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2024 (9) TMI 1692 - AT - Income TaxUnexplained income u/s 69A - Cash deposits in the three bank accounts - HELD THAT - We note from the submissions of the assessee before the CIT(Appeals) that the cash deposits are out of sale proceeds and unsecured loans. Therefore it is evident that the assessee has deposited cash in the bank account from his business turnover on which assessee had declared business profit. Both the authorities below have not reduced the profit element involved in the business turnover and corresponding expenditure. Both the authorities have considered the income twice i.e. under the profits gains of business or profession under Chapter IVD on the turnover and income from other sources u/s. 69A. Resultantly there is double taxation on the same income which is not permitted. Once the cash deposit out of the turnover is treated as unexplained investment u/s. 69A the actual turnover which is not part of the bank deposits has to be calculated. It Partial cash transaction on the same modus operandi followed by the assessee has been accepted which is not subject matter of the appeal. We also note that the assessee has filed VAT return disclosing the entire turnover shown in the financial statements. Therefore both the authorities are not justified in making addition u/s. 69A of the Act. Rejection of books of accounts - As once the books of accounts are rejected by the ld. FAA he should have applied income u/s. 144 of the Act however he has accepted income disclosed by the assessee. It is also noted that the assessee is an eligible assessee u/s. 44AD and he has disclosed income @ 9.92% u/s. 44AD. The amount deposited in the bank account is less than the turnover declared by the assessee. Both the authorities below are unable to substantiate the bank deposits are over and above the turnover declared by the assesse. Cash deposits in the above three bank accounts were treated income u/s. 69A is not correct. Therefore income declared by the assessee under the head profits gains of business or profession has to be accepted. Ground Nos.1 to 6 are allowed
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include: 1. Whether the rejection of the books of accounts by the CIT(A) was justified under the circumstances of the case. 2. Whether the cash deposits during the demonetisation period should be treated as unexplained income under Section 69A of the Income Tax Act. 3. Whether the application of Section 115BBE, which involves a higher tax rate on unexplained income, was appropriate. 4. Whether the assessee was liable to pay interest under Sections 234A, 234B, and 234C of the Income Tax Act. ISSUE-WISE DETAILED ANALYSIS 1. Rejection of Books of Accounts The relevant legal framework includes Section 145 of the Income Tax Act, which allows the rejection of books of accounts if they are not reliable. The Tribunal noted that the CIT(A) invoked Section 145(3) to reject the books due to deficiencies in proving the sales declared by the assessee. The assessee argued that under Section 44AD, there was no requirement to maintain detailed books of accounts due to the presumptive taxation scheme. The Tribunal found that the rejection of books was not justified as the assessee declared income under the presumptive scheme, and the turnover was accepted by the authorities. 2. Treatment of Cash Deposits as Unexplained Income Under Section 69A, unexplained cash deposits can be treated as income. The assessee argued that the deposits were from business turnover and loans, supported by sales records and VAT returns. The Tribunal observed that the authorities accepted the turnover but treated the cash deposits as unexplained, leading to double taxation. The Tribunal concluded that the cash deposits were part of the business turnover and should not be treated as unexplained income. 3. Application of Section 115BBE Section 115BBE imposes a higher tax rate on unexplained income. Since the Tribunal found that the cash deposits were not unexplained, it ruled that Section 115BBE was not applicable. 4. Interest under Sections 234A, 234B, and 234C The Tribunal did not specifically address the interest liability, as the primary issue of unexplained income was resolved in favor of the assessee, negating the basis for additional tax and interest. SIGNIFICANT HOLDINGS The Tribunal held that the rejection of the books of accounts was not justified, as the assessee was eligible under the presumptive taxation scheme and had declared a reasonable profit margin. The core principle established is that double taxation on the same income is impermissible. The Tribunal concluded that the cash deposits were part of the declared business turnover, and therefore, the addition under Section 69A was incorrect. Consequently, the application of Section 115BBE was also unwarranted. The final determination was that the appeal by the assessee was allowed, and the income declared under the head "profits & gains of business or profession" was accepted.
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