2022 (6) TMI 547 - AT - Income Tax

Addition relating to income estimated by the AO - A.O. took the view that the assessee has estimated the income on presumptive basis at 8% of the gross receipts declared by it - CIT(A) accepted the availability of cash balance in the books of the assessee as on 09-11-2016 and accordingly directed the A.O. to give credit for cash balance of Rs.6,62,852/- and estimate the income on the remaining amount of cash deposited by the assessee - HELD THAT - On perusal of profit and loss account of the assessee would show that the income of the assessee consisted of interest income and other receipts. A perusal of the Balance sheet would show that the pigmy deposit collections have been shown as liability. Hence there is merit in the contentions of Ld A.R that there was no reason for the tax authorities to treat the amounts deposited into the bank account as revenue receipts in the hands of the assessee. When the deposits have been made out of book balances, there is no reason to estimate income there from. Accordingly, I set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition relating to income estimated out of deposits made into the bank account, which was sustained by Ld CIT(A). Appeal of assessee allowed.

Summary

Issues:
Challenge to order of Ld. CIT(A) regarding income estimation from cash deposits during demonetization period.

Analysis:
The appellant, a partnership firm providing financial services, challenged the decision of Ld. CIT(A) regarding the addition of income estimated by the Assessing Officer (A.O.). The A.O. had estimated income at 8% of cash deposits made during demonetization, resulting in a difference amount assessed. The appellant contended that it maintained regular books of accounts, declared income based on actual Profit and Loss account, and treated pigmy deposits as liabilities in the Balance Sheet.

Before Ld. CIT(A), the appellant argued that the cash deposits were made from pigmy collections and that the A.O. erred in treating these deposits as revenue receipts. Ld. CIT(A) acknowledged the cash balance available in the books and directed the A.O. to credit this amount before estimating income from the remaining cash deposits. The appellant, dissatisfied with this decision, appealed to the Tribunal.

During the appeal hearing, the appellant's representative highlighted the maintenance of regular books of accounts, submission of Profit and Loss account and Balance Sheet, and utilization of cash balance for bank deposits, including pigmy collections. The appellant emphasized that all transactions were duly recorded in the books, negating the need for income estimation by tax authorities.

Upon review, the Tribunal found that the A.O. and Ld. CIT(A) erred in presuming income estimation by the appellant. The Tribunal noted that the appellant's Balance Sheet showed pigmy deposits as liabilities and that all transactions were appropriately recorded. Consequently, the Tribunal set aside Ld. CIT(A)'s decision and directed the A.O. to delete the addition related to income estimated from cash deposits, thereby allowing the appeal filed by the appellant.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the importance of accurate bookkeeping and the inappropriateness of estimating income based on recorded transactions.