2019 (6) TMI 300 - AT - Income Tax

Addition on account of cash in hand - cash deposit in demonetization period - assessee declared return of income u/s 44AD - A.O. adopted sales receipts of ₹ 15 lakhs to estimate the income of assessee u/s 68 - CIT(A) restricted the addition of ₹ 11,22,090/- i.e., to the extent of cash in hand - HELD THAT - There was no justification for the CIT(A) to pick-up the figure of ₹ 11,22,090/- for the purpose of making the addition on the basis of estimated balance-sheet filed at assessment stage. No evidence has been brought on record as to how the assessee maintained books of account in assessment year under appeal. A.O. has specifically noted that case was selected for scrutiny because assessee had deposited cash in his three Bank Accounts, but, no addition have been made on account of such amount deposited in the Bank Accounts. There was thus, no basis for the authorities below to make any addition against the assessee. The explanation of assessee has not been found to be false. Assessee, during the course of arguments rightly contended that assessee started retail business on cloth after his retirement. Since assessee is involved in small business activity and filed return of income under presumptive provisions u/s 44AD, there was no justification to consider the sales of assessee to be bogus or to make addition of cash in hand as per details submitted by the assessee because A.O. did not bring any sufficient evidence on record to justify the addition. - Decided in favour of assessee.

Summary

Issues:
Challenge against addition of cash in hand under limited scrutiny for demonetization period.

Analysis:
The appeal was filed against the Order of the Ld. CIT(A)-1, Gurgaon, challenging the addition of ?11,22,090/- on account of cash in hand for the A.Y. 2015-2016. The case was selected for limited scrutiny due to cash deposits during the demonetization period. The assessee explained the source of cash deposits, attributing some to earlier years' income and the rest to retail sales during the year.

The Assessing Officer (A.O.) raised concerns about the lack of proof for business activities, as the assessee did not maintain bills of purchase and all transactions were conducted in cash. The A.O. considered the cloth business of the assessee as bogus and non-existent, leading to the addition of ?15 lakhs as unexplained cash credit under section 68 of the I.T. Act. The A.O. treated the cash credit as unexplained and made the addition accordingly.

The addition was contested before the Ld. CIT(A), who held that the A.O. was not justified in adopting receipts of ?15 lakhs to estimate the income under section 68 of the I.T. Act. The Ld. CIT(A) restricted the addition to ?11,22,090/-, representing the cash in hand considered unaccounted for.

During the proceedings, the counsel for the Assessee argued that the business was small-scale, operated under section 44AD of the I.T. Act, and did not require formal bookkeeping. The counsel cited a High Court decision to support the contention that without rejecting the firm's explanation, invoking section 68 was unwarranted. The balance-sheet showed cash in hand of ?11,22,090/-, prepared without maintaining books of account.

The Tribunal noted that the assessee had declared income under section 44AD for multiple years without dispute. The A.O. was criticized for not verifying sales and purchases directly with the parties mentioned by the assessee. The Tribunal found no justification for treating the sales as bogus, especially since the balance-sheet indicated the cash in hand as part of the capital account. The Tribunal concluded that the authorities erred in making the addition without sufficient evidence to prove the cash in hand was unexplained.

Ultimately, the Tribunal allowed the appeal, setting aside the Orders of the authorities below and deleting the entire addition of ?11,22,090/-, as the explanation provided by the assessee was deemed credible.

In conclusion, the Tribunal found no basis for the addition made against the assessee, as the evidence presented did not substantiate the claim of unexplained cash credit.