2022 (11) TMI 360 - AT - Income Tax

Addition u/s 68 - assessee has shown its return of income u/s 44 AD - Admittedly, the assesse declared deemed profit u/s 44AD being 8% business turn over - HELD THAT - As in the present case, the provisions of section 69A cannot be applied. Asking the assessee to prove to the satisfaction of the AO the expenditure to the extent of 92% of gross receipts, would also defeat the very purpose of presumptive taxation as provided u/s 44AD or other such provision. Since the scheme of presumptive taxation has been formed in order to avoid the long drawn process of assessment in cases of small traders or in cases of those businesses where the incomes are almost of static quantum of all the businesses, AO could have made the addition un/s 69A of the Act, once he had carved out the case out of the glitches of the provisions of section 44AD - No such exercise has been done either by the AO or by the CIT(A) in this case. From the record, it is undisputed fact that the assessee had not maintained books of account that is why he opted for 8% income as per section 44AD - The section also does not put obligation on the assessee to maintain books of account, more so, in view of the fact that his income has been assessed as per section 44AD he cannot be punished for not maintaining the same. Such additions go against the spirit of the Section 44AD of the Act, which was introduced to help the small traders who have difficulties in maintaining books of account and other records. Tax is levied on presumptive basis. Since, AO nor the CIT(A) had done any exercise to carved out the case out of the glitches of the provisions of section 44AD of the Act. The authorities below have not given any reason as to why the provisions of Section 44AD of the Act are not applicable to this case and hence, the addition confirmed was against the spirit of the Section 44AD of the Act. - Assessee appeal allowed.

Summary

Issues:
Challenge to addition under section 68 of the Act based on unexplained cash deposits.

Analysis:
The appellant challenged the addition of Rs.20,86,691 under section 68 of the Act, based on unexplained cash deposits, in the appeal against the order of the Ld. Commissioner of Income Tax (Appeals). The appellant declared a return of income under section 44AD of the Act, showing total sales proceeds, but failed to provide documentary evidence for sales claimed. The Assessing Officer (AO) found discrepancies in cash and deposits entries in the bank accounts, leading to the addition of unexplained cash deposits. The Ld. CIT(A) upheld the addition, considering the deemed profit under section 44AD and treating the balance of gross receipts as deemed expenses. The appellant contended that the authorities overlooked the turnover and failed to prove that cash deposits were not from business receipts. The appellant cited relevant judgments to support the argument.

The Tribunal analyzed section 44AD of the Act, which deems a certain percentage of turnover as profits for eligible businesses. The Tribunal noted that the appellant did not maintain books of account, as allowed under section 44AD, and argued against invoking section 69A for unexplained expenditures. The Tribunal emphasized that the purpose of presumptive taxation is to simplify assessments for small traders. Referring to a judgment, the Tribunal highlighted that under section 44AD, the onus is not on the assessee to explain individual cash deposits unless unrelated to gross receipts. The Tribunal concluded that the authorities failed to justify why section 44AD did not apply, leading to the deletion of the addition under section 68.

In alignment with the precedent set by the Punjab & Haryana High Court, the Tribunal allowed the appellant's appeal and deleted the addition of Rs.20,86,691 under section 68 of the Act. The Tribunal emphasized that the authorities did not provide sufficient reasoning for disregarding the applicability of section 44AD, thereby acting against the spirit of the provision.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the addition under section 68 of the Act, emphasizing the importance of adhering to the provisions of section 44AD for eligible businesses and maintaining the essence of presumptive taxation for simplifying assessments.