2019 (11) TMI 1240 - AT - Income Tax

Addition u/s 68/69A - unexplained deposits in the Bank account - assessee offered income u/s. 44AD - HELD THAT - If the income component is estimated, how the expenditure component on the basis of said income can be considered to have been actually incurred and it is only presumption that an amount of 92% of gross receipts was incurred by the assessee as expenditure. We must also observe here that this is not a case, where the AO has doubted the gross receipts or gross turnover of the assessee. In fact, accepting the same, estimating income @ 8% on the same at presumptive rate, he preferred to make further addition under section 68/69A. The argument of the learned D.R. that the turnover of ihe assessee has been doubted by the AO is totally ill-found, in view of the same. It is a fact on record that the assessee had not maintained books of account that is why he opted for 8% income as per section 44AD. The section also does not put obligation on the assessee to maintain books of account, more so, in view of the fact that his income has been assessed as per section 44AD of the Act, he cannot be punished for not maintaining the same. From an analysis of section 44A we have already held that the assessee had not incurred the expenses to the extent of 92% of the gross receipts. Therefore, in the present case, the provisions of section 69A cannot be applied. Asking the assessee to prove to the satisfaction of the AO, the expenditure to the extent of 92% of gross receipts, would also defeat the purpose of presumptive taxation as provided under section 44AD or other such provision. Since the scheme of presumptive taxation has been formed in order to avoid the long drawn process of assessment in cases of small traders or in cases of those businesses where the incomes are almost of static quantum of all the businesses, the AO could have made the addition under section 69A of the Act, once he had carved out the case out of the glitches of the provisions of section 44AD of the Act. No such exercise has been done by the Assessing Officer in this case. Applying the propositions of law laid down in the above case law lo the facts of the case on hand, we delete the addition in question. AO nor the CIT(A) have given any reason as to why the provisions of Section 44AD of the Act are not applicable to this case. This ground of appeal of the assessee is allowed

Issues Involved:
1. Delay in filing the appeal.
2. Applicability of Section 68 vs. Section 69A of the Income Tax Act.
3. Assessment under Section 44AD and the scope of additional assessments.

Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee filed an appeal with a delay of 231 days, citing medical reasons including hospitalization and subsequent clinical follow-ups due to a kidney tumor. The Tribunal reviewed the condonation petition and supporting medical certificates. Given the sufficient cause presented, the Tribunal condoned the delay and admitted the appeal for adjudication.

2. Applicability of Section 68 vs. Section 69A of the Income Tax Act:
The Assessing Officer (AO) initially added unexplained cash deposits in the bank under Section 68, which pertains to unexplained cash credits. However, the CIT(A) observed that since the assessee did not maintain books of account, Section 68 was not applicable. Instead, the CIT(A) held that the unexplained deposits should be taxed under Section 69A, which deals with unexplained money, emphasizing that quoting the wrong section does not invalidate the addition.

3. Assessment under Section 44AD and the Scope of Additional Assessments:
The assessee declared income under Section 44AD, which allows small businesses to be taxed on a presumptive basis at 8% of gross receipts, exempting them from maintaining detailed books of accounts. The AO accepted the turnover and the income declared but made additional assessments for unexplained cash deposits under Section 68.

The Tribunal highlighted that Section 44AD was introduced to simplify tax compliance for small traders by taxing them on a presumptive basis. It was noted that once income is accepted under Section 44AD, further additions for discrepancies in accounts should not be made, as this contradicts the purpose of presumptive taxation. The Tribunal referenced several judgments, including those from the Haryana High Court and ITAT Chandigarh Bench, which supported the view that additional assessments under Sections 68 or 69A are not warranted when income is declared under Section 44AD unless the turnover itself is disputed.

The Tribunal concluded that the AO's additional assessment under Section 68 was unfounded, as the income component was already presumed under Section 44AD. The Tribunal deleted the addition of ?27,94,306/- made by the AO, emphasizing that the presumptive taxation scheme should not be undermined by further scrutiny of accounts not required to be maintained under Section 44AD.

Conclusion:
The appeal was allowed in favor of the assessee, with the Tribunal ruling that the additional assessments made by the AO were not justified under the presumptive taxation scheme of Section 44AD. The Tribunal reinforced that the purpose of Section 44AD is to simplify tax compliance for small businesses, and further additions under Sections 68 or 69A should not be made unless the turnover itself is disputed.

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