Assessee entitled to telescoping benefit for cash deposits when filing returns under section 44AD without books

Ishtiaq Ahmad Rather Versus Income Tax Officer, Ward 1, Srinagar

Ishtiaq Ahmad Rather Versus Income Tax Officer, Ward 1, Srinagar - TMI Issues Involved:

1. Legality of the addition made under Section 68 of the Income Tax Act for cash deposits.
2. Validity of the assessment order passed without a proper notice under Section 143(2).
3. Justification for the penalty imposed under Section 271(1)(c) of the Income Tax Act.
4. Condonation of delay in filing the appeal.

Issue-wise Detailed Analysis:

1. Legality of the Addition Made Under Section 68:

The primary issue revolves around the addition of Rs. 9,853,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, concerning cash deposits in two HDFC bank accounts. The assessee contended that the addition was unjustified as the deposits were related to his business activities in retail trading of hardware and ceramics, and the income was declared under the presumptive taxation scheme (Section 44AD). The Tribunal noted that Section 68 applies only when books of accounts are maintained, which was not the case here, as the assessee filed returns under Section 44AD. The Tribunal cited relevant case laws supporting the view that Section 68 cannot be invoked without books of accounts. Consequently, the addition was deemed unjustified and was deleted.

2. Validity of the Assessment Order:

The assessee challenged the assessment order under Section 144, arguing that it was passed without issuing a valid notice under Section 143(2). The Tribunal examined the records and found that a valid notice was indeed issued, and the assessee's counsel did not press this issue further. Hence, the Tribunal rejected the claim regarding the invalidity of the assessment order due to lack of notice.

3. Justification for the Penalty Imposed Under Section 271(1)(c):

The penalty of Rs. 3,271,507/- was imposed under Section 271(1)(c) for concealment of income. Since the Tribunal deleted the quantum addition under Section 68, the basis for the penalty no longer existed. The Tribunal reiterated that the penalty could not be sustained when the underlying addition itself was not justified. Therefore, the penalty was deleted.

4. Condonation of Delay in Filing the Appeal:

There was a delay of 33 days in filing the appeal, which the assessee attributed to the previous counsel's failure to hand over necessary documents to the new counsel. The Tribunal, upon reviewing the affidavit and circumstances, found sufficient cause for the delay and condoned it, allowing the appeal to be admitted for adjudication.

Conclusion:

The Tribunal allowed both appeals filed by the assessee, deleting the addition made under Section 68 and the consequential penalty under Section 271(1)(c). The decision emphasized the importance of maintaining proper procedural requirements and the applicability of legal provisions concerning presumptive taxation and unexplained cash deposits. The order was pronounced in the open court on 10.09.2024.