2025 (4) TMI 1219 - AT - Income Tax

Unexplained bank receipts cannot be treated as business income under Section 44AD presumptive scheme

Shri Ganesh Madhukar Kamthe Tarwadi Versus ITO, Ward 14 (4), Pune

ITAT Pune allowed the appeal, setting aside CIT(A)/NFAC order and directing deletion of Rs. 9 lakh addition. The assessee had opted for income declaration ... Unexplained receipts and withdrawals from the bank account - assessee had opted his income u/s 44AD - assessee has declared income under the Income Tax Declaration Scheme, 2016 - HELD THAT:- These amounts in our opinion cannot be considered as business receipts. Since the assessee in the instant case has opted his income u/s 44AD has declared income under the Income Tax Declaration Scheme, 2016 for assessment year 2013-14, therefore, we find some force in the arguments of assessee that the AO was not justified in making the addition and the Ld. CIT(A) / NFAC is not justified in sustaining the addition. We find in the instant case when the AO is analyzing the bank account of each deposit and the withdrawal, it is not understood as to how he has made the addition of Rs. 9 lakhs received from the assessee himself. Assessee has already declared the income under the Income Tax Declaration Scheme, 2016 for assessment year 2013-14 - the amount of Rs. 9 lakhs received by the assessee from himself from loan against FD cannot be considered as business income. The assessee has declared his income u/s 44AD of the Act by estimating the same and this being a very old appeal relating to assessment year 2013-14, we are of the considered opinion that there is no point in restoring the issue to the file of the AO for adjudication of the issue afresh as argued by the Ld. DR since the figures are crystal clear from the bank statement filed by the assessee in the paper book. Addition made by the Assessing Officer in our opinion is not justified. Accordingly, the order of the Ld. CIT(A) / NFAC is set aside and the AO is directed to delete the addition. Appeal filed by the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:Whether the Assessing Officer was justified in reopening the assessment under section 147 of the Income Tax Act, 1961, and making an addition of Rs. 35,39,600/- to the assessee's income for AY 2013-14 on the basis of unexplained receipts and withdrawals from the bank account.Whether the Assessing Officer correctly treated certain receipts, including loans and maturity proceeds of fixed deposits, as business income or unexplained cash receipts.Whether the assessee's declaration of income under section 44AD of the Act and under the Income Tax Declaration Scheme, 2016, along with supporting documentary evidence (loan confirmations, bank statements) was properly considered and appreciated by the Assessing Officer and the Commissioner of Income Tax (Appeals) / NFAC.Whether the addition of Rs. 35,39,600/- was arbitrary, illegal, and bad in law, particularly in light of the assessee's submissions and documentary evidence.Whether the matter requires remand to the Assessing Officer for fresh adjudication or can be decided on the record before the Tribunal.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification for Reopening Assessment and Addition of Rs. 35,39,600/-Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act empowers the Assessing Officer to reopen an assessment if he has reason to believe that income chargeable to tax has escaped assessment. Section 148 requires issuance of notice before reopening. The burden lies on the Assessing Officer to demonstrate valid reasons for reopening and additions made must be based on credible evidence.Court's Interpretation and Reasoning: The Assessing Officer reopened the assessment after prior approval, noting that the assessee had not filed a return and had significant receipts and expenditures unexplained by declared income. He relied on bank account analysis and cash flow to determine unexplained income. However, the Tribunal noted that the reopening was not disputed but focused on the correctness of the addition.Key Evidence and Findings: The Assessing Officer noted total receipts of Rs. 71,23,071/-, withdrawals of Rs. 34,18,900/-, household expenses of Rs. 2,00,000/-, and cash payment for land purchase of Rs. 12,00,000/-, concluding available cash for business expenses was Rs. 20,18,900/-. Deducting this from total receipts, he made an addition of Rs. 35,39,600/- over declared income.Application of Law to Facts: The Tribunal observed that the Assessing Officer treated all receipts as income, including loans and maturity proceeds, without proper segregation. The assessee had declared income under section 44AD and under the Income Tax Declaration Scheme, 2016, paying taxes accordingly.Treatment of Competing Arguments: The Department relied on the absence of documentary evidence before the Assessing Officer and CIT(A). The assessee produced loan confirmations and bank statements showing that Rs. 7 lakhs received from an individual and Rs. 9 lakhs loan against FD were not business receipts but loans. The Tribunal found merit in the assessee's submissions.Conclusions: The addition was not justified as the Assessing Officer failed to distinguish between business receipts and loans/maturity proceeds. The reopening was valid but the addition was arbitrary.Issue 2: Treatment of Loans and Fixed Deposit Proceeds as IncomeRelevant Legal Framework and Precedents: Loans received and fixed deposit proceeds are not income but capital receipts or repayment of capital, not taxable as business income. Income under section 44AD is presumed to be declared on presumptive basis, and additional unexplained receipts require scrutiny.Court's Interpretation and Reasoning: The Tribunal examined the bank statements and loan confirmations submitted by the assessee. It was found that Rs. 7 lakhs received from Uttam Baburao Kamthe and Rs. 9 lakhs loan against FD were credited on 05.01.2013 and were loans, not business income.Key Evidence and Findings: Bank statement (paper book page 26) and loan confirmation letters were relied upon. The Tribunal emphasized these amounts cannot be treated as business receipts.Application of Law to Facts: Since these amounts were loans, their inclusion as income was erroneous. The assessee's declaration under section 44AD and Income Tax Declaration Scheme was consistent with the documentary evidence.Treatment of Competing Arguments: The Department argued that these documents were not produced before the Assessing Officer or CIT(A). The Tribunal noted that the evidence was before it and the figures were clear.Conclusions: The amounts received as loans and FD proceeds cannot be treated as income and thus the addition based on these was unjustified.Issue 3: Whether the Addition Was Arbitrary and Whether Matter Should Be RemandedRelevant Legal Framework and Precedents: Additions must be based on cogent evidence and proper appreciation of facts. If evidence is incomplete or not considered, remand may be appropriate. However, where facts are clear and undisputed, Tribunal may decide the issue.Court's Interpretation and Reasoning: The Department suggested remand for fresh adjudication as documents were not produced earlier. The Tribunal found the evidence on record sufficient and figures crystal clear.Key Evidence and Findings: The assessee's bank statements, loan confirmations, and declaration under the Income Tax Declaration Scheme were on record before the Tribunal.Application of Law to Facts: Given the clarity of evidence and the age of the case (AY 2013-14), the Tribunal opined that remand was unnecessary and would only delay finality.Treatment of Competing Arguments: The Department's plea for remand was rejected in favor of final disposal based on existing record.Conclusions: The addition was arbitrary and unjustified; the Tribunal set aside the orders of the Assessing Officer and CIT(A) and deleted the addition without remanding the matter.3. SIGNIFICANT HOLDINGSThe Tribunal held:'These amounts in our opinion cannot be considered as business receipts.''Since the assessee in the instant case has opted his income u/s 44AD of the Act, has declared income under the Income Tax Declaration Scheme, 2016 at Rs. 14,45,309/- for assessment year 2013-14, therefore, we find some force in the arguments of the Ld. Counsel for the assessee that the Assessing Officer was not justified in making the addition and the Ld. CIT(A) / NFAC is not justified in sustaining the addition.''We are of the considered opinion that there is no point in restoring the issue to the file of the Assessing Officer for adjudication of the issue afresh as argued by the Ld. DR since the figures are crystal clear from the bank statement filed by the assessee in the paper book.'Core principles established include the necessity of distinguishing between capital receipts (loans, FD proceeds) and business income, the validity of presumptive income declaration under section 44AD, and the requirement that additions be based on proper appreciation of documentary evidence.Final determinations:The addition of Rs. 35,39,600/- was arbitrary, illegal, and bad in law and was deleted.The reopening of assessment was upheld but the quantum of income determined by the Assessing Officer was not justified.The matter was decided on the record without remand.