2023 (12) TMI 22 - AT - Income Tax

Addition u/s 68/69 when the income was estimated u/s 44AD - AO has not accepted this income offered by the assessee from business and considered the income of the assessee u/s 44AD oat 8% of total turnover and determined the same - AO picked up the credit entries with regard to deposit of SBN notes at Rs. 1 Crore to his bank account and made addition on this count - HELD THAT - Once the ld. AO rejected the books of accounts and estimated the income of the assessee, thereafter he is precluded from considering any other entries in the books of accounts, so as to make addition u/s 68 or 69 of the Act. Being so, the judgement of Shri Thomas Eapen 2019 (11) TMI 1240 - ITAT COCHIN is directly on the issue under dispute. Accordingly, the addition is deleted. AO made addition u/s 68 of the Act on account of cash deposit by the assessee into his bank account during demonetization period and the said cash deposit was emanated from the sale proceeds, which is already included in the total turnover disclosed by the assessee and the revenue accepted that as a revenue receipt, once again invoking the provisions of section 68 of the Act towards the said cash deposit into bank account would result in double taxation, which cannot be permitted. Accordingly, the addition is deleted. This view of ours is supported by case of Anantpur Kalpana 2021 (12) TMI 599 - ITAT BANGALORE On this count also, addition cannot be sustained. Accordingly, we allow the grounds taken by the assessee.

Summary

Issues Involved:
1. Addition of Rs. 1,00,00,000/- as unexplained cash credits under Section 68 of the Income-tax Act.
2. Estimation of income under Section 44AD of the Income-tax Act at 8% of the sales.
3. Double taxation issue concerning the cash deposits during the demonetization period.

Summary:

Issue 1: Addition of Rs. 1,00,00,000/- as Unexplained Cash Credits under Section 68
The assessee, engaged in the business of distribution and sale of pharmaceuticals, filed its return for AY 2017-18 declaring an income of Rs. 8,27,300/-. During the assessment, the AO added Rs. 1,00,00,000/- as unexplained cash credits under Section 68, representing cash deposits in the bank accounts, which were claimed to be sales proceeds of pharmaceuticals. The AO's opinion was based on the assessee's failure to produce relevant documents to compare sales and cash in hand for previous financial years, and the absence of details about stock.

Issue 2: Estimation of Income under Section 44AD at 8% of Sales
The AO also estimated the income under Section 44AD at 8% of the sales, resulting in an addition of Rs. 10,85,157/-. The assessee argued that the sales were duly recorded in the books of accounts and reflected in the bank deposits, which were already offered to tax. The Tribunal noted that the AO had already taxed the income embedded in the cash deposits by estimating income at 8% of the turnover under Section 44AD.

Issue 3: Double Taxation Issue
The Tribunal considered the judgment of the Cochin Bench in the case of Shri Thomas Eapen, which held that once income is estimated under Section 44AD, no further addition under Section 68/69A is permissible. The Tribunal observed that the cash deposits were sale proceeds of pharmaceuticals and medicines declared in the VAT returns and already taxed. Hence, invoking Section 68 for the same deposits would result in double taxation, which is not permissible.

Conclusion:
The Tribunal allowed the appeal, deleting the addition of Rs. 1,00,00,000/- under Section 68 and the additional income estimated under Section 44AD. It upheld that the cash deposits during the demonetization period were already included in the total turnover and taxed, thus preventing double taxation. The appeal was allowed in favor of the assessee.