Income Tax Appellate Tribunal - Amritsar
Mohammad Ashraf War, Jammu And Kashmir vs Ito Ward, Baramulla on 2 April, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR.
BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER
AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER
I.T.A. No. 07/Asr/2024
Assessment Year: 2017-18
Mohammad Ashraf War Vs. I.T.O. Ward-Baramulla.
Jammu & Kashmir
[PAN:-ACJPW1193] (Respondent)
(Appellant)
Appellant by Sh.Rohit Kapoor, CA and Sh.
V.S. Aggarwal, ITP
Respondent by Sh. Ravinder Mittal, Sr. DR
Date of Hearing 19.03.2023
Date of Pronouncement 02.04.2024
ORDER
Per: Anikesh Banerjee, JM:
The instant appeal of the assessee was filed against the order of NFAC Delhi, [(in brevity 'the CIT(A)'] order passed u/s 250 of the Income-tax Act, 1961 (in brevity the Act) for assessment year 2017-18, date of order 21/11/2023. The impugned order was emanated from the order of the ld. Income Tax Officer, Baramulla, (in brevity the AO) order passed u/s 144 of the Act, date of order 22/12/2019.
2. The assessee has taken the following grounds: -
I.T.A. No. 07/Asr/2024 2 "1 I. On the facts and circumstances of the case the Id.
CIT(A) vide order u/s 250(6) dated 21,11,2023 has erred in confirming the addition made by the AO to the tune of Rs. 172200/- made u/s 69A on account of cash deposited during demonetization period.
2 2. That the I.d. CIT(A) has erred in confirming the addition of Rs. 1722000/.- without appreciating that the assessee was running a small business of sale purchase of electrical and other allied appliances. That the addition confirmed by the (II (A) is contrary to the fact that the C1T(A) had himself confirmed the action of the AO regarding the applicability of section 44AD to all the receipts other than amount deposited in demonetization period.
3 3. That the Ld. CIT(A) has erred in confirming the addition of Rs1722000.'- without appreciating that the Ld. AO has erred in treating a part of the deposits as business income and the balance deposits made during demonetization as unexplained money u/s 69A.
4 4. That the Ld. CIT(A) has erred in confirming the addition under section 69A ignoring the fact that the provisions of section 69A cannot be applied where no books of accounts were maintained.
5 5. That without prejudice to the aforesaid, the Ld. CTT(A) has erred in not appreciating that all the credits in bank are in respect of sales and as such the addition has to be restricted to profit element @ 8% as per the provisions of section 44 AD. Furthermore, the CIT(A) has failed to appreciate that entire sale cannot be profit.
I.T.A. No. 07/Asr/2024 3 6 6. That the Ld. (.TH A) lias cited in confirming the addition of Rs.1722000/- by not appreciating that the debits in the same bank account represent the amount expended for business purposes and as such, addition made u/s 69A is untenable. 7 7. That the Ld. CIT(A) has erred in confirming the addition of Rs. 1722000 on surmises and conjectures and without bringing on record any material jo prove that the appellant was in receipt of any income other than business income from business of sale- purchase of electrical and other allied appliances.
8 8. That the appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed off."
2.1. The assessee has taken the Additional ground: -
"1. That the CIT(A) has failed to consider that the assesse is distributor & Net Profit rate of 8% is not justified in this trade considering the net profit rate accepted by department in subsequent years."
3. Tersely we advert the fact of the case. The assessee is a trader off electrical items, running the business in the name and style of "War Electrical Store". Also, the assessee is an authorised dealer of ALPL (Ands Lite Pvt Ltd) within Baramulla and Kupwara district at Kashmir. The assessee is non filer of income tax return for the impugned assessment year. The notice under section 142(1) was issued to the assessee. The assessment was proceeded by the learned AO. It was I.T.A. No. 07/Asr/2024 4 found in assessment proceeding that the assessee deposited cash in bank account in J&K bank in different accounts. The total cash was deposited amount to Rs. 59,05,408/-. Out of that the ld. AO found that Rs.17,22,000/-was deposited in demonetization period. The rest amount of Rs. 41,83,408/- which was deposited other than demonetization period. The ld. AO passed the order U/s 144 with addition of Rs. 17,22,000/- U/s 69A of the Act with the total income of the assessee. Further, the ld. AO by invoking Section 44AD of the Act had calculated net profit @ 8% on the rest amount of Rs. 41,83,408/- which works out to Rs. 3,34,672/- which was also added back with the total income of the assessee. Aggrieved assessee filed appeal before the ld. CIT(A) and submitted all relevant documents. The assessee explained that the ld. AO had made the mistake in calculation of cash deposit in demonisation period. The correct figure will be amount to Rs. 6,62,400/- and not the amount to Rs. 17,22,000/-. Out of the amount to Rs. 6,62,400/- some cash were deposited in legal note. So, the balance amount to Rs. 4,31,000/- was deposited in demonetisation period in SBN. In appeal order the ld. CIT(A) has accepted the reconciliation but rejected the grounds of the assessee. Being dissatisfied on the appeal order, the assessee filed an appeal before us.
4. The ld. AR filed the written submission which is kept in record. The ld. AR argued and mentioned that the assessee deposited cash in SBN only amount to I.T.A. No. 07/Asr/2024 5 Rs. 431,000/- not amount to Rs. 17,22,000/-. In this respect the ld. AR submitted the following documents: -
Sr. Particulars Page APB No.
1. Copy of Bank statement of Jammu and Kashmir Bank 1-14 Account No. 0347010100000243.
2. Copy of Bank statement of Jammu and Kashmir Bank 15-52 Account no.
3538020100000217 3 Copy of certificate from Traders Federation J&K 68 4 Copy of certificate that the assessee is an authorized 69 distributor of ALPL Products 5 Copy of Vat returns for the period 01.04.2016 to 31.03.2017 70-75 & 79-82 6 Cash deposit certificate of bank account no 76-78 0347010100000243 and 3538020100000217 in J&K Grameen Bank along with deposit summary
5. The ld. AR invited our attention in appeal order. The relevant paragraph is reproduced as below:-
I.T.A. No. 07/Asr/2024 6 "3.0. Statement of Facts:
3.1. The appellant is in wholesale business of electrical items under the name WAR ELECTRICAL STORE and also an authorized distributor of ALPL products (ANDS LITE PVT. LTD) for Baramulla and kupwara district, with business establishment located at Gole market, Sopore (JK) registered with Sales Tax Department circle sopore and the above activity constitutes his sole source of income during the year 2016-2017.
3.2. The appellant has been preceded under section 144 of income tax wherein the assessing officer has treated the whole of cash deposits during demonetization at the figure 1722000 as mentioned in the order wherein the actual figure stands at 662400, as un-explained income and assessed the other deposits as business turnover and simultaneously offered under presumptive basis for the assessment year 2017-18.Further the appellant has been proceeded under section 147 and 148 of Income Tax act and finally ex-parte order has come to be passed against the appellant on 22-12-
2019 wherein income of the appellant is computed Rs 2056672.00. The appellant being aggrieved of the said order (herein after referred as impugned order) challenges the same on the following grounds:"
6. The ld. AR placed the date wise calculation of deposition cash in bank accounts during demonetisation period. Considering the relevancy of the calculation, the table is inserted below: -
"DETAIL OF CASH DEPOSIT DURING THE DEMONETISATION PERIOD J & K GRAMEEN BANK '3538020100000217 I.T.A. No. 07/Asr/2024 7 TOTAL DATE DEMONETISATION NUMBER AMOUNT AMOUNT 1000 27 27000 10.11.2016 500 149 74500 101500 1000 28 28000 12.11.2016 500 234 117000 145000 1000 10 10000 13.11.2016 500 109 54500 64500 1000 5 5000 15.11.2016 500 105 52500 57500 1000 11 11000 16.11.2016 500 103 51500 62500 2000 6 12000 01.12.2016 100 10 1000 13000 02.12.2016 2000 12 24000 24000 06.12.2016 2000 78 156000 156000 2000 5 10000 500 3 1500 20.12.2016 100 64 6400 28400 20 50 1000 19 500 9500 TOTAL 652400 652400
7. The ld. AR further argued that the assessee is registered under VAT Act , bearing TIN-01922094101 and declared total turnover in impugned assessment year amount to Rs. 77,36,192.33. The turnover ascertained by the ld. AO is wrong. The ld. AR also placed that the cash was deposited bank out of the sales proceed. The ld. AR further argued that the assessee is whole sellers and in earlier years the assessee had conducted Audit and net profit varies from @1.95% to @2.63%. The relevant part of the assessee's submission is reproduced as below:
12.2 The sales conducted by the assessee, as per the VAT returns submitted to the Sales Tax Department, amount to Rs. 7,736,192. The quarterly breakdown of sales, as per the VAT returns, is tabulated as follows I.T.A. No. 07/Asr/2024 8 Sales as per Vat Returns Quarter Quarter Amount Page No QI (01.04.2016 TO 30.06.2016) 1670857.63 70 Q2 (01.07.2016 TO 30.09.2016) 430915.42 71 Q3 (01.10.2016 TO 31.12.2016) 2533585.61 72-73 Q4 (01.01.2017 TO 31.03.2017 3100833.67 74-75 TOTAL SALES 7736192.33 12.3 The CIT(A) has erred in applying a net profit rate of 8% on the total credits in the bank account. That the Ld CIT(A) failed to recognize that the assessee is primarily involved in the wholesale distribution of electronic items, where the net profit margin typically does not exceed 3%. This is evidenced by subsequent periods audited profit & loss accounts which are accepted by the department, reflecting net margins ranging from 2% to 3%. Therefore, the application of an 8% net profit rate is disproportionate and inconsistent with the actual business operations and industry standards. The detail for the same is as under:-
Percentage of Net A.Y Gross Receipts Net Profit Audit Done Profit A.Y 2019-20 19225638 505690 Yes 2.63 A.Y 2020-21 15725884 306669 Yes 1.95 A.Y 2021-22 1,23,48,329 2,40,792 Yes 1.95
8. The ld. AR relied on following judicial decision which are as below: -
8.1. In the ITAT Delhi Bench 'B' Fine Gujaranwala Jewellers v. Income-tax Officer, [2023] 151taxmann.com340 (Delhi - Trib.), The relevant paragraph is as follows: -
"22. In the case in hand the reason for disbelieving the cash deposit is that the assessee has been deposited below Rs. 2 lakh in every transactions that lead to the conclusion of the Assessing Officer that the same has been done to avoid the application of provision of section 285BA read with Rule 114E of the Act. The said observation made by the Assessing Officer without any material in his hand. There is no prohibition under law to make sale transaction below Rs. 2 lakhs as such the assessee had at liberty to manage his own affairs. From the action of the assessee in raising the sales bill below Rs. 2 lakhs the Assessing Officer cannot interpret as the sale are bogus only to give color to non-genuine transaction as I.T.A. No. 07/Asr/2024 9 genuine transaction. 5The evidence brought on record by the Assessing Officer are not enough to hold that sales were not genuine. More so, the other wing of the Govt has already accepted the sale transaction under VAT, hence, the Assessing Officer is precluded from making contrary findings on the issue when the sales are not doubted. The other contention of the ld DR is that the assessee has not maintaining stock register properly and date wise stock position are not given. The Assessing Officer made the said observation without rejecting the books of account form which true profit and loss accounts could be ascertained and there is no quarrel on this issue. The lower authorities cannot place reliance on the circumstantial evidence which is only conjectures and surmises and the said approach of the ld CIT(A) is devoid of merit it deserves to be rejected. Further, the income of the assessee has to be computed by the Assessing Officer on the basis of available material on record and it is very important to have direct evidence to make an addition rather than circumstantial evidence. When the assessee gives any reply or submission or any documents to the Assessing Officer, it is duty of the Assessing Officer to examine the same in the light of the available evidence. In the present case the Assessing Officer and the ld CIT(A) have concluded the findings on the basis of conjectures and surmises. The Assessing Officer has to establish the link between the evidence collected by him and the addition to be made. The entire case has to be dependent on the Rule of evidence, the assessee in this case explained the source of bank deposits are from cash sales. The Assessing Officer proceeded to disbelieve the explanation of the assessee on the presumption basis without bringing the corroborative material on record. The Assessing Officer is required to act fairly as reasonable person and not arbitrarily capriciously. The assessment should have been made based on the adequate material and it should stand on its own leg. The Assessing Officer without examining any parties to whom the goods are sold by the assessee, came I.T.A. No. 07/Asr/2024 10 to conclusion that the sales are not genuine, without even rejecting the books of account which is in our opinion is erroneous."
8.2. In the ITAT Delhi Bench 'B' Income-tax Officer v. J.K. Wood India (P.) Ltd [2024] 158taxmann.com208 (Delhi - Trib.). The relevant paragraphs are as follows: -
"10. Once again, the assessee filed necessary evidence and after considering the facts and submissions and documentary evidences, the ld. CIT(A) observed that the amount of Rs. 69 lakhs is duly recorded in the books of account which were audited under various laws applicable and supported by credible evidence like copies of invoices, stock register maintained on a day to day basis, VAT returns filed from time to time and order of VAT authorities accepting the sales made by the assessee during the year under consideration.
11. Having satisfied himself with the explanation of the assessee supported by documentary evidence, the ld. CIT(A) deleted the impugned addition."
8.3. Hon'ble High Court of Punjab And Haryana Commissioner of Income-tax-II v. Surinder Pal Anand [2010] 192Taxman264 (Punjab & Haryana). The relevant paragraphs are inserted as below:-
"7. Section 44AD of the Act was inserted by the Finance Act, 1994 with effect from 1-4-1994. Sub-section (1) of section 44AD clearly provides that where an assessee is engaged in the business of civil construction or supply of labour for civil construction, income shall be estimated at 8 per cent, of the gross receipts paid or payable to the assessee in the previous year on account of such business or a sum higher than the aforesaid sum as may be declared by the assessee in his return of income notwithstanding anything to the contrary contained in sections 28 to 43C of the Act. This income is to be deemed to be the profits and gains of said business chargeable of tax under the head "profits and gains" of business. However, the said provisions are applicable where the gross receipts paid or payable does not exceed Rs. 40 lakhs.
8. Once under the special provision, exemption from maintaining of books of account has been provided and presumptive tax at the rate of 8 per cent of the gross receipt itself is the basis for I.T.A. No. 07/Asr/2024 11 determining the taxable income, the assessee was not under obligation to explain individual entry of cash deposit in the bank unless such entry had no nexus with the gross receipts. The stand of the assessee before the Commissioner of Income-tax (Appeals) and the ITAT that the said amount of Rs. 14,95,300 was on account of business receipts had been accepted. Learned counsel for the appellant with reference to any material on record, could not show that the cash deposits amounting to Rs. 14,95,300 were unexplained or undisclosed income of the assessee".
8.4. Hon'ble High Court of Punjab And Haryana Commissioner of Income-tax v. Rajinder Parshad Jain [2015] 61taxmann.com310 (Punjab & Haryana). The relevant paragraph is reproduced as below: -
"8. The Tribunal has applied a net profit rate of 6 per cent. as it was in consonance with the past history of the assessee. At the time of initial hearing, we had called upon counsel for the appellant-Revenue to apprise the court about the net profit rate applied to the assessee in years previous and subsequent to the assessment year in dispute. Counsel for the appellant fairly concedes, on instructions that in the preceding as well as the following year a net profit rate of 6.75 per cent. and 5 per cent., respectively, was applied by the Assessing Officer and has also placed on record the order for the assessment year 2009-10 where a net profit rate of 5 per cent. has been applied to the assessee. We, therefore, find no error in the discretion exercised by the Tribunal in applying a net profit rate of 6 per cent."
9. The ld. DR vehemently argued and placed that the assessment is exparte and the ld. CIT(A) had not considered the issue. So, the matter should be remanded back.
10. We heard the rival submission and considered the documents available in record. The addition U/s 69A for cash deposit in demonetisation period amount to Rs. 17,22,000/- as determined by the ld. AO. The assessee by submitting the I.T.A. No. 07/Asr/2024 12 evidence before the bench and the ld. CIT(A) has modified the amount in Rs. 431,000/-. But the depositing of cash in bank is duly discussed in appeal order. The relevant paragraph of appeal order is marked by the ld. AR. The assessee is the registered dealer under VAT Act. The relevant copy of VAT return is annexed APB 70-75 & 79 t0 82. The turnover is declared by the assessee amount of Rs. 77,36,192.33 which much higher turnover than determined by ld. AO in assessment. The ld. AO with considering the earlier years net profit and the nature of business has determined the NP @8% which is unjustified. The cash deposit in demonetisation period is also the part of turn over. The turnover is declared in VAT return. We respectfully relied on Fine Gujaranwala Jewellers (supra) & J.K. Wood India (P.) Ltd (supra).
The determination of net profit @8% is arbitrary in the eye of law. Taking power from the order of Surinder Pal Anand (supra) and Rajinder Parshad Jain (supra) here we direct to restrict the net profit @3% on turnover declared by the assessee. The ld. AO without proper verification of fact wrongly determined the turnover of the assessee during the impugned assessment year. The ld. DR was unable to place any contrary judgment against the submission of assessee. No challenge was made on veracity of the documents, submitted by the assessee. We set aside the appeal order. We direct to accept the turnover of assessee amount to Rs. 77,36,192.33 for impugned assessment year. The net profit is restricted to @3% on the turnover amount to Rs. 77,36,192.33. The cash deposit in bank I.T.A. No. 07/Asr/2024 13 account is part of the turnover and not from any undeclared sources. So, the addition of Rs 17,22,000/- is deleted and the calculation of net profit is modified accordingly.
11. In the result the appeal of the assessee bearing ITA No 07/Asr/2024 is allowed.
Order pronounced in the open court on 02.04.2024 Sd/- Sd/-
(Dr. M. L. Meena) (ANIKESH BANERJEE)
Accountant Member Judicial Member
AKV
Copy of the order forwarded to:
(1)The Appellant
(2) The Respondent
(3) The CIT
(4) The CIT (Appeals)
(5) The DR, I.T.A.T.
True Copy
By Order