Unexplained Cash Deposits During Demonetisation Assessed as Additional Business Income Under Section 44AD at 8%

The ITAT Indore held that the unexplained cash deposits during demonetisation, attributed to the jewellery business of the deceased assessee, should be assessed as additional business income under section 44AD at 8%. The AO's addition under section 69A read with 115BBE was modified by accepting the turnover of Rs. 94,80,810/- as business sales and applying the same 8% rate to the excess deposits of Rs. 1,00,86,463/-. The AO was directed to assess Rs. 8,06,917/- as additional income and delete the excess addition.

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ISSUES:

Whether addition made on account of undisclosed business income by applying 8% profit under presumptive taxation u/s 44AD on difference turnover is justified.Whether cash deposits made during demonetisation period, exceeding average monthly cash deposits, can be treated as unexplained money u/s 69A read with section 115BBE of the Income-tax Act, 1961.Whether cash deposits in bank accounts from sales proceeds utilized for business payments can be treated as unexplained money u/s 69A r.w.s 115BBE.Whether provisions of section 69A and 115BBE apply to cash deposits representing business turnover covered under presumptive taxation u/s 44AD.

RULINGS / HOLDINGS:

Regarding the addition of Rs. 3,24,513/- as undisclosed business income on difference turnover, the ground was not pressed by the appellant and hence dismissed.The addition of Rs. 1,00,86,463/- made by AO treating excess cash deposits during demonetisation period as unexplained money u/s 69A read with section 115BBE was held excessive and liable to be deleted to the extent of assessing income @ 8% under presumptive taxation.Cash deposits in bank accounts arising from sales proceeds and immediately utilized for business payments cannot be treated as unexplained money u/s 69A r.w.s 115BBE.The provisions of section 69A and 115BBE do not apply to cash deposits representing business turnover of a proprietorship firm covered under presumptive taxation u/s 44AD.The AO was directed to assess the additional income at 8% of the excess cash deposits (Rs. 1,00,86,463/-), amounting to Rs. 8,06,917/-, in line with presumptive taxation provisions.

RATIONALE:

The court applied the statutory framework of the Income-tax Act, 1961, particularly sections 44AD (presumptive taxation), 69A (unexplained money), and 115BBE (tax on unexplained income).The AO's method of estimating average monthly cash deposits by dividing total deposits over 12 months and treating excess deposits during demonetisation as unexplained money was found arbitrary and not reflective of business realities.Reliance was placed on precedents holding that cash deposits from business sales, especially under presumptive taxation regimes, should not be treated as unexplained money if adequately explained as business turnover.The court recognized that the assessee's cash deposits corresponded to genuine business sales and were used for business payments, negating the applicability of unexplained money provisions.The decision reflects a doctrinal approach that respects the presumptive taxation scheme under section 44AD and limits the application of sections 69A and 115BBE to cases where no satisfactory explanation of cash deposits exists.The partial allowance of appeal and direction to assess income @ 8% on excess deposits aligns with the principle of taxing business income under presumptive provisions rather than treating entire deposits as unexplained.

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