2022 (12) TMI 68 - AT - Income Tax

Addition 69A - undisclosed income is from business or any other source - unexplained money OR only 8% of the cash deposits has to be brought to tax u/s 44AD treating the same as assessee s turnover in the business of construction contracts - undisclosed income is from business or any other source - HELD THAT - The explanation offered by the assessee that such deposits are from his contract business as a plausible explanation in absence of anything contrary on record in terms of any other source of income. Admittedly, the assessee also undertakes civil construction contracts. The partnership firm in which the assessee is a partner is also in the business of construction. The details of the contract work with Ursuline Sister of Mary Immaculate Educational Society were furnished by the assessee. The burden u/s.69A of the Act is only to give a satisfactory explanation. The facts and circumstances of a given case would be sufficient to draw an inference that receipts can be attributed to only business and no other source. The decision in the case of Balchand Ajitkumar 2003 (4) TMI 76 - MADHYA PRADESH HIGH COURT also supports the plea of the assessee. Therefore accept the plea of the assessee that 8% of the cash deposits/cash credit, be treated as income of assessee from business of civil construction and the said sum be taxed in lieu of taxing the entire cash deposits in the bank account/cash credit.Therefore partly allow all these appeals.

Summary

Issues:
Adjudication on whether cash deposits by the assessee should be taxed under section 69A or only 8% under section 44Ad for Assessment Years 2012-13 to 2017-18.

Analysis:
1. The group of appeals raised the issue of taxing cash deposits by the assessee in bank accounts for different Assessment Years under either section 69A or section 44Ad of the Income Tax Act, 1961. The assessee contended that the cash deposits were from contract receipts and should be taxed at the presumptive tax rate of 8% under section 44Ad. However, the Assessing Officer (AO) rejected this claim, deeming the cash deposits unexplained and taxed them under section 69A as "Income from Other Sources."

2. The CIT(A) affirmed the AO's decision, emphasizing that the assessee failed to prove that the cash deposits were from an eligible business to avail the benefit of section 44Ad. The CIT(A) cited various judicial pronouncements to support the conclusion that unexplained cash deposits should be added to the total income unless proven to be from a specific business source. The burden of proof rested on the assessee to demonstrate the cash deposits' link to undisclosed turnover in the contract business.

3. The assessee appealed to the Tribunal, reiterating arguments made before the Revenue authorities. The assessee relied on a decision by the Madhya Pradesh High Court, which emphasized adopting a net profit rate for undisclosed income rather than treating the entire amount as profit. The Tribunal, after considering all submissions, accepted the assessee's explanation that the cash deposits were from the business of civil construction. Consequently, the Tribunal ruled that only 8% of the cash deposits should be taxed as income from the construction business, partially allowing the appeals.

4. The Tribunal's decision highlighted the importance of providing a satisfactory explanation for cash deposits, especially in the context of business receipts. The judgment underscored that the burden of proof lies with the assessee to establish the source of cash deposits, particularly in cases of unrecorded turnover. By referencing relevant legal precedents and considering the specific circumstances of the case, the Tribunal concluded that 8% of the cash deposits should be taxed under section 44Ad, aligning with the assessee's contention and partially allowing the appeals.

5. Overall, the judgment clarified the distinction between taxing unexplained cash deposits under section 69A and applying the presumptive tax rate under section 44Ad for business income. It emphasized the need for the assessee to demonstrate a clear connection between cash deposits and business activities to avail favorable tax treatment, highlighting the significance of providing satisfactory explanations in such tax matters.