AO cannot make additions under sections 68/69 after rejecting books and estimating income under section 44AD

ITAT Bangalore held that AO cannot make additions under sections 68/69 after rejecting books of accounts and estimating income under section 44AD at 8% of turnover. The AO improperly added Rs. 1 crore for SBN deposits, but once income is estimated by rejecting books, no further additions from those same books are permissible. Additionally, adding cash deposits already included in disclosed turnover would constitute double taxation. Following precedents from Thomas Eapen and Anantpur Kalpana cases, all additions were deleted and assessee's appeal was allowed.

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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.

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