2024 (8) TMI 1361 - AT - Income Tax

Cash deposit during demonetization period as taxed u/s 69A r.w.s. 115BBE - source of cash deposit is treated to be out unaccounted sales made by the assessee. HELD THAT - Admittedly, assessee has been making sales in cash from his small retail outlet for lades lower garments that the price of such garment is less than Rs. 2,000/- per piece. Thus, it would be better to apply net profit rate of 8% on these unaccounted sales of Rs. 32,00,000/- which works out to Rs. 2,56,000/-. Thus, the addition is restricted to Rs. 2,56,000/- as against addition of Rs. 32,00,000/- made by the AO. The reason for adopting the net profit rate of cash deposit is that assessee does not have any source of income nor has made any investment and is only involved in petty retail business. Thus, it cannot be held that assessee had some other unexplained cash from some other sources. Accordingly, the addition is sustained on the basis of application of net profit of 8% on cash deposits as the same is treated as income from business and profession and not to be taxed u/s. 69A r.w.s. 115BBE. Accordingly, the appeal of the assessee is partly allowed.

Summary

Issues:
1. Addition of cash deposits during demonetization period under sections 69A and 115BBE of the Income Tax Act, 1961.
2. Applicability of presumptive taxation scheme under section 44AD in relation to cash deposits.
3. Consideration of source of cash deposits from trade receipts and past savings.
4. Assessment of unexplained cash deposits and determination of taxable income.

Analysis:

Issue 1: Addition of cash deposits during demonetization period under sections 69A and 115BBE:
The appellant contested the addition of Rs. 32,00,000 as aggregate cash deposits during the demonetization period, taxed under sections 69A and 115BBE of the Income Tax Act, 1961. The appellant argued that the cash deposits were from trade dues received after legal compliance and that the provisions of section 69A should not apply in the case of presumptive taxation under section 44AD. However, both the Assessing Officer and the CIT (A) upheld the addition. The Tribunal found that the appellant's explanation regarding the source of cash deposits was not acceptable, leading to the conclusion that the cash was from unaccounted sales made by the appellant. The Tribunal restricted the addition to Rs. 2,56,000 based on a net profit rate of 8% on the unaccounted sales, sustaining the addition as income from business and not taxable under sections 69A and 115BBE.

Issue 2: Applicability of presumptive taxation scheme under section 44AD:
The appellant's argument regarding the applicability of the presumptive taxation scheme under section 44AD was considered by the Tribunal. The appellant claimed that since the return was filed under presumptive taxation, the provisions of section 69A should not apply. However, the Tribunal found that the cash deposits were related to unaccounted sales from the business, leading to the conclusion that the source of cash was from the business itself, not affected by the presumptive taxation scheme.

Issue 3: Consideration of source of cash deposits from trade receipts and past savings:
The appellant submitted that the cash deposits were from trade receipts and personal savings, including amounts received from a party named M/s. Sarita Exports. However, the appellant failed to provide sufficient evidence to establish the genuineness and creditworthiness of the transactions with M/s. Sarita Exports. The Tribunal found that the appellant could not substantiate the details of the transactions, leading to the rejection of the appellant's claims.

Issue 4: Assessment of unexplained cash deposits and determination of taxable income:
The Tribunal assessed the unexplained cash deposits of Rs. 32,00,000 and determined that the source of the cash was unaccounted sales made by the appellant in the business of retail sale of ladies garments. The Tribunal applied a net profit rate of 8% on the unaccounted sales to arrive at a restricted addition of Rs. 2,56,000. The Tribunal reasoned that the appellant's income was solely derived from the retail business, and the unexplained cash deposits were considered income from the business, not falling under sections 69A and 115BBE for taxation.

In conclusion, the Tribunal partly allowed the appeal of the assessee, sustaining the addition of Rs. 2,56,000 as income from the business of retail sale of ladies garments, while restricting the initial addition made by the Assessing Officer.