2024 (11) TMI 679 - AT - Income Tax

Addition u/s 68 on account of cash deposited - HELD THAT - Admittedly, the case was selected for limited scrutiny regarding verification of the cash deposit from disclosed sources and the AO has confirmed the addition in respect of said cash deposit in two banks u/s 68 - As seen that the assessee has regularly been filing return of income u/s 44AD and is engaged in the retail business of trading in hardware and ceramics items in name of proprietorship concern M/s Muble Impex from Hyder Pora, Srinagar. From the record, it is noted that the AO while passing the order has accepted the return of income filed u/s 44AD in ITR/e-return U/s 44AD of the Act, filed on 16/05/2016. The AR has raised legal grounds that addition made for cash deposit u/s 68 is liable to be quashed in the absence of books of accounts. It is a settled law that the provisions of section 68 are only applicable where the assessee is maintaining books of accounts. From the record, it is very much evident that provisions of section 68 cannot be invoked in the present case where the assessee has filed the return u/s 44AD and not maintaining books of account. As in the case of Commissioner of Income-tax, Rohtak v. Smt. Kamlesh 2013 (2) TMI 296 - PUNJAB AND HARYANA HIGH COURT has held that where return of income filed by the assessee has been accepted and there was no finding that transactions entered into by assessee were not genuine, in such a case, no further amount could be made taxable. ITAT AMRITSAR in the case of SH. SATBIR SINGH BHULLAR 2023 (3) TMI 356 - ITAT AMRITSAR has followed the same view that addition u/s 68 cannot be made in the absence of books of accounts. In the instant case, the AO has accepted the return of income filed u/s 44AD and has not given any finding that the transactions entered into by the assessee were not genuine. Further, the assessee is registered with the Jammu and Kashmir Shops Establishment Act 1966 and as such, there is no doubt regarding the business being carried out by the assessee. Therefore, the AO has erred in invoking provisions of section 68 while making the addition. From the reconciliation statement furnished by the assessee, it is noticed that there are cash withdrawals from the same bank account which have not been considered by the Ld. CIT(A) while confirming the action of the AO, although the assessee has submitted the said reconciliation before CIT(A) and all the bank accounts along with relevant documents which were also submitted before us. In a judgment passed by Coordinate Bench in the case of Smt. Sanjeet Kanwar 2022 (8) TMI 939 - ITAT AMRITSAR it was held that the assessee is ought to be given the telescoping benefit of withdrawals. In the present case, since the assessee has furnished the requisite bank statements which showed that there were deposits and withdrawals of almost equal amounts and AO and the CIT(A) failed to give any findings regarding said withdrawals, and hence, the assessee deserved to get benefit of telescoping and thus, addition was unjustified. We hold that the order of the Ld. CIT(A) suffers from infirmity and perversity to the facts on record. Therefore, the addition confirmed by the CIT(A) on account of unexplained cash deposits is deleted. Decided in favour of assessee.

Summary

Issues Involved:

1. Legality of the addition made under Section 68 of the Income Tax Act for cash deposits.
2. Validity of the assessment order passed without a proper notice under Section 143(2).
3. Justification for the penalty imposed under Section 271(1)(c) of the Income Tax Act.
4. Condonation of delay in filing the appeal.

Issue-wise Detailed Analysis:

1. Legality of the Addition Made Under Section 68:

The primary issue revolves around the addition of Rs. 9,853,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, concerning cash deposits in two HDFC bank accounts. The assessee contended that the addition was unjustified as the deposits were related to his business activities in retail trading of hardware and ceramics, and the income was declared under the presumptive taxation scheme (Section 44AD). The Tribunal noted that Section 68 applies only when books of accounts are maintained, which was not the case here, as the assessee filed returns under Section 44AD. The Tribunal cited relevant case laws supporting the view that Section 68 cannot be invoked without books of accounts. Consequently, the addition was deemed unjustified and was deleted.

2. Validity of the Assessment Order:

The assessee challenged the assessment order under Section 144, arguing that it was passed without issuing a valid notice under Section 143(2). The Tribunal examined the records and found that a valid notice was indeed issued, and the assessee's counsel did not press this issue further. Hence, the Tribunal rejected the claim regarding the invalidity of the assessment order due to lack of notice.

3. Justification for the Penalty Imposed Under Section 271(1)(c):

The penalty of Rs. 3,271,507/- was imposed under Section 271(1)(c) for concealment of income. Since the Tribunal deleted the quantum addition under Section 68, the basis for the penalty no longer existed. The Tribunal reiterated that the penalty could not be sustained when the underlying addition itself was not justified. Therefore, the penalty was deleted.

4. Condonation of Delay in Filing the Appeal:

There was a delay of 33 days in filing the appeal, which the assessee attributed to the previous counsel's failure to hand over necessary documents to the new counsel. The Tribunal, upon reviewing the affidavit and circumstances, found sufficient cause for the delay and condoned it, allowing the appeal to be admitted for adjudication.

Conclusion:

The Tribunal allowed both appeals filed by the assessee, deleting the addition made under Section 68 and the consequential penalty under Section 271(1)(c). The decision emphasized the importance of maintaining proper procedural requirements and the applicability of legal provisions concerning presumptive taxation and unexplained cash deposits. The order was pronounced in the open court on 10.09.2024.