2024 (6) TMI 320 - AT - Income Tax

Additions u/s 68 where the assessee has declared income u/s 44AD of the Act - trading activity in grey clothes - AO held trading activity of the assessee to be non-genuine for the reason that the documentary evidences submitted by the assessee do not properly substantiate the genuineness of the activity - CIT(A) allowed the appeal in favour of the assessee stating that when the assessee has declared income under section 44AD of the act no addition can be made u/s 68 HELD THAT - Books of accounts have been defined in section 2(12A) of the act to include ledgers, day-books, cash books, account-books and other books, whether kept in the written form or in electronic form or in digital form or as print-outs of data stored in such electronic form or in digital form or in a floppy, disc, tape or any other form of electro-magnetic data storage device. Further it is also settled position that bank passbook cannot be considered as books of accounts. In the light of this legal position, we will now consider the assessee's case. The assessee in the year under consideration has declared income under section 44AD of the act with regard to the trading activities since the turnover from the trading activity is less than Rs. 2 crores. The assessee has declared income on presumptive basis under section 44AD and therefore the requirement for maintenance of books of accounts does not arise. Accordingly we see merit in the contention that addition under section 68 cannot be made in assessee's case since the assessee has offered income on estimation basis under section 44AD of the act. Thus the addition made by the assessing officer under section 68 of the entire turnover which the assessee declared under section 44 AD of the act is not tenable. Assessee appeal allowed.

Summary

Issues Involved:
1. Whether the addition made u/s 68 of the Income Tax Act is valid when the assessee has declared income u/s 44AD.
2. Whether the CIT(A) erred in deleting the addition made by the Assessing Officer under section 68.

Summary:

Issue 1: Validity of Addition u/s 68 when Income is Declared u/s 44AD

The assessee, a partner in various firms and engaged in trading of grey clothes, declared income u/s 44AD of the Income Tax Act for AY 2017-18. The Assessing Officer (AO) noticed cash deposits of Rs. 1,96,87,000 in the assessee's bank account and treated the trading activity as non-genuine, making an addition of Rs. 1,88,98,744 u/s 68 of the Act. The CIT(A) allowed the appeal in favor of the assessee, holding that additions u/s 68 cannot be made when income is declared u/s 44AD.

Issue 2: Deletion of Addition by CIT(A)

The Revenue appealed, arguing that the CIT(A) erred in deleting the addition and not appreciating that the assessee failed to prove the genuineness of the business. The Tribunal noted that u/s 68, additions can only be made if sums are found credited in the books of accounts, which the assessee is not required to maintain under section 44AD. The Tribunal referenced various judicial pronouncements, including the Delhi High Court's decision in CIT vs. Kulwant Rai and the ITAT's decision in Narendra Kumar Gupta vs. DCIT, which support that bank passbooks are not considered books of accounts and that additions u/s 68 cannot be made when income is declared u/s 44AD.

Conclusion:

The Tribunal concluded that the addition made by the AO under section 68 is not tenable as the assessee declared income on a presumptive basis u/s 44AD and is not required to maintain books of accounts. The appeal by the Revenue was dismissed, and the addition made by the AO was deleted.

Order:

The appeal of the Revenue is dismissed. Order pronounced in the open court on 16-01-2024.