The assessment based on erroneous turnover assumptions without considering audited financial statements violates principles of natural justice.

आयकर अपीलीय अधिकरण, कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI DUVVURU RL REDDY, VICE PRESIDENT AND SHRI RAKESH MISHRA, ACCOUNTANT MEMBER (THROUGH VIRTUAL HEARING AT KOLKATA )

No.200/CTK/2025 आयकर अपील सं/ITA ( नििाारण वर् ा / Assessment Year : 2017-2018)

आदेश / O R D E R Per Duvvuru RL Reddy, Vice President The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 05.03.2024 passed for Assessment Year 2017-18, on the following grounds of appeal :-

1. Erroneous Assumption of Turnover:

The AO has incorrectly treated all bank deposits as sales, without considering the nature of transactions, including cash withdrawals, redeposits, and inter-account transfers, deposits out of opening cash balances etc.

Many of the deposits in Bank accounts were not sales receipts but included fund transfers between own accounts, capital introductions, ad personal transactions, which the AO wrongly considered as turnover.

The appellant frequently withdrew cash from bank accounts for business expenses, supplier payments, and operational needs, some of which were later redeposited. These redeposits have been erroneously treated as fresh sales resulting into double count of Turnover which leads to higher taxation as A.O has erroneously consider a higher profit margin on an escalated Turnover that is not his real income. Tax can only be paid on a real income basis is not on a arbitrary presumptive basis.

The department had not consider all this factor during the assessment the appellant to properly reconcile the bank deposits and provide detailed explanations for individual transactions before making the arbitrary addition.

During the Assessment Proceeding Appellant has submitted the Audited Financial Statement where appellant had disclosed that Audited Turnover Rs.3,87,30,260.00 and Net Profit Rs.4,56,242.00.

However, A.O has not considered the above fact and added the full deposit amount as Gross sales erroneously on presumptive basis.

2. A.O has ignored the audited balance sheet and Profit and Loss Account which has been submitted during the proceeding The appellant had duly submitted the audited Balance Sheet and Profit & Loss Account during the assessment proceedings, which provide a clear and accurate picture of the financial position.

The AO ignored these audited financial statements and instead relied solely on Cash deposit which leading to an erroneous assessment.

The failure to consider audited records violates the principles of natural justice for the small business man, as the AO has not appreciated valid documentary evidence.

Further, had the AO analysed the audited financials, he would have found that the declared turnover was correctly reported, and all the deposits in to the bank are integral part of the business and the turnover is sufficient to cover the cash transaction.

3. Higher Profit percentage consider by AO is not factual The AO arbitrarily applied a net profit rate of 6% on an inflated turnover without considering Nature of Business. The EGG trading business is a very low-margin, high-volume business, and applying such a high profit rate is not justified. The appellant had already reported a net profit of ₹4,56,242/- on actual sales of ₹3,87,30,260/-, which is in line with the industry during assessment proceeding.

Applying a flat 6% profit margin to an exaggerated turnover creates an unrealistic income projection that does not reflect the true profitability of