2015 (11) TMI 1904 - AT - Income Tax

Unexplained cash credit - assessee was summoned u/s 131 and sworn statement was recorded on 28/12/2011 - assessee was not able to explain the above cash credit and agreed to submit the same seeking more time - HELD THAT - AO totally ignored the fact that assessee also withdraws cash regularly. Closing balances in the bank accounts reaching the minimum level shows that the assessee utilizes the same for running business. The statutes allows and gives benefits to the small business people like the assessee to estimate their income so that they fulfill the statutory obligation of taxation and they also enjoy the benefits like, they don t have to maintain books of account as stipulated u/s 44AA, they are not subject to payment of advance tax under the provisions of Chapter XVII C. As far as the cash deposits in the bank are concerned, we have noticed that the assessee has gross receipts of Rs. 35,52,000/- from the construction business, which was not doubted by the tax authorities. In this line of business, contractors do get advances to execute the works undertaken by them. AO/CIT(A) had taken the cash deficit method to arrive the undisclosed income. This is not the right method. They should have investigated whether assessee retains the deposits for long period as unutilized. On analyzing the bank statement, we find that following the deposits, assessee also made several withdrawals both by cheque as well as by cash. Even to the extent of Rs. 15 lakhs in a day. In the civil business contract, they have to make payment for labour and materials invariably by cash. Cash deposit as per peak deficit cash balance stood as on 09/03/09 was Rs. 28,05,679/-. It reduces to Rs. 8,80,000/- by 20/03/09. Subsequently, there was cash withdrawals as well. Tax authorities are going by one side of accounting and completely overlooking the other side. Considering the gross receipts of the business and peak deficit cash balance, we reject the method adopt by the AO and consider that the cash deposits were made only for the business and further utilized only for the business. The first condition is that assessee should maintain the books of account. In the present, case assessee estimates the income and hence, there is no need to maintain books of account. It fails in the first condition itself. The bank statement is not the books of account. Not necessarily the gross receipts alone should be credited in the bank passbook, in the business, they also get advances for future contracts and assessee gets the benefit of doubt because of the small scale business and estimation of profit u/s 44AD. We set aside the order of CIT(A) and allow the appeal of assessee.

Summary

Issues:
Appeal against CIT(A) orders for AY 2009-10 regarding unexplained cash credit.

Analysis:
The judgment involves two appeals against CIT(A) orders for AY 2009-10, concerning unexplained cash credits. The appeals were clubbed and heard together. The main issue revolved around cash deposits of Rs. 31,04,179 into a bank account, treated as unexplained cash credit. The AO summoned the assessee and recorded a statement but found the explanation unsatisfactory. The CIT(A) upheld the addition, stating that the deposits did not correlate with declared turnover, indicating unexplained income. The appellant challenged this decision on various grounds, including the applicability of Sec. 44AD and the nature of the cash deposits.

The appellant argued that being in small civil construction business, maintaining books for small contracts was impractical. The CIT(A) contended that cash deposits exceeded Rs. 40 lakhs, thus not falling under Sec. 44AD. During the proceedings, it was revealed that total cash deposits were Rs. 60,64,179, raising doubts about the source of income. The Tribunal noted the AO's oversight of the business nature, regular cash withdrawals, and utilization of funds for business operations. It emphasized the benefits provided to small businesses under Sec. 44AD, allowing income estimation without book maintenance.

The Tribunal rejected the CIT(A)'s approach of considering cash deficit as undisclosed income, highlighting the need for a comprehensive analysis of business transactions. It noted the reduction in peak deficit cash balance and subsequent withdrawals, indicating business utilization of funds. The Tribunal emphasized that maintaining books of account was not mandatory for estimated income under Sec. 44AD. It considered the gross receipts and cash flow to conclude that the cash deposits were for business purposes and utilized accordingly.

Consequently, the Tribunal set aside the CIT(A) order and allowed the appeal of the assessee in both cases. The judgments were pronounced on 30th November 2015, granting relief to the appellants against the CIT(A) decisions regarding unexplained cash credits for AY 2009-10.