2022 (8) TMI 1483 - AT - Income Tax

Undisclosed money/investment u/s. 69A r.w.r.115BBE - cash balance as on the date of announcement of demonetization - addition made as assessee has made cash deposits into bank at least sixteen times between 01.04.2016 and 08.11.2016 and that one doctor single-handedly increased the turnover of assessee firm by 202% increase in cash receipts is also not accepted as the bills copies submitted does not give details of patients which are incomplete in details and increasing in pharmacy sales is beyond human probabilities - CIT(A) deleted the addition - HELD THAT - What the Ld. AO has added is the balance of cash in hand on the date of announcement of demonetization though factually the deposit of cash in SBNs during the demonetization period was of Rs. 3.30 Cr. From the books of account and corroborative documents placed on record we find that there is no dispute about the availability of cash balance and its source with the assessee. Thus once availability of cash in hand is proved assessee cannot be asked to furnish proof of acquisition of such amount in currency notes of particular denomination. We note that balance of cash in hand as on 08.11.2016 is out of opening cash balance (duly subject to assessment in AY 2016-17) and receipts during the year on account of sale of medicines and hospital receipts. Income derived from sale of medicines and hospital receipts have been subject to tax while accepting the income returned at Rs. 84.71 lakhs. Thus we find that cash balance being part of sale of medicines and hospital receipts cannot be brought to tax at the hands of the assessee again which will otherwise lead to taxing the same amount twice. We find no reason to interfere with the finding of the Ld. CIT(A) in respect of deletion of addition relating to balance of cash in hand on the date of announcement of demonetization. Accordingly the addition so made by the Ld. AO stands deleted. Grounds of appeal raised by the revenue are dismissed. Enhancement done by the CIT(A) - estimating the business income @ 4% of the SBNs of Rs. 3.30 Cr. deposited by the assessee in its bank account - Primary objection of the assessee is that deposit of SBNs is from the hospital and pharmacy receipts on which tax is paid by the assessee on the income embedded in such receipts thus on such receipts further estimation of income is unjustified and tantamounting to double addition - HELD THAT - We do find force in the submissions made by the Ld. Counsel in the above respect and are inclined to direct for the deletion of the addition made by the CIT(A) on an estimate basis more particularly when the doubts referred by him have been cleared by the assessee by reference to corroborative material placed on record which we have discussed above while dealing with the appeal of the Revenue. Accordingly the direction by the CIT(A) to the ld. AO for making the addition of Rs. 13.32 lakh @ 4% of Rs. 3.30 Cr. is set aside. Accordingly grounds of cross objection of the assessee are allowed.

Summary

Issues Involved:
1. Delay in filing the appeal by the Revenue.
2. Addition of Rs. 3.83 crores by the Assessing Officer (AO) under Section 69A of the Income-tax Act, 1961.
3. Upward estimation of business income by Rs. 13.32 lakhs by the Commissioner of Income Tax (Appeals) [CIT(A)].

Detailed Analysis:

1. Delay in Filing the Appeal by the Revenue:
The Revenue's appeal was delayed by 32 days. The delay was condoned due to the Supreme Court's directive to exclude the period from 15.03.2020 to 28.02.2022 for computing the limitation period due to the Covid-19 pandemic. An additional 90 days were allowed post-28.02.2022.

2. Addition of Rs. 3.83 Crores by the AO under Section 69A:
- Background: The assessee, a partnership firm running a hospital and pharmacy, deposited Rs. 3.83 crores during the demonetization period. The AO questioned the source of this cash deposit, rejecting the opening cash balance of Rs. 57,11,651/- from the previous year (AY 2016-17) and treating it as unexplained money under Section 69A.

- Assessee's Argument: The assessee argued that the cash deposits were from business receipts, duly recorded in audited books and supported by a Tax Audit Report. The opening cash balance was accepted in the previous year's assessment, and the cash deposits during demonetization were from legitimate business activities.

- CIT(A)'s Findings: The CIT(A) observed that the assessee provided detailed records, including pharmacy sales and patient details. The CIT(A) noted that the AO did not find any specific defects in the books during assessment or remand proceedings. The CIT(A) concluded that the cash deposits were from recorded business receipts, and the opening cash balance was already accepted in the previous year's assessment. Therefore, the addition under Section 69A was deleted.

- Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, emphasizing that the cash balance was part of recorded business receipts and could not be taxed again under Section 69A. The Tribunal referenced several judicial precedents, including the Supreme Court's decision in Lalchand Bhagat Ambica Ram v. CIT, to support that once the source of money is explained, it cannot be taxed again.

3. Upward Estimation of Business Income by Rs. 13.32 Lakhs by CIT(A):
- CIT(A)'s Action: Despite deleting the addition of Rs. 3.83 crores, the CIT(A) made an upward estimation of business income by Rs. 13.32 lakhs (4% of the cash deposits), citing minor discrepancies and lingering doubts about the correctness of the results.

- Assessee's Objection: The assessee contended that the estimation was unjustified and amounted to double taxation, as the cash deposits were already part of recorded business receipts. Additionally, the CIT(A) did not provide an opportunity to the assessee before making the enhancement, violating Section 251(2) of the Act.

- Tribunal's Decision: The Tribunal found merit in the assessee's arguments, noting that the minor discrepancies were clarified with corroborative evidence. The Tribunal set aside the CIT(A)'s direction for the upward estimation, emphasizing that the doubts expressed were misplaced and the estimation led to double taxation.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection. The addition of Rs. 3.83 crores under Section 69A was deleted, and the upward estimation of Rs. 13.32 lakhs by the CIT(A) was set aside.