2024 (5) TMI 764 - AT - Income Tax

Eligibililty of benefit of Section 44AD - Unexplained sources of deposits in the bank account - Special provision for computing profits and gains of business on presumptive basis - HELD THAT - Once the nature of business of the assessee was accepted to be one arising out of income from commission then there was no question to dispute the declaration of profit u/s 44AD by questioning the quantum of receipts and corresponding expenditures. Doing so the very purpose of section 44AD of the Act gets defeated. Learned CIT(A) thus erred in sustaining the addition. Appeal of the assessee is allowed.

Summary

Issues Involved:
The issues involved in this case are related to the assessment of unexplained cash deposits in the bank account of the assessee, the application of Section 44AD of the Income Tax Act, 1961, and the justification of business receipts declared by the assessee.

Assessment of Unexplained Cash Deposits:
The Assessing Officer received information regarding repeated cash deposits in the bank account of the assessee, totaling Rs. 22,50,000/- and Rs. 52,76,000/-, leading to the initiation of proceedings u/s 147. The assessee filed a return declaring income of Rs. 1,60,670/- in response. The Assessing Officer added Rs. 18,81,500/- to the total income of the appellant, as the assessee failed to explain the sources of deposits amounting to Rs. 75,26,000/- in the bank accounts.

Application of Section 44AD:
The assessee claimed to be a property dealer with income from commission, justifying the cash deposits as withdrawals, advances from customers, and business receipts. The Assessing Officer doubted the business receipts of Rs. 24,55,871/-, stating that only Rs. 4.5 lacs were withdrawn for office expenses and staff salaries. The learned CIT(A) sustained the withdrawals and customer advances but questioned the business receipts, holding that Section 44AD did not apply. However, the Tribunal found that once the nature of the business was accepted as commission income, disputing the profit under Section 44AD was unwarranted, and the addition was not justified.

Justification of Business Receipts:
The learned CIT(A) doubted the business receipts of Rs. 24,55,871/- as no evidence of cash business receipts was provided. It was observed that only a portion of the amount was withdrawn for expenses and salaries, leading to the conclusion that the declared profit under Section 44AD was not justified. The Tribunal, however, disagreed with this assessment and allowed the appeal of the assessee, stating that the purpose of Section 44AD would be defeated by questioning the quantum of receipts and expenditures in a commission-based business.