2021 (1) TMI 837 - AT - Income Tax

Tribunal directs deletion of addition in appeal, rules cash deposits legitimate, and orders 8% tax on profit.

The Tribunal partially allowed the appeal, directing the deletion of the addition of Rs. 8,75,500. It found the cash deposits were legitimate and ordered ... Condonation of delay - treatment of deposits as unexplained cash under Section 69A - application of presumptive taxation under Section 44AD - taxation of deemed profit at 8% under Section 44AD - classification of specified bank notes deposited during demonetisationCondonation of delay - Admission of the appeal despite delay in filing. - HELD THAT: - There was a delay of 34 days in filing the appeal against the order dated 29.05.2020. The assessee attributed the delay to the covid-19 pandemic and advanced a reasonable cause for the delay. The Tribunal found the explanation satisfactory and exercised its discretion to condone the delay and admit the appeal.Delay of 34 days condoned and the appeal admitted.Treatment of deposits as unexplained cash under Section 69A - application of presumptive taxation under Section 44AD - taxation of deemed profit at 8% under Section 44AD - classification of specified bank notes deposited during demonetisation - Sustainability of the addition treating specified bank notes deposited during demonetisation as unexplained income and the correct tax treatment of the deposits. - HELD THAT: - The AO had made an addition treating specified bank notes of Rs.10,75,500 (out of total deposits of Rs.17,01,000 during demonetisation) as unexplained money and added Rs.8,75,500 as unexplained income, invoking provisions of the Act and taxing as per section 115BBE. The AO also applied presumptive computation under Section 44AD to part of the deposits. The Tribunal noted that the assessee is a tea trader with total bank credits of Rs.59,46,583 for the relevant year, that the AO had accepted Rs.50,71,083 of those credits as business turnover, and that the assessee's turnover was within the threshold attracting Section 44AD (no requirement to maintain books). The Tribunal examined the pattern of bank balances and regularity of deposits and payments both before and after demonetisation, including opening balance and peak credits, and found these facts inconsistent with a finding of non-genuine or unexplained receipts. On these peculiar facts and the AO's own acceptance of substantial turnover as business receipts, the Tribunal held that the deposits of specified bank notes could not be treated as unexplained money. However, the Tribunal directed that the profit embedded in the amount in question be taxed by applying the presumptive rate of 8% under Section 44AD.The addition of Rs.8,75,500 as unexplained income is deleted; the profit embedded in that amount is to be taxed at 8% under the presumptive scheme (Section 44AD). Appeal partly allowed.Final Conclusion: Delay in filing the appeal was condoned. On the merits, the addition treating the specified bank notes deposited during demonetisation as unexplained income was deleted on the facts; the profit embedded in the disputed deposits is to be taxed at the presumptive rate of 8% under Section 44AD. The appeal is partly allowed. Issues:- Delay in filing the appeal due to Covid-19 pandemic- Addition of Rs. 8,75,500 made by the Assessing Officer- Interpretation of Section 44AD of the Income Tax Act- Treatment of cash deposits during demonetization period- Assessment of turnover and business incomeAnalysis:1. Delay in filing the appeal: The appellant cited a delay of 34 days in filing the appeal due to the Covid-19 pandemic. The Tribunal acknowledged the reasonable cause for the delay and condoned it, admitting the appeal for consideration.2. Addition of Rs. 8,75,500: The main grievance of the appellant was against the addition made by the Assessing Officer. The AO added Rs. 8,75,500 as unexplained money due to cash deposits during the demonetization period. The Tribunal examined the details of the deposits and the nature of the business to determine the legitimacy of the added amount.3. Interpretation of Section 44AD: The Tribunal analyzed the provisions of Section 44AD of the Income Tax Act, which apply to businesses with turnover below Rs. 60 lakhs. The appellant's turnover was found to be around Rs. 60 lakhs, and the Tribunal considered the applicability of this section in relation to the maintenance of books of accounts.4. Treatment of cash deposits during demonetization: The Tribunal scrutinized the cash deposits made by the appellant during the demonetization period. It considered the source of the cash, the nature of deposits, and the explanations provided by the appellant to ascertain the legitimacy of the deposited amounts.5. Assessment of turnover and business income: The Tribunal reviewed the turnover of the appellant and the business income calculations made by the Assessing Officer. It examined the bank statements, daily transactions, and the nature of the business to determine the accuracy of the AO's additions and whether they were justified based on the evidence presented.In conclusion, after a thorough analysis of the issues raised, the Tribunal partially allowed the appeal, directing the deletion of the addition of Rs. 8,75,500. The Tribunal found that the cash deposits were in line with the appellant's business activities and profit embedded in the disputed amount was ordered to be taxed at 8% in accordance with Section 44AD.