2019 (5) TMI 1863 - AT - Income Tax

Addition u/s 69A - treating cash deposit as unexplained - HELD THAT - As the assessee has only two sources of income. One is the remuneration, interest, share of profit, and rent from partnership firm, M/s Modern Fashion Textile Tailoring Co. in which he is a partner and second is business income from his proprietory concern, M/s Modern Tailoring Company. In respect of his proprietory concern, the assessee has declared income u/s 44AD since the turnover of this business does not exceed the threshold limit of ₹ 1 crore. In the assessment order, the AO himself has accepted that the deposit in the bank account represents the realisation of sales. Therefore, even if the explanation of the assessee as to the source of deposits in the bank account is not fully accepted, then also the deposits as such cannot be considered as income. At the most, on such deposit which is accepted as a business deposit, net profit rate of 8% as prescribed u/s 44AD can be assessed. The net profit on the amount of ₹ 36,76,540/- works out at ₹ 2,94,283/-. Therefore, the addition should be sustained only to extent of ₹ 2,94,283/- instead of ₹ 36,78,540/- as done by the lower authorities - Appeal of the assessee is allowed in part.

Summary

Issues: Appeal against addition of cash deposit under Section 69A

Analysis:
1. Issue: Addition of cash deposit under Section 69A.
- Summary: The appeal was filed against the addition of ?36,78,540 under Section 69A of the Income Tax Act, treating the cash deposit as unexplained.
- Details: The assessee, engaged in the cloth and tailor business, declared a total income of ?2,19,370. The Assessing Officer (AO) observed a cash deposit of ?57,49,000 in the SBI account. The AO sought justification for the deposit, and after receiving replies, noted discrepancies in the source of ?19,00,000 and required confirmation from debtors. Additionally, deposits with a cooperative bank were questioned. Despite submissions and notices to debtors, incomplete information led to the addition of ?36,78,540.

2. Judgment:
- Summary: The CIT(A) upheld the AO's decision, leading to the appeal before the ITAT.
- Details: The ITAT reviewed the contentions and records. It was noted that the assessee's income sources were remuneration from a partnership firm and business income from a proprietary concern. The AO acknowledged the bank deposits as sales realizations. Even if the source explanation was not fully accepted, the deposits could not be treated as income entirely. Applying a net profit rate of 8% as per Section 44AD, the addition was recalculated to ?2,94,283 instead of ?36,78,540. The AO was directed to limit the addition accordingly.

3. Conclusion:
- Summary: Partial allowance of the assessee's appeal.
- Details: The ITAT partially allowed the appeal, directing the AO to restrict the addition to ?2,94,283. The judgment was pronounced on 2nd May 2019 by the ITAT Jaipur.