2010 (6) TMI 404 - HC - Income Tax

Additions u/s 44AD - cash credit - ₹ 14,95,300 - busines receipt - Section 44AD of the Act was inserted by Finance Act, 1994 w.e.f. 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% 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 ₹ 40 lacs. - Held that - Once under the special provision, exemption from maintaining of books of account has been provided and presumptive tax @ 8% of the gross receipt itself is the basis for 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

Summary

Issues:
Appeal under Section 260A of the Income Tax Act against ITAT order for assessment year 2005-06, Addition of cash deposits in bank account, Interpretation of Section 44AD regarding maintenance of books of account and tax liability, Justification of Assessing Officer's addition, Upholding of ITAT order by Commissioner of Income-tax (Appeals), Dispute over source of cash deposits, Application of presumptive tax @ 8% of gross receipts.

Analysis:
The appeal was filed by the revenue challenging the ITAT order for the assessment year 2005-06. The substantial question of law raised was whether the ITAT's deletion of the addition made by the Assessing Officer, regarding cash credits as business receipts under Section 44AD, was justified. The Assessing Officer had added Rs.14,95,300 in cash deposits to the income declared by the assessee. However, the Commissioner of Income-tax (Appeals) accepted the appeal, stating that as per Section 44AD, the assessee was not required to maintain regular books of account if the turnover was below Rs.40 lacs. The Commissioner observed that the addition was unjustified as the cash deposits were lower than the business receipts shown by the assessee.

The ITAT upheld the Commissioner's order, leading to the revenue's appeal. The revenue argued that the assessee failed to explain the source of the cash deposits, justifying the Assessing Officer's addition. However, the Court disagreed with this argument. Section 44AD mandates estimating income at 8% of gross receipts for certain businesses, exempting the assessee from maintaining detailed books of account. The Court noted that the basis for determining taxable income was the presumptive tax under Section 44AD. As the assessee's explanation that the cash deposits were business receipts was accepted by the Commissioner and ITAT, the Court found no evidence to suggest the deposits were unexplained or undisclosed income.

In conclusion, the Court dismissed the appeal, stating that no substantial question of law arose in the case. The judgment emphasized the application of Section 44AD and the presumption of tax liability based on gross receipts, ultimately supporting the decision to delete the addition made by the Assessing Officer.