2022 (5) TMI 1412 - HC - Income Tax

Unaccounted credit in the savings bank account - unexplained investment u/s 69 - According to the appellant, the said sum is to be taxed at 8% as per section 44AD as the same is her business receipts - HELD THAT - There is no dispute with regard to the legal position that Section 44AD was inserted by Finance Act, 1994 with effect from 01.04.1994. Sub-section (1) of Section 44AD clearly provides that where an assessee is engaged in the business of civil construction or supply of labour for civil construction, income shall be estimated at 8% of the gross receipts paid or payable to the assessee in the previous year on account of such business or a sum higher than the aforesaid sum as may be declared by the assessee in his return of income notwithstanding anything to the contrary contained in Sections 28 to 43C - This income is to be deemed to be the profits and gains of the said business chargeable of tax under the head profits and gains of business. The said provisions are applicable where the gross receipts paid or payable does not exceed Rs.40 lakhs. As evident from the records that the appellant did not prove her nature of business and the source of credit of Rs.25,00,000/-; and she put forth different stand before the authorities below. Though the learned counsel for the appellant raised a plea that the appellant was represented by an Income Tax Practitioner, who did not properly represent the case before the respondent and failed to give the details with regard to the credit in her savings bank account and explain the sources of credit of Rs.25,00,000/- in a proper manner, this court is not inclined to accept the same, in view of the categorical finding rendered by the appellate authorities, while dismissing the appeals filed by the appellant, to the effect that the appellant failed to co-relate the source of cash deposits. No substantial question of law.

Summary

Issues:
Assessment under section 143(3) of the Income Tax Act, 1961 for unexplained investment, Appeal before CIT (Appeals) Salem, Dismissal of appeal by Income Tax Appellate Tribunal, Questions of law under section 44AD of the Income-tax Act, Interpretation of source of cash deposits, Application of section 69 of the Act, Legal position of Section 44AD, Failure to prove nature of business and source of credit, Dismissal of appeal based on lack of evidence.

Assessment under Section 143(3) of the Income Tax Act:
The appellant, deriving income on commission basis from real estate business, filed a return of income for the assessment year 2011-12. An assessment order was passed under section 143(3) making an addition of Rs.25,00,000 as unexplained investment under section 69 of the Act. The appellant challenged this order through appeals, culminating in a tax case appeal before the Madras High Court.

Questions of Law under Section 44AD of the Income-tax Act:
The appellant raised substantial questions of law regarding the application of section 44AD, questioning the Tribunal's dismissal of the appeal without considering the statutory mandate of section 44AD. The main contention was that once income is returned under section 44AD, there is no obligation to question the source for each entry forming the basis for gross income calculation.

Interpretation of Source of Cash Deposits and Application of Section 69 of the Act:
The appellant argued that the cash deposits in the savings bank account represented business receipts under section 44AD, but the assessing officer treated it as unexplained investment under section 69 of the Act. The authorities found the sources of the deposits were not properly explained by the appellant, leading to the dismissal of appeals.

Legal Position of Section 44AD:
Section 44AD of the Act provides for estimating income at 8% of gross receipts for certain businesses, subject to specific conditions. However, the appellant failed to prove the nature of business and the source of the credit of Rs.25,00,000, presenting conflicting stands before the authorities.

Failure to Prove Nature of Business and Source of Credit:
Despite the appellant's argument that the Income Tax Practitioner failed to properly represent the case, the appellate authorities found the appellant did not co-relate the source of cash deposits adequately. The First Appellate Authority and the Income Tax Appellate Tribunal both dismissed the appeals due to lack of evidence supporting the appellant's claims.

In conclusion, the Madras High Court dismissed the tax case appeal, stating that no substantial question of law arose for consideration. The court upheld the decisions of the lower authorities, emphasizing the appellant's failure to explain the sources of cash deposits adequately.