2023 (5) TMI 1371 - AT - Income Tax

Addition of unexplained income u/s 69A and 115BBA - cash deposit during demonetisation - HELD THAT - When the assessee has duly explained the details of cash sales, cash deposit, sales and purchase for the year under consideration, which have not otherwise been disputed by the AO there is no need to rush to the estimation and guess work by the AO. Rather the audit account books are required to be examined in entirety. The assessee has come up with categoric plea that his entire sale was in cash from a bar and restaurant business which runs 365 days in a year accept on dry days and having average regular sale of 9,000 per day as it is serving 32 dishes on 10 tables. However, all these facts and documents have not been examined by the AO. To decide the issues raised in this appeal once for all, all the account books and documents brought on record by the assessee are required to be examined afresh by the AO to reach the logical conclusion, instead of working on the basis of estimation and guess work. D.R. has also agreed with the proposition that when all the documents/audit account books have been brought on record the same are required to be examined. So the impugned order passed by the Ld. CIT(A) is here by set aside and file is remitted back to the AO to decide afresh after providing opportunity of being heard to the assessee. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Assessment of unexplained income under section 69A and 115BBA
2. Addition of business income under section 44AD
3. Disallowance under section 40A(3)

Analysis:

Issue 1: Assessment of unexplained income under section 69A and 115BBA
The appellant, a hospitality company, challenged the order passed by the National Faceless Appeal Centre regarding the assessment year 2017-18. The Income Tax Department identified the appellant as having deposited a significant amount of cash during demonetization but failing to file income tax returns. The Assessing Officer (AO) concluded that the appellant showed inflated sales figures to justify cash deposits during demonetization, treating the cash deposit as unexplained income under section 69A and taxing it under section 115BBA. The AO also assessed tax at a presumptive basis and disallowed certain expenses under section 40A(3), resulting in a total income assessment of Rs.28,31,040.

Issue 2: Addition of business income under section 44AD
The AO observed discrepancies in the appellant's cash sales and deposits, indicating irregular bookkeeping. Despite the appellant's submission of details, the AO and the Commissioner of Income Tax (Appeals) did not consider the return of income filed subsequently for the assessment year, raising concerns about the acceptance of the appellant's books of account. The appellant argued that its cash flow details and operational aspects were not adequately reviewed by the authorities, emphasizing the consistent cash balance and daily sales volume from the restaurant business.

Issue 3: Disallowance under section 40A(3)
The appellant contended that the AO and the Ld. CIT(A) overlooked crucial details such as the cash opening balance, deposit dates, and operational specifics of the restaurant business. The appellant's plea for a thorough examination of all submitted documents and accounts was supported by the Deputy Representative for the Revenue. Consequently, the Tribunal set aside the impugned order, remitting the case back to the AO for a comprehensive review based on the available records and providing the appellant with a fair opportunity to present its case.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a detailed examination of the appellant's accounts and documents by the AO to reach a logical conclusion, rather than relying on estimation and conjecture.