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2025 (4) TMI 1479 - AT - Income TaxAddition u/s 69A - suo-moto taking the bank deposits as turnover and estimating the profit @ 8% - assessee has not furnished complete details of bank deposits the same is added to the total income of the assessee as unexplained money u/s 69A - HELD THAT - Legal heir of late assessee has furnished evidence to show that prior to his death assessee was running a Kirana business which had a turnover that had been verified by the VAT authorities in the course of an assessment. Non-compliance before the AO is explained by the illness and subsequent demise of the assessee during the period of assessment. Therefore the lack of explanation furnished before the AO in the given circumstances of the case should not be viewed as an attempt to evade notices but has to be seen in the light of the circumstances that befell the assessee and his family. Since the total amount of cash deposit and even the total amount of credits in the said bank account are well below the turnover of the late assessee s business and since the AO has verified this in the course of remand proceedings and not recorded any adverse comments when given the opportunity to do so we are of the opinion that the CIT(A) is justified in accepting the request of the assessee s legal heir to assess the income from the said business @ 8% of gross receipts in view of the provisions of section 44AD. Appeal of the Revenue is dismissed.
Issues Presented and Considered
The core legal questions addressed in this appeal are:
Issue-wise Detailed Analysis Issue 1: Validity of Addition under Section 69A for Unexplained Bank Deposits The legal framework governing unexplained cash credits is section 69A of the Income Tax Act, 1961, which permits the Assessing Officer (AO) to treat any sum found credited in the books of an assessee as income if the assessee fails to satisfactorily explain the source of such credit. The AO invoked this provision after the assessee did not respond to notices seeking explanation for cash deposits totaling Rs. 11,72,500/- during the demonetization period, distributed between two bank accounts. Additionally, the assessee failed to file the income tax return for the relevant assessment year despite multiple notices, prompting the AO to proceed under section 144(1)(b) for best judgment assessment. The AO aggregated all deposits and credits in the bank accounts amounting to Rs. 77,96,359/- and treated them as unexplained money, making an addition under section 69A. The AO's approach was premised on the absence of any explanation or return filing, which legally justified invoking section 69A and section 144(1)(b) to complete the assessment. The Revenue's contention before the Tribunal was that the deletion of this addition by the CIT(A) was erroneous because the assessee did not furnish complete details of the bank deposits, and therefore, the addition under section 69A should stand. Issue 2: Treatment of Bank Deposits as Business Turnover and Applicability of Section 44AD The legal framework for presumptive taxation of small businesses is provided under section 44AD of the Income Tax Act, which allows an eligible assessee to declare income at a prescribed percentage (8% in this case) of total turnover or gross receipts, thereby simplifying compliance and assessment. During the appellate proceedings, the legal heir of the deceased assessee submitted that the deposits were receipts from the Kirana business run by the assessee prior to his death. She produced a VAT audit report confirming a turnover of Rs. 95,83,320/-. The CIT(A) called for a remand report from the AO, who verified the existence of the Kirana business, the turnover as per VAT records, and the death of the assessee. The AO did not dispute the turnover figure but did not comment on the justifiability of assessing income under section 44AD. The CIT(A) accepted the turnover as verified by VAT authorities and directed the AO to restrict the addition to 8% of the turnover, effectively allowing presumptive taxation under section 44AD instead of treating deposits as unexplained credits under section 69A. The Revenue challenged this approach, arguing that the CIT(A) erred in law and facts by accepting the deposits as turnover without complete details and that the addition under section 69A should not have been deleted. The assessee's representative explained that the non-compliance before the AO was due to the assessee's illness and subsequent death, and that the legal heir had furnished adequate evidence to establish the source of deposits as business receipts. The VAT assessment order was relied upon as corroborative evidence of the business turnover. Issue 3: Legality and Appropriateness of CIT(A)'s Order The Tribunal considered the factual matrix, including the assessee's death, the legal heir's submissions, and the VAT audit confirming the turnover. The Tribunal noted the absence of any adverse remarks by the AO on the turnover figure during remand proceedings, indicating tacit acceptance. The Tribunal observed that the non-filing of returns and failure to respond to notices before the AO was attributable to the illness and death of the assessee, and not an attempt to evade tax. Given that the total deposits were significantly less than the verified turnover, the Tribunal found no reason to treat the deposits as unexplained credits under section 69A. In view of these facts and the provisions of section 44AD, the Tribunal upheld the CIT(A)'s order allowing income to be assessed at 8% of the turnover, thereby rejecting the Revenue's appeal. Significant Holdings The Tribunal held:
The core principles established are:
Final determinations on the issues are:
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