2022 (5) TMI 667 - AT - Income Tax

Unexplained source of cash deposit - AO was of the view that the entire cash deposits in bank account maintained with SBBJ Durgapura is unexplained income of the assessee and the assessee has failed to explain the sources of the same by submitting factually incorrect submissions - CIT-A deleted the addition partly - HELD THAT - AR relying to the written submission further made the oral arguments at the time of hearing and have analyzed written submission before us. AR filed a detailed submission wherein he has filed a chart showing details in respect of realisation made from the old debtors in the year under consideration - As regard the fact that the debtors were outstanding in A. Y. 2008-09 being the just preceding year, he has filed copy of the ITR, Balance Sheet and Profit loss account, summary of debtors for A. Y. 2008-09 and copy of Value added tax return filed by the assessee - AR of the assessee also filed the details in respect of advance received from debtors and copy of their ledger account were submitted. We considered the contentions of the both the parties, considered the decision cited and relied upon and based on information and analyses of facts supported by evidence and argument we feel that the ld. CIT(A) has erred in not granting the relief to the assessee fully. Thus, based on the above discussion the ground no. 1 raised by the assessee is allowed. Addition u/s 80C - while filling the return of income he has claimed rebate under section 80C for an amount of Rs. 55,000/- out of which receipts of Rs. 32,653 submitted but while finalizing the assessment the same was not allowed - Even the ld. CIT(A) has dismissed this ground on technical issued and not decided on merits - HELD THAT - Ongoing through the finding of the ld. CIT(A) it is apparent that he has on technical ground not considered claim of the assessee and even though the proof were filed before him partly. DR submitted that the assessee has not submitted the full claim details and submitted part proof and even at the stage of CIT(A) and submitted that without evidence claim is not allowable. Thus it would be in the interest of justice this evidence be presented to the AO and ld.AO after considering the details and proof of the amount claimed may consider the issue of allowability of the deduction claimed under Chapter VIA. Thus, the grounds of appeal is technically allowed.

Summary

Issues Involved:
1. Addition towards cash deposit in bank account.
2. Disallowance of deduction claimed under Section 80C.
3. Application of Section 44AD and its implications on cash deposits.

Issue-wise Detailed Analysis:

1. Addition towards cash deposit in bank account:
The primary issue in this case was the addition of Rs. 4,66,563/- towards cash deposits in the assessee's bank account. The assessee argued that these deposits were from old debtors, own cash, and advances received from debtors. The Assessing Officer (AO) initially added the entire cash deposit of Rs. 11,79,315/- as unexplained income, citing discrepancies in the sources of the deposits. However, the Commissioner of Income Tax (Appeals) [CIT(A)] partially allowed the appeal, confirming the addition of Rs. 4,66,563/- while deleting the rest.

The tribunal found that the existence of debtors was established and admitted by the lower authorities. The assessee provided detailed charts and supporting documents showing the realization from old debtors. The tribunal held that the AO should have accepted the assessee's explanation regarding the realization of old debtors and deleted the addition of Rs. 3,68,563/-. Similarly, the tribunal found the assessee's explanation regarding the cash deposit by own cash (Rs. 73,200/-) and advances received from debtors (Rs. 24,800/-) to be reasonable and supported by evidence. Consequently, the tribunal allowed the assessee's appeal on this ground.

2. Disallowance of deduction claimed under Section 80C:
The second issue was the disallowance of a deduction of Rs. 55,000/- claimed under Section 80C. The assessee had submitted receipts for Rs. 32,653/- but failed to provide additional evidence for the remaining amount. The CIT(A) dismissed this ground on technical grounds, stating that no application for admission of additional evidence under Rule 46A was filed.

The tribunal noted that the assessee was a petty businessman and not fully literate, relying on tax consultants for compliance. The assessee’s legal heir, his wife, made efforts to collect the necessary documents. The tribunal found it appropriate to remand the matter back to the AO for reconsideration, allowing the assessee to present the evidence for the claimed deduction. Thus, the tribunal allowed the appeal on this ground technically.

3. Application of Section 44AD and its implications on cash deposits:
The third issue involved the application of Section 44AD and its implications on cash deposits. The assessee had declared business income under Section 44AD, which provides for presumptive taxation for small businesses. The AO had questioned the cash deposits in the bank accounts, which exceeded the declared turnover.

The tribunal referred to various judicial precedents, including CIT vs. Surinder Pal Anand and Nandlal Popli vs. DCIT, which held that once income is assessed under Section 44AD, the AO cannot make separate additions under Sections 68, 69, or 69A for unexplained cash deposits unless there is evidence that such deposits have no nexus with the business receipts. The tribunal found that the AO's action of making separate additions was not justified and allowed the assessee's appeal on this ground.

Conclusion:
The tribunal allowed the appeal of the assessee partly, directing the AO to reconsider the deduction claimed under Section 80C and deleting the additions made towards cash deposits in the bank account. The tribunal emphasized the importance of considering the assessee's explanations and supporting evidence, particularly in cases involving presumptive taxation under Section 44AD. The order was pronounced in the open court on 27/04/2022.