2024 (10) TMI 592 - AT - Income Tax

Tribunal Recognizes Cash Deposits as Business Receipts, Overturns Prior Decision; Stresses Importance of Income Source Proof.

The ITAT overturned the CIT(A)'s decision, accepting the assessee's explanation that cash deposits were business receipts under section 44AD of the Income ... Addition u/s 69A - AIR information found the assessee made cash deposit in his savings bank account - assessee applied section 44AD of the Act on business income - HELD THAT:- Admittedly, the assessee was a contractor before his appointment and there is no dispute in this regard by the Revenue. The dispute is only with regard to non-submission of any evidence with regard to the extent of addition as confirmed by the ld. CIT(A). We note that the provision u/s 44AD of the Act provides for computing profits and gains of business on presumptive basis in case of an eligible assessee engaged in an eligible business a sum equal to 8% of the total turnover or gross receipts of the assessee or a sum higher than 8% shall be deemed to be profits and gains of such business. Admittedly, there was no dispute the business of the assessee falls under the category of an eligible business attracting provisions of section 44AD of the Act. We note that there was no evidence brought on record by the AO in the remand proceedings showing the sum is not arising from business and further, we find the AO has not disputed the business activity of the assessee. In the absence of any evidence contrary to the submissions of the assessee, we hold the assessee’s business is an eligible business attracting the provisions of section 44AD of the Act and the cash deposits as found in two bank accounts of the assessee are out of business. Thus, 10% of profit u/s 44AD of the Act offered by the assessee is accepted. Thus, the order of the ld. CIT(A) fails and it is not justified. Therefore, the grounds raised by the assessee are allowed. Issues:Challenge to the action of the Commissioner of Income Tax (Appeals) in restricting addition made under section 69A of the Income Tax Act, 1961.Analysis:The appeal challenged the action of the Commissioner of Income Tax (Appeals) in limiting the addition made under section 69A of the Income Tax Act, 1961. The Assessing Officer initiated proceedings based on cash deposits in the assessee's savings bank account. Despite issuing a notice, the assessee did not respond, leading to the addition of the entire cash credit to the total income. The assessee contended before the Commissioner that there was insufficient time to comply with the notice and provided additional evidence regarding the cash deposits. The Commissioner sought a remand report, which highlighted the assessee's business income and the lack of evidence for a portion of the deposits. The Commissioner restricted the addition to the unsubstantiated amount. The assessee argued that the cash deposits were business receipts from a tiles laying contract, applying section 44AD of the Act. The Assessing Officer and the Commissioner did not dispute the nature of the assessee's business but lacked evidence to refute the business origin of the deposits. Consequently, the Tribunal accepted the assessee's explanation, holding the deposits to be business-related and allowed the appeal.This case primarily revolved around the interpretation and application of section 44AD of the Income Tax Act, 1961, concerning the computation of business income on a presumptive basis. The Tribunal emphasized the eligibility of the assessee's business under this section and the lack of evidence to contradict the business nature of the cash deposits. The Tribunal's decision hinged on the acceptance of the assessee's explanation that the cash deposits were business receipts, thereby justifying the application of section 44AD and overturning the Commissioner's order. The Tribunal's analysis underscored the importance of providing evidence to support additions or deductions in income tax assessments, especially in cases involving presumptive taxation schemes like section 44AD.Overall, the Tribunal's decision highlighted the significance of substantiating income sources and deductions in income tax assessments. It reiterated the need for taxpayers to provide evidence supporting their claims, especially in cases where presumptive taxation provisions are invoked. The judgment emphasized the importance of maintaining accurate financial records and documentation to justify income sources and deductions, ultimately influencing the outcome of tax disputes and appeals.