Unexplained cash deposits treated as business receipts under section 44AD with 8% profit rate instead of full undisclosed income

The ITAT Delhi upheld the CIT(A)'s decision to treat unexplained cash deposits as business receipts under section 44AD, applying 8% net profit rate rather than treating entire deposits as undisclosed income. The tribunal rejected the Revenue's appeal, noting that when bank accounts show both credits and debits, peak credit method should be applied instead of adding entire deposits. The CIT(A)'s finding was supported by Investigation Wing reports confirming business activity. The tribunal emphasized that adding entire cash deposits while ignoring withdrawals would be unjustified, affirming the established legal principle for such cases.

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Issues Involved:
1. Restriction of addition on account of unexplained cash deposits for AY 2008-09.
2. Restriction of addition on account of unexplained cash deposits for AY 2009-10.

Summary:

Issue 1: Restriction of Addition on Account of Unexplained Cash Deposits for AY 2008-09
The Revenue appealed against the order of Ld.CIT(A) which restricted the addition to INR 35,76,000/- out of the total INR 4,47,71,100/- made by the AO on account of unexplained cash deposits. The AO had treated the entire cash deposits as undisclosed income due to non-compliance by the assessee and assessed the income u/s 144/147 of the Income Tax Act, 1961. The Ld.CIT(A) considered the cash deposits as business receipts and applied a net profit rate of 8% as per section 44AD of the Act. The Revenue contended that the provision of section 44AD was not applicable and that the entire cash deposits should be treated as undisclosed income. The Tribunal upheld the decision of Ld.CIT(A), stating that the entire deposits could not be treated as undisclosed income without considering the debit entries and that peak credit should be taken as income. The appeal by the Revenue was dismissed.

Issue 2: Restriction of Addition on Account of Unexplained Cash Deposits for AY 2009-10
The Revenue appealed against the order of Ld.CIT(A) which restricted the addition to INR 1,59,96,541/- out of the total INR 19,99,56,770/- made by the AO on account of unexplained cash deposits. The facts and issues in this case were identical to those in ITA No. 943/Del/2020 for AY 2008-09. The Tribunal adopted the same reasoning and decision as in the previous appeal, dismissing the appeal by the Revenue.

Final Decision:
Both appeals of the Revenue in ITA Nos. 943 & 944/Del/2020 for the Assessment Years 2008-09 & 2009-10 were dismissed.

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