MITHALAL BHANWARLAL JAIN,VIRAR EAST V. AO WARD 4(2), THANE, THANE

ITA 993/MUM/2025

AI Insights

The case involves Mithalal Bhanwarlal Jain, a trader engaged in wholesale and retail of Atta, Besan, and Maida, who appealed against the order of the CIT(A), National Faceless Appeal Centre, Delhi. The primary contention was regarding the treatment of cash deposits during the demonetization period and the total credits in the bank account, which the Assessing Officer treated as unexplained money and business turnover respectively, leading to additional tax assessments. The Tribunal examined the nature of these transactions and the applicable profit margins in the assessee's business, leading to a revised assessment of the net profit rate and the deletion of certain additions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 652863 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2017-2018
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 993/MUM/2025 Assessment Year: 2017-18 Mithalal Bhanwarlal Jain 24/03 Sai Raj Apartments, Jivdani Road, Vasai-Virar, Maharashtra 401305 (PAN: ABUPJ7763Q) Vs. Assessing Officer, Ward 4(2), Thane (Appellant) (Respondent) Present for: Assessee : Mr.Dhyanesh M. Patade, CA Revenue : Shri R.R. Makwana, Addl. CIT Date of Hearing : 09.04.2025 Date of Pronouncement : 16.06.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2024-25/1072150853(1), dated 14.01.2025 passed against the assessment order by Income Tax Officer, Ward- 4(2), Thane, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 29.12.2019 for Assessment Year 2017- 18. 2. Grounds taken by the assessee are reproduced as under: “ a. Ld. AO has considered the business cash deposited during the demonetization period as unexplained money u/s 69A, whereas he himself in his order has considered the same as business income. As the same is income 2 ITA No.933/MUM/2025 Mithalal Bhanwarlal Jain AY 2017-18 from business that same should not be treated as unexplained money u/s 69A and the addition should be deleted. b. Ld. AO has considered the total credit in bank account as turnover, however it is important to analyse the nature of credit as the same not always amounts to turnover. Thus, the AO has misguided himself and has made the addition on assumption basis.” 2. Brief facts of the case are that assessee is engaged in retail and wholesale trading business of Atta, Besan and Maida. During the demonetisation period, assessee deposited cash amounting to Rs.76,55,220/- out of which cash amounting to Rs.38,65,500/- was deposited in Specified Bank Notes (SBN). Assessment was completed u/s.143(3) by making addition towards deposit of cash in SBN of Rs.38,65,500/- as unexplained money u/s. 69A. Another addition was made of Rs.37,73,986/- by applying a net profit rate of 8% on the total credit side of the bank account treating it as business turnover after reducing the amount of cash deposited in SBN. 2.1. In the course of assessment proceedings, assessee submitted that in the trade in which he is engaged, the profit margin remains low, approximately at 2 to 3% which comes to Rs.30 to Rs.50 per bag of 50 kgs, since the goods are sold in bulk quantities, i.e., in whole sale. Assessee also contends that total credit side of the bank account which comes at Rs.6,15,92,567/- has been incorrectly taken as business turnover for applying net profit rate to make the addition. Total credits in the bank accounts includes RTGS failed entries, cheque return entries, self deposit entries, opening cash balance deposit entries, etc. In this respect, assessee furnished the details of such entries which is tabulated as below: 3 ITA No.933/MUM/2025 Mithalal Bhanwarlal Jain AY 2017-18 Particulars of Transactions Amount 1. Opening Cash Balance deposited - ITR of Last year 1,88,962 copy attached 2. Cheque Returned 3,43,664 3. RTGS failed 14,06,930 4. EXCESS NEFT CHARGES REV 30 5. Purchase returned -Amount reversed by vendors 7,75,830 6. Self-deposits and deposits by Family Members - by Cheques 3,47,000 7. Cash deposited of family members during demonetization period - as pleaded earlier (para 5 of the order) 4,83,000 Total 35,45,416 2.2. Assessee in the course of appeal submitted that the total of Rs.35,45,416/- as tabulated above is to be excluded from the turnover of the assessee as alleged by the ld. Assessing Officer. He then proposed that profit at the rate of 3% on the total credits in the bank account after reducing the amount relating to various other entries may be considered to adjudicate upon in the present appeal. He thus, furnished the following working for the purpose of computing net profit in his hands in respect of total credits appearing in the bank account. 4 ITA No.933/MUM/2025 Mithalal Bhanwarlal Jain AY 2017-18 Particulars Amount 1. Total Credits in bank account 6,15,92,567 2. Less : As discussed above 35,45,416 3. Total credits that can be considered as turnover 5,80,47,151 4. Profit @ 3% 17,41,414 2.3. In respect of addition made u/s.69A towards deposit of cash in SBN, it is contended that the said cash is out of the books of accounts of the assessee which relates to the business receipts from the trading done by him. The account in which the said cash in SBN has been deposited is a current account of the assessee used for business transactions. The said bank account is used for payments and receipt entries relating to vendors and customers. The said cash is part and parcel of the turnover which has been considered while applying net profit rate and therefore making a separate addition in respect of the deposit of cash in SBN leads to making the addition twice for the same amount. Assessee thus, claimed that addition made u/s.69A towards deposit of cash in SBN ought to be deleted. 3. From the perusal of para-9 in the impugned assessment order, we note that ld. Assessing Officer has taken the total credit appearing in the bank statement in account No. CD-2673 for the year under consideration at Rs.6,15,92,567/- against which assessee has shown sales turnover of Rs.1,01,42,500/- as reported in the return filed. According to the ld. Assessing Officer, assessee has suppressed his turnover to the extent of Rs.5,77,27,067/- i.e., total credit of Rs.6,15,92,567/- reduced by cash SBN deposit of Rs.38,65,560/- which is treated as business turn over. On this, he applied 8% to 5 ITA No.933/MUM/2025 Mithalal Bhanwarlal Jain AY 2017-18 determine net profit of Rs.46,18,165/-. Since, assessee has already reported net profit of Rs.8,44,179/- in the return so filed, the balance of Rs.37,73,986/- was added to the total income under the head “business and profession”. In the first appeal, ld. CIT(A) sustained the addition so made and dismissed the appeal of the assessee. Aggrieved, assessee is in appeal before the Tribunal. 4. In the given set of facts, as narrated above, we note that entries amounting to Rs.35,45,416/- cannot be considered as part of business turnover of the assessee, details of which are already tabulated above. Assessee is engaged in trading business where the volumes are in wholesale since he supplies mostly to the local bakeries where the profit margin are low in the range of 2 to 3% as submitted by him. While making the addition, ld. Assessing Officer has applied net profit rate of 8% against which assessee has proposed to apply profit rate of 3% by taking into account the line of business in which he is engaged in. 4.1. Considering the overall factual matrix and the submissions made before us, as well as the observations and findings arrived at by the authorities below, to meet the ends of justice, we find it appropriate to restrict net profit rate at 4% on the credits in the bank account after reducing amount of Rs.35,45,416/- Thus, ld. Assessing Officer is directed to consider net profit rate of 4% on Rs.5,86,47,151/- to arrive at business income in the hands of the assessee. Needless to say, credit be given for the business income already reported by the assessee in his return. 4.2. Further, deposit of cash in SBN in the bank account forms part of the total credit which is treated as business turnover and has been 6 ITA No.933/MUM/2025 Mithalal Bhanwarlal Jain AY 2017-18 subjected to net profit rate addition in terms of above findings. Thus, the same cannot be added again u/s.69A as unexplained money. Addition made by the ld. Assessing Officer tantamount to bringing the same amount to tax twice. Accordingly, addition made of Rs.38,65,500/- u/s.69A in respect of deposit of cash in SBN is deleted. 5. In the result, appeal of the assessee is partly allowed. Order is pronounced in the open court on 16 June, 2025 Sd/- Sd/- (Amit Shukla) (Girish Agrawal) Judicial Member Accountant Member Dated: 16 June, 2025 MP, Sr.P.S. Copy to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai "