2022 (6) TMI 742 - AT - Income Tax

Unexplained cash credits u/s.68 - HELD THAT - We are of the considered view that once AO has accepted the assessee s figure of receipts from job work declared in the return of income on the basis of which return has been filed by the assessee on presumptive basis under section 44AD AO is precluded from making separate additions u/s 68 to the returned income on the basis that the assessee has not been able to prove the fact of carrying out job work activity in absence of adequate supporting documents etc. without disturbing the figure declared by the assessee offered as job work receipts. As regards cash deposits the assessee has filed confirmations along with identity proofs of lenders and the same has not been disputed by the assessing officer - Accordingly, considering the fact that deposits by each of the individual lenders were less than ₹ 20,000 coupled with the fact that the assessee has been able to establish their identity, we are of the view that source of cash deposits also stands substantiated. Accordingly, ground number 1 to 3 of the assessee s appeal are allowed. Set off of loss from derivative transactions against income declared by the assessee in the return of income - assessee has submitted that both the quantification and genuineness of the aforesaid loss from derivative transactions are not in dispute - assessee, due to oversight could not claim the above loss either before the AO or the Ld. CIT(Appeals) and has relied on various judicial precedents in support of his contention that additional claim can be raised at any stage before appellate authorities - HELD THAT - We are in agreement with the contention of the assessee that a legally valid claim can be made by the assessee even before the appellate authorities. Therefore, in the interests of justice, we are restoring the matter to the file of the AO only in respect of the additional grounds of appeal in respect of claim of set off of loss incurred in derivative transactions against income declared in the return of income filed by the assessee, with a direction to verify the claim of the assessee in respect of this ground, since the revenue authorities did not have any opportunity to verify the aforesaid claim of the assessee at any prior stage. In the result, the additional ground of appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of unexplained cash credits under Section 68 of the Income Tax Act.
2. Non-appreciation of profit element from job work income.
3. Denial of benefit of telescoping or peak credit theory.
4. Dismissal of ground relating to initiation of penalty under Section 271B.
5. Breach of law and Principles of Natural Justice.
6. Levying of interest under Sections 234A/B/C.
7. Initiation of penalty under Section 271(1)(c).
8. Set off of loss from derivative transactions against declared income.

Issue-wise Detailed Analysis:

Grounds 1 to 3: Additions under Section 68 of the Act:
The assessee, engaged in the business of power coating, filed a return of income under Section 44AD on a presumptive basis, declaring a net income of ?3,33,630/-. The Assessing Officer (AO) noticed cash deposits totaling ?63,58,700/- in the assessee's bank account and required an explanation. The assessee explained that these deposits were from cash withdrawals, job work receipts, and unsecured loans. The AO rejected the explanation, stating the assessee failed to prove the job work business and the genuineness of the loans. Consequently, the AO made an addition under Section 68.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] provided partial relief, accepting ?12,90,000/- as cash withdrawals used for deposits and reducing the addition to ?47,35,070/-. The ITAT noted that the assessee consistently filed returns under Section 44AD and that the AO accepted the total job work receipts but disputed the cash receipts. The ITAT referred to various rulings, emphasizing that under Section 44AD, the assessee is not required to maintain books of account, and thus, Section 68 cannot be invoked. The ITAT concluded that the AO could not make separate additions under Section 68 without disturbing the declared job work receipts and accepted the genuineness of the unsecured loans. Therefore, grounds 1 to 3 were allowed.

Grounds 4 to 8: General/Consequential Issues:
These grounds were deemed general or consequential and did not require specific adjudication.

Additional Grounds of Appeal: Set off of Loss from Derivative Transactions:
The assessee claimed a set-off of ?24,79,180/- loss from derivative transactions against declared income, which was not claimed earlier due to oversight. The ITAT agreed that a valid claim could be made at the appellate stage and restored the matter to the AO to verify the claim, as the revenue authorities had no prior opportunity to do so. Hence, the additional ground was allowed for statistical purposes.

Conclusion:
The appeal was allowed, with the ITAT providing relief on the primary grounds and remanding the additional ground for verification by the AO. The order was pronounced on 15-06-2022.