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Facts
The assessee declared presumptive income under Section 44AD from horticulture and sand business. The Assessing Officer (AO) made an addition of Rs. 1 crore on account of unexplained cash deposited on a single day during demonetization. The CIT(A) confirmed the addition.
Held
The Tribunal held that the AO failed to pinpoint a specific charging section for the addition. The Tribunal also noted that the assessee was carrying on business and had declared presumptive income, and under Section 44AD, maintaining books of account was not mandatory. Therefore, the addition was deleted.
Key Issues
Whether the addition of Rs. 1 crore as unexplained cash deposit is justified when the assessee is engaged in business under presumptive taxation and no specific charging section was invoked by the AO.
Sections Cited
44AD, 115BBE, 80C, 80TTA, 234B, 271AAC(1)
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Income Tax Appellate Tribunal, DELHI BENCH, ‘F’: NEW DELHI
Before: MS. MADHUMITA ROY & SHRI KHETTRA MOHAN ROY
ORDER PER KHETTRA MOHAN ROY, AM
This appeal by the assessee is directed against the order of the National Faceless Appeal Centre, New Delhi, dated 15.04.2024 pertaining to Assessment Year 2017-18.
The assessee has raised following grounds of appeal:-
1. That having regard to the facts and circumstances of the case. Ld. CIT(A) has erred in laws and on facts in confirming the action of Ld. AO in making addition ot Rs. 1.00.00.000 - by treating it as alleged unexplained unaccounted income of assessed and the same is chargeable to tax u/s 115BBL and that loo by recording incorrect facts and finding and without observing the principles of natural justice and without considering the submission of the assessee.
2. That in any case and in any view of the matter. action of Ld. CIT(A) in contirming the action of Id. AO in making addition of Rs. 1.00.00.000- by treating it as alleged unexplained unaccounted income of assessee and the same is chargeable to tax us lISBBE. is had in law and against the facts and circumstances of the case.
That having regard to the facts and circumstances of the case. Ld. CIT(A) has erred in law and on facts in not reversing the action of L.d. AO in charging interest us 234B of the Ineome Tax Act. 1961. 4 That the appellant erases the leave to add. modify, amend or delete any of the grounds of appeal
at the time of hearing and all the above grounds are without prejudice to each other.
3. Facts in brief are that the assessee is assailing the addition of Rs.1 crore towards cash deposited in a single occasion on 23.11.2016 with Kotak Mahindra Bank. During the course of hearing, the assessee submitted a brief note on the issue involved, which is reproduced as under:-
The only issue arising in this case is regarding addition of Rs. 1,00,00,000/- made by the AO as income earned from unexplained sources, chargeable to tax under section 115BBE of the Act. This issue has been discussed by the AO in paragraph nos. 9 to 11 of the assessment order. This addition has been confirmed by the NFAC in paragraph no. 6.3 of the impugned Brief facts of the case are as under: -
PB 1-3 contain the return of income filed by the assessee on 27.07.2017 declaring total income of Rs.6,59,600/-. The assessee earned income from the supply of horticulture, Yamuna Sand and mitti. Gross receipts from this business in this year amounted to Rs. 1,01,20,000/-. Net Profit was declared on presumptive basis u/s 44AD at Rs. 8,09,600/-. After claiming deduction u/s 80C and 80TTA, total income was computed at Rs.6,59,600/-. The assessee has been carrying on similar business for a number of years. PB 31, 33, 21-23 contain return of income and computation of income for AY 2015-16 and AY 2016- 17. These returns show presumptive income u/s 44AD for these year at Rs.3,02,500/- and Rs.4,92,400/-. PB 10 contains the Gross /receipts total turnover from the business for this year. PB 4-10 contain assessee's initial reply dated 18.01.2019. In this reply, the details of cash receipts were furnished (Point no. 5). Further, in point no. 3, it was submitted that the assessee has declared presumptive income u/s 44AD at 8% of gross receipts of Rs. 1,01,20,000/-. This is as per general practice adopted in earlier years and succeeding years. It was also submitted that the assessee has maintained only one bank account with Kotak Mahindra Bank, bearing a/e no. 0611531726, a copy of which was enclosed. PB 11-23 contain letter dated 01.11.2019, in which it was submitted before the Ld. AO that Income from business includes income from horticulture, supply of sand, Mitti, Yamuna Sand etc. to various farm owners and farmers in area of Faridabad. The assessee has declared income u/s 44AD on presumptive basis at the rate of 8% of gross receipts on Rs. 1,01,20,000/- collected during the year. The presumptive income on these gross receipts amounted to Rs. 8,09,600/- at the rate of 8% of gross receipts. The business was carried on from the residential premises of Karta situated at 394, Sector- 17, Faridabad PB 8 is the bank account of the assessee with Kotak Mahindra Bank in which a sum of Rs. 1,00.00,000/- has been credited on 23.11.2016 by cash. This cash is out of gross receipts of Rs. 1,01,20,000/- of this year. The assessee had incurred expenditure of Rs. 93,10,400/- in earning the aforesaid receipts of Rs. 1,01,20,000/-. The details of such payment are furnished by the Ld AO on Page 13 of the Assessment order which are reproduced below: S. No. Name PAN Amount 1 Ramautar Agarwal HUF AAHHR5605R 15,60,400 2 Abhi Jain ADWPA161C 7,50,000 3 Abhi Jain BAQPJ6236A 20,00,000 4 H.B. Relan & Co. - 50,00,000 Total 93,10,400 All these payments are duly reflected in the bank account of the assessee. From the aforesaid facts, it would be clear that the assessee had been carrying on the same business in the past and also has carried on the same business in future years. Ld. AO arbitrarily came to the conclusion, that the assessee has failed to prove that it actually carried on the job work business. In this connection, he has summarized eight points in para no. 9.1 of his order. These are reproduced as under: A Nature of business should appear physically. B Official address of the premises i.e. Office/Godown etc.
C Registration with competent authorities of Central/State Government etc. D Employees to work and accountant to maintain the necessary records. E Strategic planning and its execution. F Dealer/Agents through whom sale/purchases could be made. G Mode of transportation/communication of goods supplied or services rendered. H income must be corroborative to the corresponding expenses. In absence of any details with respect to these matters, he concluded that no business was conducted and therefore cash deposited in the bank on a single day during demonetization period represented unaccounted cash. This conclusion has been drawn in spite of the fact, that expenses in respect of job-work had been incurred as detailed above. Nonetheless, he held the amount of Rs. 1,00,00,000/- was unaccounted money and brought it to tax. PB 89-94 contains letter dated 29.09.2023 addressed to Ld. NFAC. It was inter-alia submitted that the assessee has earned on the same business as in past and continued to do so in future as seen from intimations (PB 31-33 AY 2015-16, 41-43, 34-30 AY 2016-17, 61-63, 54-60 AY 2018-19, 70-75, 64-71, ay 2019-20, 76-79, ay 2020-21) issued by the department. As its case was covered u/s 44AD, it was not required to maintain books of account or other documents. Looking to the business of assessee, only cash sales were feasible. Due to demonetization, the assessee was forced to deposit the receipts of Rs. 1 crore in cash in the bank. The details sought from the assessee have no relevance to presumptive computation of income u/s 44AD. However, the action of the AO has been confirmed by NFAC by mentioning that the assessee has cooked the story of Sand-mining business and horticulture business, by creating relevant documents by generating cash between April 2016 to October 2016. The amount of Rs. 1 crore was deposited in the bank in specified bank notes (SBN). In particular it was mentioned that the cash in the business was stated to have been generated in specified bank notes. There is no payment to transporters, laborers, etc. Therefore, the story of the assessee is baseless. Thus, the AO was justified in taxing unexplained cash of Rs. 1 crore. It is submitted that, the action of both the authorities in taxing the impugned sum is based upon irrelevant considerations, ignoring the facts of the case. Section 44AD inter-alia provides that in the case of an eligible assessee engaged in eligible business, a sum equal to 8% of the total turnover or a higher sum claimed to have been earned by the assessee shall be deemed to be the profits and gains of such business. It has been stated earlier that the assessee had been carrying on this business in past and continued to carry on this business in future. Therefore, there is no force in the findings of Ld. AO and Ld. NFAC that the assessee has not carried on any business. Further, A combined reading of sections 44AD(4), 44AD(S) and 44AA(2)(iv) will show that there is no requirement for the assessee to keep and maintain the books of account. Needless to say that the assessee being a HUF is an eligible assessee and it is carrying on eligible business as the turnover is below Rs. 2 crore. Therefore, all conditions of Section 44AD are satisfied. In the aforesaid situation, objections of AO taken in Para No. 6.1 (8 Objections) do not carry any weight. The assessee has been consistently declaring profit u/s 44AD.
Therefore, the question that cash was deposited in bank in SBNs or that no expenditure other than shown in respect of 4 parties, tabulated above has been incurred, does not carry any weight. In other words, it is a case to which provisions of Section 44AD are applicable, in view thereof the assessee was not required to maintain any books of account or other details. There has been no violation of the provision of Section-44AD in any year. Resultantly, Ld. NFAC should have accepted the business profits declared by the assessee at Rs. 8,09,600/-. Thus, it is requested that addition of Rs. 1 crore may be deleted. Without prejudice to the above, it is submitted that the assessee had declared business income of Rs.8,09,600/-. The total income was computed at Rs.6,59,600/-after claiming deduction u/s 80C and 80TTA. Ld. AO has wrongly taken the total income declared by the assessee as income from other sources. It is submitted that this finding is wrong as the income is business income. The result of this mistake is that business income of Rs. 8,09,600/- has been doubly taxed firstly as a part of declared total income and secondly as income from undisclosed sources. Therefore, without prejudice to the main argument that the sum of Rs. 1 crore is not taxable, in the alternative, this amount may be reduced from the assessed income. Without prejudice to the above, the Ld. NFAC erred in upholding the finding of the AO that the amount of Rs. I crore added to the income is taxable at the rate of 60% W/s 115BBE, and not at the rate of 30%. In this connection, reliance is placed in the decision of Hon'ble Madras High Court in the case of S.M.I.L.E. Microfinance Limited vs ACIT, in W.P. (MD) No. 2078 of 2020 and W.M.P.(MD) No. 1742 of 2020, for AY 2017-18 dated 19.11.2024. It has been held that the court is of the considered opinion that revenue is empowered to impose 60% rate of tax for transactions from 01.04.2017 onwards and not prior to the said cut-off date. And for prior transaction the revenue is empowered to impose only 30% rate of tax.
In the case of the assessee, the deposit of Rs. I crore in the bank was made on 23.11.2016, a date prior to 01.04.2017. Therefore, higher rate of 60% was not applicable and the amount is taxable at normal rate of 30%. Thus, without prejudice to the main argument that this amount is not taxable at all, it is submitted that in case the amount is found taxable by Hon'ble Tribunal, the AO may be directed to levy tax at the rate of 30%.
Upon perusal of the assessment order, it is manifest on record that the addition has been made by observing as follows:-
“11. In the light of above facts, it is established that the assessee has made concocted story just to explain the unaccounted/unexplained cash and in the absence of concrete evidences and plausible explanation, it is held that no business activities were carried out by the assessee during the period 01.04.2016 to 01.11.2016 and the precise source of cash deposited of Rs. 1,00,00,000/- on 23.11.2016 in bank account has remained unexplained and unsubstantiated. Accordingly, it is held that the said unexplained/unaccounted money is liable to be added back to the taxable income of the assessee. Accordingly, addition of Rs. 1,00,00,000/- (apart from the income of Rs.6,59,600/- already declared by the assessee in its ITR by treating it earned from the other sources) is made to the taxable income of the assessee on account of income earned from unexplained and undisclosed sources and the same is chargeable to tax u/s 115BBE of the Act. Since, the assessee has concealed true particulars of its income and furnished inaccurate particulars in respect of the amount as discussed here above in this order and being satisfied, in terms of section 271AAC(1) of the Act, is hereby initiated and accordingly, notice u/s 270 for penalty proceedings u/s 271AAC(1) of the Act, is being issued separately.”
At this juncture, it is appropriate to refer to the provisions of section 115BBE of the Act.
Tax on income referred to in section 68 or section 69 or section 69A or section69B or section 69C or section 69D.
115BBE. 2[(1) Where the total income of an assessee,-
Inserted by the Finance Act, 2020, w.e.f. 1-4-2021.
Explanation substituted for sub-section (3) by the Finance Act, 2017, w.e.f. 1-4-2018. Prior to its substitution, sub-section (3) read as under :
(3) In this section, "dividends" shall have the same meaning as is given to "dividend" in clause (22) of section 2 but shall not include sub-clause (e) thereof.'
Substituted for "under section 12A or section 12AA" by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, w.e.f. 1-4-2021. Earlier, the quoted words were amended by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, w.r.e.f. 1-6-2020 and Finance Act, 2020, w.e.f.
Inserted by the Finance Act, 2012, w.e.f. 1-4-2013. See also Circular No. 11/2019, dated 19-6-2019 [Clarification regarding non-allowability of set off of losses against deemed income u/s 115BBE prior to assessment year 2017-18]. See Taxmann's Master Guide to Income-tax Act.
24a. For relevant case laws, see Taxmann's Master Guide to Income-tax Act.
Substituted by the Taxation Laws (Second Amendment) Act, 2016, w.e.f. 1-4-2017. Prior to its substitution, sub-section (1) read as under:
"(1) Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of— 1.817 CH. XII - DETERMINATION OF TAX IN CERTAIN SPECIAL CASES S. 115BBF
(a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of — (i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).] (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance 2[or set off of any loss] shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) 2[and clause (b)] of sub-section (1).]
It is crystal clear that before application of this provision, the income must fall within the parameter of the sections so specified. However, in this case, the Assessing Officer has failed to pin point any such charging section under which the proposed addition was made. Section 155BBE falls within the chapter-XII of the Income Tax Act, 1961 and is basically concerned with determination of tax in special cases. The Assessing Officer has fallen into palpable error in jumping to section 115BBE without initially fixing the addition under any of the charging provision. The legal infirmity in the assessment order was pointed out to the Ld. Sr. DR but she could not elucidate about what should be the proper charging provision to bring the sum of Rs.1 Crore as income. The order of the ld. CIT(A) is mainly reiterating the order of the Assessing Officer and he has glossed over the fact that in absence of charging provision is fatal to the finality of the assessment order.
Accordingly, the entire addition of Rs.1 Crore is directed to be deleted. Since, we have deleted the addition in entirety, we need not answer about the applicability of section 115BBE of the Act at this juncture. Accordingly, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 30thMay, 2025.