felt constrained to estimate the income of the assessee @8% on the gross sales admitted as per the submission which amount to Rs. 9,40,811/-(Gross sales less cash deposits during demonetization). Learned Assessing Officer further found that during the year assessee has deposited into bank cash of Rs. 40,27,750/- including demonetized currency of Rs. 6,97,000/-deposited during the period of demonetization. In the absence of any documentary evidences, which otherwise would support the assessee, learned Assessing Officer treated the cash deposited during the year as ‘unexplained’ and brought this amount also to tax under section 69A of the Income Tax Act, 1961 (for short “the Act”).
3. Aggrieved by such an action of the learned Assessing Officer, assessee preferred appeal before the learned CIT(A), but according to the learned CIT(A), failed to turn up and prosecute the appeal. Learned CIT(A), therefore, recorded that in the absence of any material to contradict the findings of the learned Assessing Officer, the same cannot be interfered with. Learned CIT(A) accordingly dismissed the appeal.
4. Assessee, therefore, filed this appeal stating that no adequate opportunity is granted to the assessee by the learned Assessing Officer as well as the learned CIT(A). He further submitted that in the initial years of faceless assessments, the assessee and the counsel were not adequately acquainted with the procedures and it resulted in ex-pate proceedings. Learned AR submitted that given an opportunity, the assessee is prepared to co-operate with the authorities to get the matter disposed of on merits.
5. Learned AR submitted that this particular year is the first year of the business of the assessee and for subsequent years also, the assessee has declared the net profit at around 3%. He submitted that in fertilizer business, only fixed percentage of commission will be given to the assessee and after meeting the expenses, the assessee would get only 3% of profit and, therefore, the profit declared by the assessee may be accepted. He further submitted that the gross sales of the assessee during the year were Rs. 1,24,57,139/-, assessee deposited into bank cash of Rs. 40,27,750/- in the entire year including Rs. 18,88,000/- during demonetization period and out of this amount, a sum of Rs. 6,97,000/- was in specified notes. He, therefore, submitted that the money deposited in specified notes is part of the sales and, therefore, it cannot be brought to tax separately.
6. Per contra, learned DR justified the action of the authorities, stating that when the assessee does not himself show any interest in prosecuting the proceedings, the authorities cannot wait till the assessee chooses to come and appear. According to him, the opportunity granted is sufficient and no more opportunity need be given to the assessee. Insofar as the merits of the case are concerned, learned DR submitted that in the line of business of the assessee, the net profit is not less than 8% and, therefore, the learned Assessing Officer rightly estimated the same. He further submitted that the assessee did not submit any material to show that the amount deposited in specified notes is also part of sales in cash. He, therefore, prayed to dismiss the appeal.
7. I have gone through the record in the light of the submissions made on either side. Assessee conducting business in the name and style of Balaji Fertilizers, Bachannapet and the turnover are not in dispute. According to the assessee, the commission he gets in fertilizer business itself is less than 8% and after meeting the expenditure, his net profit is around 3% of gross sales; whereas according to the Revenue, estimation of net profit @8% is reasonable. Neither of them produced any evidence to support their figures. In these circumstances, keeping in view the smallness of amount involved, I deem it just and proper not to restore the issue to the file of the learned Assessing Officer to conduct the entire exercise of assessment de novo, but instead, I am of the considered opinion that it is better to put a quietus to the issue by taking a pragmatic view as to the net profit in this case. Having considered the same, I deem it reasonable to adopt the net profit @6% and it would meet the ends of justice. I accordingly direct the learned Assessing Officer to adopt net profit in this case @6% of the gross sales.
8. Coming to the addition of Rs. 6,97,000/-, it is also not in dispute that there are cash sales conducted by the assessee and the learned Assessing Officer did not dispute the fact that the gross sales of the assessee during the year were Rs. 1,24,57,139/-, assessee deposited into bank cash of Rs. 40,27,750/- in the entire year including Rs. 18,88,000/- during demonetization period and out of this amount, a sum of Rs. 6,97,000/- was in specified notes. Learned Assessing Officer does not dispute the genuineness of deposit of cash of Rs. 40,27,750/- in the entire year and Rs. 18,88,000/- during demonetization period. The natural inference that must have been drawn by the learned Assessing Officer is that such cash forms part of the gross sales. Then, there is no reason for the learned Assessing Officer to dispute the genuineness of Rs. 6,97,000/- merely because it was in specified notes. Revenue does not say that there was no cash in hand in the business conducted by the assessee. In these circumstances, having regard to the volume of business and also cash deposits in the entire year and also during the demonetization period relating to such business, I am of the considered opinion that there is no reason not to believe that the deposits in specified notes was also part of cash sales. Since the net profit is estimated, this particular deposit cannot be brought to tax separately. Hence, the learned Assessing Officer is directed to delete the same.
9. In the result, appeal of the assessee is allowed in part.
Order pronounced in the open court on this the 8th day of November, 2023.