2020 (8) TMI 311 - AT - Income Tax

Addition u/s.69 - unexplained cash deposits - Maintainability of appeal by revenue - HELD THAT - We endorse the order of CIT(A) that it is a trading receipt. Even otherwise, the appeal of the Revenue is also not maintainable as the tax effect in the appeal is below the tax limit prescribed by the CBDT Circular No.17/2019, dated 8th August, 2019. Thus, we dismiss the grounds of appeal of the Revenue and consequently appeal of the Revenue is dismissed.

Issues Involved:
1. Validity of the assessment order under Section 144 due to non-issuance of notice under Section 143(2).
2. Justification of the addition of ?1,29,44,999/- as unexplained cash deposits under Section 69.
3. Correctness of estimating income at 8.85% of unexplained cash deposits.
4. Applicability of judicial precedents cited by CIT(A).
5. Tax treatment of the sustained addition of ?7,17,180/-.

Issue-wise Detailed Analysis:

1. Validity of the assessment order under Section 144 due to non-issuance of notice under Section 143(2):
The assessee contended that the assessment order passed under Section 144 was not sustainable because the notice under Section 143(2) was not issued by the Assessing Officer (AO) who held jurisdiction over the appellant. However, this legal issue was not pressed by the assessee during the proceedings.

2. Justification of the addition of ?1,29,44,999/- as unexplained cash deposits under Section 69:
The AO added the entire cash deposits of ?1,29,44,999/- as unexplained investment under Section 69 due to the assessee's failure to explain the source and genuineness of these deposits. The CIT(A) observed that considering the entire amount as unexplained investment would be harsh and unreasonable. It was presumed that the deposits came from the assessee's contract business, as the assessee had disclosed gross receipts of ?48,41,265/- from the contract business.

3. Correctness of estimating income at 8.85% of unexplained cash deposits:
The CIT(A) restricted the addition to ?7,17,180/- by applying a profit rate of 8.85% on the unexplained cash deposits of ?81,03,734/-. This rate was consistent with the profit rate disclosed by the assessee on the disclosed contract receipts. The CIT(A) relied on judicial precedents where only the profit embedded in undisclosed turnover was taxed, not the entire turnover.

4. Applicability of judicial precedents cited by CIT(A):
The CIT(A) relied on several judicial decisions, including those from the jurisdictional ITAT and High Courts, which held that taxing the entire turnover as income would be unreasonable. These precedents supported the view that only the profit embedded in the gross receipts should be taxed. The Tribunal found no infirmity in the CIT(A)'s application of these precedents.

5. Tax treatment of the sustained addition of ?7,17,180/-:
The Tribunal accepted the assessee's submission that the sustained addition of ?7,17,180/- should be taxed at the normal rate applicable to business income, as the receipts were considered business income. The Tribunal also noted that the appeal of the Revenue was not maintainable because the tax effect was below the limit prescribed by CBDT Circular No.17/2019.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order, which restricted the addition to ?7,17,180/- and taxed it at the normal rate applicable to business income. The cross-objection filed by the assessee was allowed, and the assessment order under Section 144 was upheld despite the non-issuance of notice under Section 143(2). The Tribunal endorsed the CIT(A)'s detailed analysis and reliance on judicial precedents, finding no infirmity in the order.

← Previous Next →