TARAMATI HARISHCHANDRA SALKAR,MUMBAI V. INCOME TAX OFFICER, MUMBAI

ITA 800/MUM/2025

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This case involves an appeal by Taramati Harishchandra Salkar against the order of the Commissioner of Income Tax (Appeals) - National Faceless Appeal Centre, which sustained an addition of Rs. 41,71,965 under sections 69A read with section 115BBE of the Income Tax Act, 1961. The addition was initially made by the AO based on unexplained cash deposits amounting to Rs. 4,17,19,650 in the assessee's bank account, which the AO treated as turnover and applied a 15% net profit rate. The CIT(A) reduced this to 10% but upheld the addition. The assessee argued that the actual gross margin was only Rs. 9,25,620, with a net margin of Rs. 4,48,180, and that the profit margins applied were arbitrary and contrary to industry norms.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 652666 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2019-2020
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN SALUNKHE
• Assessee Lawyers: RAKESH KAPOOR
• Keywords: Business income; Principle of natural justice
• Section: 147; 148; 144; 142(1); 44AD

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “H(SMC)” BENCH : MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No. 800/Mum/2025 Assessment Year : 2019-20 Taramati Harishchandra Salkar, Flat No. 412/C, Shree Devdiga CHS Ltd., Sahar Pipe Line Road, Andheri (East), Mumbai. PAN : AVQPS7710Q vs. Income Tax Officer, Ward-33(1)(1), Kautilya Bhavan, Bandra Kurla Complex, Mumbai-400098. (Appellant) (Respondent) Assessee by : Shri Rakesh Kapoor Revenue by : Shri Pravin Salunkhe, Sr.DR Date of Hearing : 05-06-2025 Date of Pronouncement : 17-06-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟], dated 20-11-2024, pertaining to Assessment Year (A.Y) 2019-20, wherein the assessee has taken the limited ground relating to sustaining of the addition of Rs. 41,71,965/- u/s. 69A r.w.s. 115BBE of the Income Tax Act, 1961 („the Act‟). 2 ITA No. 800/Mum/2025 2. Briefly the facts of the case are that basis information that the assessee has deposited cash amounting to Rs. 4,17,19,650/- with Punjab and Maharashtra Co-operative Bank Limited and the assessee has not filed any return of income for the impugned assessment year, notice u/s. 148 of the Act was issued to the assessee on 29-03-2023. In response, the assessee filed her return of income on 29-04-2023 declaring income of Rs. 3,73,400/-, however, given the fact that the assessee has not validated the return so filed, the same was not considered as a valid return. Thereafter, a notice u/s. 142(1) of the Act was issued and after calling for information/documentation, an addition of Rs. 62,57,947/- was made by the AO u/s. 69A r.w.s. 115BBE of the Act and assessment order u/s 147 r/w 144 r/w 144B dated 26/02/2024 was passed by the AO. 3. Referring to the submissions filed by the assessee on 13-02-2024 along with bank statement of Unity Small Finance Bank Limited, wherein the assessee has submitted that she is engaged in the business of milk booth, namely, R.H.S. Milk Distribution and has earned income from the said business, wherein the total sales are cash sales and which have been deposited in the bank account and a copy of the ledger of the assessee in the books of Gujarat Co-operative Milk Marketing Federation Limited for the FY. 2020-21 was furnished, the AO noted that the assessee has declared total turnover of Rs. 9,25,620/- whereas total cash deposits were to the tune of Rs. 4,17,19,650/-. Further, the assessee not furnished the ledger account for FY. 2018-19 in the books of Gujarat Co-operative Milk Marketing Federation Limited and has infact furnished ledger account for FY 2020-21, which can support the purchases so made by the assessee and the AO thereafter held that the nature and source of cash deposit remain un-explained and at the same time, the total amount of Rs. 4,17,19,650/- was treated as milk sales of the assessee and net profit 3 ITA No. 800/Mum/2025 rate of 15% on the total receipts was applied and addition of Rs. 62,57,950/- was made in the hands of the assessee. 4. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A). Referring to the submissions filed by the assessee during the appellate proceedings, the Ld.CIT(A) stated that the assessee‟s business of milk distribution remains the same during the year under consideration and the cash deposits have been properly explained by the assessee with supporting documentary evidences and there are no other transactions in the account to doubt the veracity of the accounts of the assessee and held that the net profit rate estimated by the AO @15% is unreasonably high considering the nature of business of the assessee. Further, the Ld.CIT(A) stated that the assessee is having gross receipts more than Rs. 1 crore and had neither filed tax audit report within the due date nor offered taxable income on presumptive basis as per the provisions of section 44AD of the Act and, therefore, looking into the nature of business of the assessee, the AO was directed to estimate the profit @10% on the total gross receipts, granting part relief to the assessee. 5. Against the said findings, the assessee is in appeal before us. During the course of hearing, the Ld. AR submitted that Mrs. Salkar, the assessee is engaged in milk vending business in the name of R.H.S. Milk Distributors in Mumbai, Maharashtra and procures milk packets from the Gujarat Co-operative Milk marketing Federation Ltd. (Amul) and sell them to retailers, small vendors, and the general public. It was submitted that the business of the assessee is characterized by low profit margins and sales are predominantly cash-based due to the retail nature of the business and daily cash collections are deposited into her bank account to facilitate payments to GCMMF, which requires mandatory bank transfers 4 ITA No. 800/Mum/2025 for the purchases on a regular basis. It was submitted that for the year under consideration, there were total sales to the tune of Rs. 4,52,13,052/- with purchases of Rs. 4,42,87,432/- resulting in a gross margin of Rs. 9,25,620/- and after deducting expenses towards transportation, salary and wages and other miscellaneous expenses amounting to Rs. 4,77,440/-, the net taxable profit amounts to Rs. 4,48,180/-. 6. Referring to the assessment order passed by the AO, it was submitted that the AO has treated the cash deposits of Rs. 4,17,19,650/- as turnover instead of the actual gross margins of Rs. 9,25,620/-, which is substantiated by sales records and the GCMMF statement. Further, the AO has arbitrarily applied higher profit margin of 15% on the total cash deposits contrary to the industry norms of 1 – 2% of net profit. It was further submitted that the AO has disregarded the assessee‟s submissions which included the banks statement of Unity Small Finance Bank Limited, and ledger copies of R.H.S. Milk Distribution, claiming the deposits were cash sales from the milk business and the AO rejected the submission for lack of specific ledger for FY. 2018-19, without considering the consistency of the business model and has also failed to consider the assessment order passed for the AY. 2017-18, which validated the same income computation method from similar cash deposits. 7. It was further submitted that that even the Ld.CIT(A) has erred in failing to consider the assessment order for the AY. 2017-18 which establishes the legitimacy of the assessee‟s business and the computation of net profit. It was further submitted that the Ld.CIT(A) also upheld the addition on arbitrary profit margin, ignoring the milk vending industry‟s low margin reality as evidenced by the GCMMF statement and sales 5 ITA No. 800/Mum/2025 records, showing the gross margins of 3% and has dismissed the submissions filed by the assessee, including bank statements and the GCMMF statement without reasoned justification, violating principles of natural justice. It was accordingly submitted to recognize the turnover as the gross margin of Rs. 9,25,620/- (sales minus purchases), consistent with the AY. 2017-18 and corroborated by the GCMMF statement, bank statements and sales records, delete the addition of Rs. 41,71,965/-, which is based on an arbitrary 10% profit margin assumption, contrary to the milk vending industry‟s low margin reality and judicial precedents. 8. Per contra, the Ld. DR is heard, who has relied on the order passed by the lower authorities. 9. We have heard the rival contentions and perused the material available on record. The Ld.CIT(A) has returned a finding that the assessee is in the business of milk distribution and cash deposits in the bank account maintained by the assessee have been explained and there are no other transactions in the account. Therefore as far as the nature and source of cash deposits in the bank account of the assessee is concerned, the same have been held as relating to assessee‟s business of milk distribution and the same are not dispute. 10. The limited issue under consideration is what should be appropriate profits which can be brought to tax. The AO has estimated net profit at the rate of 15% which has been found on higher side by the Ld.CIT(A) who has reduced the same and estimated the net profit @ 10%. The Assessee is agitated by such estimation and has submitted that the Ld.CIT(A) has upheld the addition on arbitrary profit margin, ignoring the milk vending industry‟s low margin reality as evidenced by the GCMMF statement which 6 ITA No. 800/Mum/2025 shows the purchases so made by the assessee to the tune of Rs 4,42,87,432 against sales of Rs 4,52,13,052 giving a gross margin of Rs 9,25,620/- and net margin of Rs 4,48,180/-. 11. In this regard, we find that the AO in the assessment order has noted that the assessee not furnished the ledger account for FY. 2018-19 and has in fact furnished ledger account for FY 2020-21 in the books of GCMMF. Therefore, where the assessee has not furnished the appropriate ledger account for the period under consideration, no fault can lie with the AO in ignoring the ledger account which doesn‟t pertain to year under consideration. The onus is on the assessee to submit the appropriate ledger account to substantiate the quantum of purchases so made from GCMMF. It is also not clear whether the ledger account for the financial year under consideration has been furnished during the appellate proceedings. At the same, we find that none of the authorities below have disputed the fact that the assessee has made purchases from GCMMF and given that the assessee has submitted a copy of its ledger account in the books of GCMMF for the year under consideration as part of its paper book placed before us, we believe that the same is germane to the matter under consideration as real income can only be brought to tax and the same is hereby admitted. Further, we find that no basis of estimation of net profit either by the AO or by the Ld.CIT(A) has been given and as against that, the assessee has submitted that both the authorities have even ignored low industry margin in milk distribution business and even the assessment which has been completed in assessee‟s own case for A.Y 2017-18 where declared margins have been accepted. Therefore, in the entirety of facts and circumstances of the case, we deem it appropriate to remit the matter to the file of the AO for the purposes of determining the profit margins and resultant income which can be brought to tax in the 7 ITA No. 800/Mum/2025 hands of the assessee after providing reasonable opportunity to the assessee. 12. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 17-06-2025 Sd/- Sd/- [SANDEEP SINGH KARHAIL] [VIKRAM SINGH YADAV] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 17-06-2025 TNMM Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file By Order Dy./Asst. Registrar I.T.A.T, Mumbai "