2014 (4) TMI 385 - AT - Income Tax

Assessment order appeal overturned due to income discrepancies & cash deposits. Assessee granted fair opportunity for fresh assessment.

The ITAT DELHI set aside the CIT(A)'s decision in an appeal concerning an assessment order for the assessment year 2008-09. The case involved ... Determination of income @8% - Addition u/s 68 of the Act - Civil contractor – assessee contended that for the current year assessee has maintained books of account which were duly audited and audit report obtained. Therefore, the provisions of sec. 44AD could not be invoked. – Held that:- Date of audit was noted as 29th September, 2008 - there was no reason for assessee to withhold the production of books of account - In A.Y. 2006-07, the assessee’s receipts were only Rs. 15,50,381/- which increased to 58,88,389/- in A.Y. 2007-08 and Rs. 65,85,531/- in A.Y. 2008-09 – thus, the assessee was required to get its account audited from A.Y. 2007-08 onwards and hence must have maintained books of account - As regards addition of Rs. 5,02,000/-, the AO has observed that vide notice u/s 142(1) dated 22/12/2010, the assessee was asked to explain source of cash and hence assessee did not get sufficient opportunity to explain the deposit particularly when assessment got completed on 27/12/2010 - in order to impart substantial justice to assessee the matter needs to be remitted back – thus, the matter is remitted back to the AO foe fresh consideration – Decided in favour of Assessee. Issues:1. Assessment based on income declaration discrepancy and unexplained cash deposit.2. Application of sections 44AD and 44AB for audit and assessment.3. Opportunity for assessee to provide necessary documents and explanations.4. Disputed addition of cash deposit and source explanation.Analysis:The appeal before the ITAT DELHI involved the assessment order for the assessment year 2008-09, where the assessee, a civil contractor, declared a gross receipt of Rs. 65,85,531 and net profit of Rs. 3,29,876. The AO noted a discrepancy in the net profit rate compared to the previous year and required the assessee to provide audit details under section 44AB. Despite notices, the assessee failed to produce books of account, leading the AO to determine the income at a higher rate of 8%. Additionally, an unexplained cash deposit and payment to an entity resulted in further additions to the assessment.The CIT(A) upheld the AO's decision, prompting the assessee to appeal. The assessee contended that due to maintaining audited books of account for the current year, the provisions of section 44AD should not apply. The assessee also sought to submit additional evidence, including revenue records and a sale deed, to explain the source of the disputed cash deposit. The Revenue opposed the admission of these documents, citing the prior opportunities given to the assessee to produce necessary records.Upon review, the ITAT observed that the assessee's increasing receipts over the years necessitated the maintenance of audited accounts, as required from the assessment year 2007-08 onwards. Regarding the disputed cash deposit, the ITAT found that the assessee was not provided adequate time to explain the source of the funds before the assessment was completed. Consequently, the ITAT decided to set aside the CIT(A)'s order and remand the matter back to the AO for a fresh assessment, allowing the assessee a fair opportunity to present relevant documents and explanations.In conclusion, the ITAT allowed the assessee's appeal for statistical purposes, emphasizing the importance of providing a fair chance to the assessee to address the discrepancies and present necessary evidence. The judgment aimed to ensure substantial justice by directing a de novo assessment by the AO, thereby maintaining the principles of natural justice and due process in the assessment proceedings.