2020 (12) TMI 332 - AT - Income Tax

Unexplained cash credits - Assessee depositing the cash to the savings bank account - assessee offered income u/s. 44AD of the Act which has been accepted by the AO - CIT(A) enhancing the assessment without giving mandatory notice u/s. 251(2) - HELD THAT - The assessee s turnover was ₹ 9,45,200/- and offered income of ₹ 4,84,158/-- u/s. 44AD of the I.T. Act. If the AO wants to make any addition, he shall ignore income returned by the assessee and proceed to scrutiny the accounts so as to make any addition. Therefore, in our opinion, this income offered us. 44AD of the Act is to be accepted. Now, there is no necessity of maintaining books of accounts and production of bills and vouchers Accordingly, we delete the addition made by the AO and confirmed by the CIT(A). Further, at this stage, it is observed that the CIT(A) is not justified in enhancing the assessment without giving mandatory notice u/s. 251(2) of the I.T. Act. This ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Justification of the addition of ?36,01,384 as unexplained cash credits.
2. Validity of the enhancement of assessment by ?13,63,616 by the CIT(A).
3. Applicability of Section 44AD and whether further additions can be made under this section.
4. Requirement of maintaining books of accounts under Section 44AD.
5. Legality of enhancement without giving mandatory notice under Section 251(2) of the IT Act.

Detailed Analysis:

1. Justification of the Addition of ?36,01,384 as Unexplained Cash Credits:
The assessee deposited a total of ?48,57,000 in his ICICI Bank account. He explained that ?12,55,616 was from a jewel loan but failed to substantiate the remaining ?36,01,384. The AO treated this as unexplained cash credits and taxed it under Section 115BBE of the IT Act. On appeal, the CIT(A) enhanced the total deposits to ?49,65,000 without proper notice.

2. Validity of the Enhancement of Assessment by ?13,63,616 by the CIT(A):
The CIT(A) enhanced the assessment by ?13,63,616, raising the total to ?49,65,000. The assessee contended that this enhancement was done without giving the mandatory notice under Section 251(2) of the IT Act. The tribunal agreed that the enhancement without notice was unjustified and allowed the appeal on this ground.

3. Applicability of Section 44AD and Whether Further Additions Can Be Made Under This Section:
The assessee declared income under Section 44AD, showing 8% of the turnover. The AO accepted this but made further additions. The tribunal referenced several case laws, including CIT vs. Surinder Pal Anand, which held that under Section 44AD, once income is offered on a presumptive basis, further additions should not be made unless there is evidence of undisclosed income.

4. Requirement of Maintaining Books of Accounts Under Section 44AD:
The tribunal noted that Section 44AD exempts small traders from maintaining books of accounts. It cited Nand Lal Popli vs. DCIT, stating that the obligation to maintain books is only if the income claimed is less than 8% of the gross receipts. Therefore, the assessee was not required to maintain detailed books or explain individual entries.

5. Legality of Enhancement Without Giving Mandatory Notice Under Section 251(2) of the IT Act:
The tribunal found that the CIT(A) enhanced the assessment without issuing the mandatory notice under Section 251(2). This procedural lapse was deemed significant, and the tribunal allowed the appeal on this basis.

Conclusion:
The tribunal allowed the appeal, deleting the addition made by the AO and the enhancement by the CIT(A). It emphasized that under Section 44AD, further additions should not be made without substantial evidence and that procedural requirements, such as issuing notices for enhancement, must be strictly followed.