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2025 (1) TMI 1393 - AT - Income TaxUnexplained money u/s 69A - as submitted cash deposited in the bank was savings out of the profits earned from the earlier years and household savings of the family which was deposited in the bank during the demonetization period - HELD THAT - Admittedly the Assessee has not carried out any other business except the imitation jewellery. Even otherwise no material is available on record by which it can be construed that the Assessee has earned any other income other than from the admitted business. Thus considering the peculiar facts and circumstances in totality in the considered opinion of this Court it would be appropriate as both the parties have also agreed in the open court to treat the amount of Rs. 16, 81, 802/- also as business receipts and therefore the same can be subjected to the profit @ 8 % of the said amount Rs. 16, 81, 802/- which can be added as income of the Assessee hence the AO is directed to consider/apply the profit @ 8% of Rs. 16, 81, 802/- add the same in the income of the Assessee. Appeal filed by the Assessee stands partly allowed.
ISSUES PRESENTED and CONSIDERED
The primary issue considered in this case was whether the addition of Rs. 16,81,802/- to the Assessee's income under Section 69A of the Income Tax Act, 1961, as unexplained money, was justified. The secondary issue was whether the Assessee's claim that this amount was part of his business receipts and should be assessed under Section 44AD of the Act was valid. ISSUE-WISE DETAILED ANALYSIS 1. Applicability of Section 69A of the Income Tax Act: Relevant legal framework and precedents: Section 69A of the Income Tax Act deals with unexplained money, where any money found to be owned by an Assessee is not recorded in the books of account, and the Assessee cannot explain its nature and source satisfactorily. Court's interpretation and reasoning: The Tribunal noted that the Assessee had deposited Rs. 16,81,802/- in cash during the demonetization period, which was not accounted for in the declared gross receipts under Section 44AD. The Assessing Officer (AO) treated this amount as unexplained money under Section 69A due to the lack of satisfactory explanation from the Assessee. Key evidence and findings: The Assessee claimed that the cash deposits were from savings out of profits earned in earlier years and household savings. However, no documentary evidence was provided to substantiate these claims. Application of law to facts: The Tribunal found that the Assessee failed to provide a satisfactory explanation or evidence for the source of the cash deposits, thereby justifying the AO's initial application of Section 69A. Treatment of competing arguments: The Assessee argued that under Section 44AD, he was not required to maintain books of accounts, and thus, the demand for evidence by the AO was invalid. The Tribunal acknowledged the Assessee's position but emphasized the need for some form of explanation or evidence for the unexplained deposits. Conclusions: The Tribunal concluded that the Assessee's failure to explain the source of the cash deposits warranted the initial addition under Section 69A. However, considering the peculiar facts and the Assessee's business nature, the Tribunal decided to treat the amount as business receipts subject to profit estimation under Section 44AD. 2. Treatment under Section 44AD of the Income Tax Act: Relevant legal framework and precedents: Section 44AD provides a presumptive taxation scheme for small taxpayers, allowing them to declare income at a prescribed rate of turnover without maintaining detailed books of accounts. Court's interpretation and reasoning: The Tribunal recognized that the Assessee had declared his income under Section 44AD and was not obligated to maintain detailed books. However, the unexplained cash deposits needed to be reconciled with the declared business receipts. Key evidence and findings: The Tribunal noted the Assessee's business was solely in imitation jewellery, with no evidence of other income sources. This supported the potential inclusion of the cash deposits as part of business receipts. Application of law to facts: Given the Assessee's business nature and the absence of other income sources, the Tribunal found it reasonable to treat the unexplained deposits as additional business receipts under Section 44AD. Treatment of competing arguments: Both parties agreed in open court to treat the amount as business receipts, subject to profit estimation. This consensus influenced the Tribunal's decision. Conclusions: The Tribunal directed the AO to apply an 8% profit rate to the Rs. 16,81,802/- as business receipts, integrating this into the Assessee's income under Section 44AD. SIGNIFICANT HOLDINGS Core principles established: The Tribunal emphasized the necessity of providing satisfactory explanations for unexplained deposits, even under presumptive taxation schemes like Section 44AD. It also highlighted the flexibility within the tax framework to accommodate the unique circumstances of small taxpayers. Final determinations on each issue: The Tribunal partially allowed the Assessee's appeal by treating the unexplained cash deposits as business receipts subject to an 8% profit rate under Section 44AD, rather than as unexplained money under Section 69A. Verbatim quotes of crucial legal reasoning: The Tribunal concluded, "Thus, considering the peculiar facts and circumstances in totality, in the considered opinion of this Court, it would be appropriate... to treat the amount of Rs. 16,81,802/- also as business receipts and therefore the same can be subjected to the profit @ 8% of the said amount Rs. 16,81,802/-, which can be added as income of the Assessee, hence the AO is directed to consider/apply the profit @ 8% of Rs. 16,81,802/- add the same in the income of the Assessee."
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