2022 (6) TMI 1518 - AT - Income Tax

Returned income shown by the assessee u/s 44AD - Addition u/s 69A - assessee has shown the abnormal amount of profit U/s. 44AD to explain the money found and seized from locker - department has further relied on statement recorded U/s. 131 and stated assessee has kept cash in his locker and stated that the source of income is retail business and does not have any documents to prove cash found in the locker - HELD THAT - It is admitted fact on record that the assessee has not been maintaining any books of account and opted to file return of income u/s 44AD - assessee had already submitted copy of sale account before the Dy. Director of Income Tax (Hqs.) and also before the Assessing Officer as well as before the learned CIT(A). Provisions of section 44AD do not put obligation on the assessee to maintain the books of account, as the income has been assessed as per section 44AD of the Act. The addition made by the Assessing Officer under section 69A of the Act and there is no bar under section 44AD of the Act. The only fetter provided under section 44AD of the Act is the applicability of the provisions of sections 32 to 38 of the Act. Since the assessee is involved in a small business activity and filed return of income under presumptive provisions under section 44AD of the Act and the assessee had already submitted sales account before the authorities below and the assessee had also filed capital position along with the return of income showing the cash balance kept in locker. Considering the same as abnormal profit, the Assessing Officer has not educed sufficient evidence to show that the income of the assessee which falls under the provisions of section 69A of the Act. Since the assessee is not maintaining any books of account and in such situation only net profit as per provisions of section 44AD of the Act is required to be estimated as a net profit and not the entire turnover. The assessee submitted that the cash deposited pertains to his retail business. The assessee filed the sales register which has not been discarded by any of the authorities below. Considering the total turnover sale of the assessee, net income determined under section 44AD of the Act shown by the assessee has to be accepted, as there is no provision in the Income Tax Act, 1961, to reduce the income of the assessee. It is also admitted fact that in the earlier years the department has accepted income U/s. 44AD of the Income Tax Act. Thus income determined under section 69A of the Act is directed to be treated as regular return of income of the assessee and returned income shown by the assessee is hereby directed to be accepted. Addition u/s 68 - amount shown as opening balance as on 1st April 2017, in the capital position filed by the assessee before AO - AO stated that no supporting document was filed by the assessee regarding opening balance - As per CIT(A) Assessee is not doing any business activity and has added the opening balance as unexplained cash credit u/s 68 - HELD THAT - We find that there is no merit in making the addition on account of opening capital in the case of the assessee u/s 68 of the Act, as we are of the considered opinion that the aforesaid provisions of section 68 are not applicable to the present case of the assessee. We further find that the assessee has also filed copy of computation of income, acknowledgement of income and copy of capital position. Assessee had filed return of income u/s 44AD showing income for the assessment year 2017-18, and paid taxes accordingly. The aforesaid return of income has been accepted by the Department and no addition has been made. We also find a copy of capital position in which the capital of Rs.3.67 lakh has been accepted by the Department and no addition has been made and profit of the assessee was accepted under section 44AD of the Act by the Department. Since the closing balance of Rs.3.67 lakh has been accepted in the return of income for the previous year relevant to the assessment year 2017-18 i.e., as on 31st March 2017, therefore, there is no justification in making any addition of opening capital and not accepting the opening capital as on 1st April 2017, at Rs.3.67 lakh. Addition u/s 68 deleted. Decided in favour of assessee.

Summary

Issues Involved:

1. Legality of the addition of income determined by the Assessing Officer.
2. Applicability of Section 69A for treating returned income as unexplained money.
3. Rejection of income claim under Section 44AD.
4. Treatment of opening cash balance as unexplained investment under Section 68.
5. Levy of interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Legality of the Addition of Income:

The primary issue was whether the Commissioner of Income Tax (Appeals) erred in confirming the addition of income determined by the Assessing Officer at Rs. 13,45,300/-. The assessee contended that the order was illegal, invalid, and bad in law. The Tribunal noted that the assessee had filed a return of income under Section 44AD, declaring a total income of Rs. 9,78,300/-. The Assessing Officer treated the entire amount as unexplained money under Section 69A, which was contested by the assessee.

2. Applicability of Section 69A:

The Tribunal examined whether the provisions of Section 69A were applicable in this case. The assessee argued that since the income was declared under Section 44AD, which does not require maintaining books of accounts, Section 69A should not apply. The Tribunal agreed with the assessee, noting that the income declared under Section 44AD was supported by a sales account, and there was no provision in the Income Tax Act to reduce the income declared under this section. The Tribunal found that the Assessing Officer had not provided sufficient evidence to support the addition under Section 69A.

3. Rejection of Income Claim under Section 44AD:

The Tribunal considered the rejection of the assessee's income claim under Section 44AD. The assessee had shown a turnover of Rs. 19,32,500/- and offered more than 50% of it as income. The Assessing Officer rejected this, claiming it was not supported by bills and vouchers. The Tribunal found that the assessee was not required to maintain such records under Section 44AD and that the income declared should be accepted. The Tribunal concluded that the income determined under Section 69A should be treated as regular income, and the grounds of appeal related to this issue were allowed.

4. Treatment of Opening Cash Balance as Unexplained Investment under Section 68:

The Tribunal addressed the addition of Rs. 3,67,000/- as unexplained cash credit under Section 68. The assessee argued that this amount was the opening balance from the previous year, which had been accepted by the department. The Tribunal found that the assessee had filed a return for the previous year showing this amount as the closing balance, which was accepted by the department. Therefore, there was no justification for treating it as unexplained in the current year. The Tribunal directed the Assessing Officer to delete this addition, allowing the related ground of appeal.

5. Levy of Interest under Sections 234A, 234B, and 234C:

The Tribunal considered the levy of interest under Sections 234A, 234B, and 234C. Since the additions made by the authorities were deleted and the returned income was accepted, the Tribunal found that the imposition of interest under these sections did not arise. Consequently, this ground of appeal was dismissed.

Conclusion:

The Tribunal allowed the appeal partly, directing the deletion of additions made under Sections 69A and 68, and accepted the returned income as filed under Section 44AD. The levy of interest under Sections 234A, 234B, and 234C was dismissed as a consequence of the deletion of additions.