2022 (4) TMI 848 - AT - Income Tax

Addition treating the cash deposit in bank account as Income other Source - scope of provisions of section 44AD - Counsel pleads before us that while filing return of income, the assessee has selected wrong Income Tax Return form (ITR form), that does not mean that assessee is not covered by the provisions of section 44AD - assessee had disclosed the said bank account while filing the belated return of income for retail job-work and trading income on the basis of estimated profit on turnover - HELD THAT - As Counsel submitted that assessee had shown Gross Profit of ₹ 2,56,230/- and net profit of ₹ 1,58,395/- on his turnover. The net profit ratio comes to 9.88% of the turnover, which is greater than the 8% of profit in cases of section 44AD of the Act. Therefore, we note that based on this factual position, the addition made by the assessing officer should be deleted. The assessee submitted memorandum Trading and Profit and Loss account and Balance Sheet. We note that assessing officer has not made any adverse finding in any of these documents even, though all the details were furnished by the assessee before him. The assessing officer ought to have examined all these details and refuted / rejected them, with a cogent adverse findings and discernable line of reasoning, in order to arrive at a conclusion and to make the addition. On the contrary, the assessing officer has just brushed aside these evidences without even a word on why they are not acceptable and how these are fabricated documents. It is a well settled Law that when an assessee has all the possible evidence in support of its claim, they cannot be brushed aside based on surmises. Therefore, based on the facts and circumstances, as narrated above, we delete the addition. - Appeal of assessee allowed.

Summary

Issues:
1. Condonation of delay in filing the appeal.
2. Validity of reopening assessment under section 147 of the Income Tax Act.
3. Addition of cash deposit in bank account as income from other sources.
4. Compliance with provisions of section 44AD of the Act.

Issue 1: Condonation of Delay:
The appeal filed by the assessee for Assessment Year 2010-11 was delayed by 132 days, leading to a request for condonation of delay. The reasons for the delay were explained in an affidavit, attributing it to the negligence of the assessee's counsel. The Tribunal, after considering the reasons provided, concluded that the delay was justifiable due to professional negligence and decided to condone the delay, allowing the appeal to proceed for hearing on merits.

Issue 2: Validity of Reopening Assessment:
The assessing officer had reopened the assessment under section 147 based on information regarding cash deposits in the bank account. The assessee contested the validity of the reopening, arguing that the reasons to believe must have a rational connection with the income chargeable to tax. The Tribunal noted that the assessing officer's reasons were not in line with the provisions of section 147, as the cash deposit could have been from past savings or business income. Ultimately, the Tribunal found the reassessment proceedings invalid.

Issue 3: Addition of Cash Deposit as Income:
The assessing officer had made an addition of ?13,87,000 as income from other sources due to cash deposits in the bank account. The assessee, a small trader, had filed returns under section 44AD, exempting the maintenance of books of accounts. The Tribunal observed that the assessee had proven the source of cash deposit from the declared turnover, and the addition was unjustified. The Tribunal concluded that the addition should be deleted based on the provisions of section 44AD and the evidence provided by the assessee.

Issue 4: Compliance with Section 44AD:
The Tribunal further analyzed the compliance of the assessee with section 44AD, noting that the turnover fell within the scope of the provisions. The Tribunal found that the assessee had disclosed the bank account while filing the return and had submitted necessary documents to support the transactions. The assessing officer's failure to provide adverse findings on the submitted documents led the Tribunal to delete the addition, emphasizing that evidence cannot be disregarded without proper justification.

In conclusion, the Tribunal allowed the appeal of the assessee, deleting the addition made by the assessing officer and finding the reassessment proceedings invalid. The Tribunal's decision was based on the assessee's compliance with section 44AD and the lack of proper justification for the addition, ultimately ruling in favor of the assessee.