2020 (4) TMI 818 - AT - Income Tax

Unexplained money u/s 69A - assessee had not maintained books of account that is why he opted for 8 per cent income as per section 44AD - CIT-A rejected the transactions declared u/s 44AD as turnover - HELD THAT - If 8 per cent of gross receipts are 'deemed' income of the assessee, the remaining 92 per cent are also 'deemed' expenditure of the assessee. Meaning thereby that actual expenditure may not be 92 per cent of gross receipts, only for the purposes of taxation, it is considered to be so. Expenditure may be less than 92 per cent or it may also be more than 92 per cent of gross receipts. On the reading of the substantive part of the provision, it is quite clear that an assessee availing the benefit of such presumptive taxation can claim to have earned income at the rate of 8 per cent or above of the gross receipts. In that case, the provisions of sub-section (5) of the said section will be applicable to it. From the combined reading of sub-section (1) and sub-section (5), it is apparent that the obligation to maintain the books of account and get then audited is only on the assessee who opts to claim the income being less than 8 per cent of the gross receipts. Argument of the revenue that the turnover of the assessee has been doubted by the Assessing Officer is totally ill-found, in view of the overwhelming evidences proving contra. Further, it is a fact on record that the assessee had not maintained books of account that is why he opted for 8 per cent income as per section 44AD of the Act. 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. The argument of the revenue that the assessee was in fact, not in the eligible business untenable. Confirmations of the parties, having proved their sources and creditworthiness, the entries in the bank statement, the payments made for purchase of material and keeping in view, the place of execution of the work, we hold that the addition made by the Assessing Officer is liable to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining the addition of ?50.50 lakhs as unexplained money under section 69A of the Income Tax Act.
2. Validity of the assessment order passed under section 143(3).
3. Rejection of transactions declared under section 44AD as turnover.
4. Consideration of the evidences provided by the assessee.
5. Opportunity to defend the case under section 69A.

Issue-wise Detailed Analysis:

1. Sustaining the Addition of ?50.50 Lakhs as Unexplained Money under Section 69A:
The assessee declared a turnover of ?50,50,000 from civil construction activities and filed returns under Section 44AD, claiming no books of account were maintained. The Assessing Officer (AO) questioned the genuineness of these receipts, noting the lack of supporting documentation and the assessee's background as a retired teacher with no previous construction experience. The AO added ?50,50,000 as unexplained income. The CIT(A) upheld this addition, citing unverifiable information and non-filing of ITRs by the payers. However, the Tribunal found that the payments were confirmed by the payers and reflected in the bank statements, thus rejecting the revenue's argument and deleting the addition.

2. Validity of the Assessment Order Passed under Section 143(3):
The assessee argued that the assessment order under Section 143(3) was invalid. The Tribunal reviewed the procedural aspects and found that the AO had issued notices and verified the transactions. However, the Tribunal concluded that the AO's reliance on the non-filing of ITRs by the payers was misplaced, especially when the payments were confirmed and bank statements were provided. Thus, the Tribunal found no substantial procedural irregularities in the assessment order itself but overturned the findings based on the merits of the evidence provided.

3. Rejection of Transactions Declared under Section 44AD as Turnover:
The CIT(A) rejected the assessee's declaration of turnover under Section 44AD, questioning the authenticity of the construction business claim due to the lack of past or future construction activities. The Tribunal, however, emphasized that Section 44AD allows for presumptive taxation based on turnover, without the need for maintaining books of account. The Tribunal held that the assessee's declaration under Section 44AD was valid, supported by the bank statements and confirmations from the payers.

4. Consideration of the Evidences Provided by the Assessee:
The assessee provided confirmations from the payers, bank statements, and details of payments for construction materials. The CIT(A) found these insufficient due to the non-filing of ITRs by the payers. The Tribunal, however, accepted these evidences, noting that the payers' confirmations and bank statements corroborated the assessee's claims. The Tribunal concluded that the evidences were sufficient to substantiate the turnover and construction activities.

5. Opportunity to Defend the Case under Section 69A:
The assessee claimed not having been given a fair opportunity to defend against the addition under Section 69A. The Tribunal noted that the AO issued a notice under Section 133(6) close to the assessment order date, limiting the assessee's response time. The Tribunal found that the assessee had provided adequate evidence within the given timeframe, and the AO's conclusions were based on incomplete verifications. Thus, the Tribunal held that the assessee was not given a fair opportunity, reinforcing the decision to delete the addition.

Conclusion:
The Tribunal allowed the appeal, deleting the addition of ?50,50,000 made by the AO. It held that the assessee's declarations under Section 44AD were valid, supported by sufficient evidence, and that the procedural aspects of the assessment did not justify the addition. The Tribunal emphasized the importance of considering all evidences and providing a fair opportunity to the assessee.