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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
This appeal filed by the assessee is directed against the order of the CIT(A), Kottayam dated 06/08/2018 and pertains to the assessment year 2015-16.
At the outset, there was a delay of 231 days in filing the appeal before the Tribunal. The assessee has filed condonation petition alongwith affidavit stating that this appeal should have been filed on or before the 7th November, 2018 counting the period of sixty days from the date of communication of the order, but it could not be so filed due to the reason that he was diagnosed with kidney tumor resulting in removal of left kidney and was hospitalized during the assessment proceedings. Even after obtaining discharge from the hospital, he was constantly under clinical follow ups due to which he was not able to file the appeal within the due date. As and when the assessee got the penalty notice regarding the same assessment, the assessee contacted his authorized representative for further course of action and was advised to file the appeal before the Tribunal. In the above circumstances, he prayed that the delay in filing the appeal before the Tribunal may be condoned and the appeal may be treated as filed within the due date. In support of his claim, the assessee has also filed a copy of medical certificate dated 15/10/2019 and discharge certificate from St. Gregorios Medical Mission Hospital, Pathanamthitta.
The Ld. DR has not seriously opposed to the condonation petition.
We have gone through the condonation petition. As seen from the facts narrated in the petition, we find that there was sufficient cause for not filing the appeal within the due date and the reason advanced by the assessee is good and sufficient to condone the delay in filing the appeal. Hence, we condone the delay of 231 days in filing the appeal and admit the appeal for adjudication.
The facts of the case are that the assessee filed return of income for A.Y. 2015- 16 on 16/03/2017 declaring total income of Rs.3,37,160/-. The assessment u/s. 143(3) of the I.T. Act was completed o 21/12/2017 by assessing the total income at Rs.34,73,680/- after making the following additions:
S.No. Item Amount Rs. Reason 1. Under section 68 of the 27,94,306 Unexplained cash deposit in Act Bank 2. Undisclosed profit 3,14,953 Profit on undisclosed sales 3. Interest income 27,265 Difference as per 26AS On examination of the bank account statements of the assessee at various banks, it was ascertained that total of credits in different banks during the year was reckoned at Rs.94.,04,685/- Out of which a sum of Rs. 8,61,647/- represented transfer from LIC and gift from his daughter who was working abroad and these were proved. As the assessee was not maintaining books of account including cash book, it was hard to ascertain the actual of cash and credit sales. But, it was noticed that the assessee had made payments to various wholesale pharmaceutical companies for a sum of Rs.53,48,732/- during the F.Y. 2014-15 towards purchase. The Purchase bills and the suppliers' ledgers were produced and these were verified and accepted as proved. (The tax treatment in respect of such unexplained purchase of Rs.31,49,534/- (53,48,732 – 21,99,198) would be discussed subsequently.
Moreover, an amount of Rs.4,00,00/- was explained to be loan received on 21/05/2014 from his sister who furnished confirmation and bank statement. She were verified and accepted as proved would be discussed subsequently. Moreover, an amount of Rs. 4,00,000/- was explained to be loan received on 21.05.2014 from his sister who furnished confirmation and bank statement. She explained the source and the reason for giving such loan. Therefore, this also was accepted as proven source of credit. In short the explained cash credit after considering the above was ascertained at Rs.66,10,379/- and the unexplained cash credit was ascertained at Rs.27,94,306/- (94,04,685-66,10,379).
5.1 In view of the above findings, it was considered reasonable and rational to adopt and accept the aggregate receipts of Rs Rs.66,10,379/- as explained.
Therefore, the balance of Rs.27,94, 306/-(94,04,685-66,10,379) was considered to be unexplained cash deposits and which was proposed to be assessed as unexplained income u/s. 68 and taxed u/s 115BBE of the Act. "
On appeal, the CIT(A) observed that the assessee had neither disclosed the credits found in the Bank account nor explained the sources for the complete credits. Therefore, the Assessing Officer quantified the explained deposits in the Bank account to Rs.27,94,306/- and assessed under section 68 of the Act. The CIT(A) held that the provisions of section 68 of the Act are not applicable to the case of the assessee. According to the CIT(A), the Assessing Officer gave a finding that the assessee was not maintaining books of account and therefore, provisions of section 68 of the Act cannot be applied to tax the unexplained deposits in the Bank.
However, the same can be taxed under section 69A of the Act. According to the CIT(A), quoting of wrong section is not fatal to the addition made and hence, it was held that the unexplained deposits in the Bank account are assessable under section 69A of the Act. 4 6.1. The CIT(A) noticed that the assessee neither in the assessment proceedings nor in the appeal proceedings produced any evidence to prove that the deposits in the Bank account represent the business receipts. Further, the Assessing Officer excluded the business receipts to the extent the payments made by the assessee to pharmaceutical companies. According to the CIT(A), the onus is on the assessee and not on the Assessing Officer to prove the source of the credits in the Bank account. In view of the above discussion, it was held that the amount of unexplained deposit in the Bank account i.e. Rs.27,94,306/- was assessable under section 69A of the Act and the Assessing Officer was directed to assess accordingly.
Against this, the assessee is in appeal before us. The Ld. AR submitted that the AO made the addition by treating the cash deposits in the bank account as unexplained cash credit without considering the purchase bill, sales bills and bank statements produced by your appellant during the course of assessment and ignoring the fact that the deposits are immediately connected with the business of the assessee. It was submitted that it is a well settled principle in law that maintenance of books of accounts is a condition precedent to apply Sec 68 of the Act. The Ld. AR relied on the judgment of the Bombay High Court in the case of CIT v Shri Bhaichand Gandhi 141 ITR 67 wherein it was held that a bank passbook cannot be regarded as a book of the assessee for the purpose of the Act. While passing the assessment order, it was submitted that the AO had not taken into consideration of the fact that the assessee was carrying on small business is declaring his income under Sec 44AD and therefore, no necessity to maintain books 5 of accounts and bills and vouchers arise and even then, the assessee had produced various vouchers during the course of assessment with the Assessing Officer. In this case, the daily collection from the retail trade of medicines was deposited into the current as well as personal bank account of the assessee and payments were also made using these accounts.
7.1 The Ld. AR submitted that the AO in the assessment order itself had explained that since the assessee was not maintaining cash book, it was hard to ascertain the actual of cash sales and credit sales. During the course of assessment also, it was submitted that the assessee had produced various vouchers for sales and purchase.
At the most, the A.O. could have doubted the quantum of sales instead of treating the same as unexplained cash under Sec 68 and even the benefit of undisclosed sales was not given to the assessee. According to the Ld. AR, it was the AO and the CIT(A) had not considered the applicability of the assessee’s explanation that the said deposits relate to cash sales except making a preposterous assertion that it was not acceptable. It was submitted that except for the small retail trade, the assessee had no other business. It was submitted that even though the assessee could not bring any corroborative evidence for the undisclosed cash sales, it was to be appreciated that Sec 68 is a rule of evidence and the Assessing Officer is expected to consider the explanation rendered in the context of circumstance of each case.
7.2 Reliance was placed on the judgment of the ITAT Delhi Bench in the case of Shamsher Sigh Gill, Haridawr v ITO , Haridwar. The Ld. AR also relied on the view upheld by ITAT Cochin Bench in the case of A R Balakrishna Reddiar and Sons V ITO, Ward -1, Alleppey where it was held that "if it is the case of AO that the credit entries appearing in the bank account are in respect of the transactions of the firm, then what will be assessable is the profit earned by the firm and not the entire amount as it is the nature of suppressed sales on the factum that the assesses is engaged in the business as a wholesale dealer of reputed companies. Further, the Ld. AR placed reliance on the judgment delivered by the Hon'ble Supreme Court in the case of Lakhmichand Baijanath v CIT where it was held that "when an amount is credited in business books, it is not an unreasonable inference to draw that it is a receipt from business". In view of the above, the Ld. AR prayed that the addition of Rs. 27,94,306/- made in respect of total income should be deleted.
8. The Ld. DR submitted that there is no prohibition for making addition u/s. 68 or 69A of the I.T. Act, though the assessee offered income u/s. 44AD of the I.T. Act.
We have heard the rival submissions ad perused the record. The assessee offered income u/s. 44AD, the assessee being a small trader in medicine. There is no dispute that the assessee falls under the provision of sec. 44AD since the turnover of the assessee is less than Rs. 1 crore from eligible business. The Assessing Officer also accepted that the assessee’s case falls under the purview of 7 section 44AD and computed the income declared by the assessee at Rs.3,37,160/- and thereafter made addition towards undisclosed profit u/s. 68 of the Act. In other words, the Assessing Officer has not at all rejected the books of accounts of the assessee. Section 44AD provides that where the assessee is engaged in eligible business as proprietor under that section, a sum equal to 8% of the gross receipts shall be deemed to be the profits and gains of such business. Section 44AD exempts the assessee from maintenance of books of accounts. Once the income of the assessee is accepted u/s. 44AD, now the question arises for our consideration is whether the Assessing Officer could make further additions towards various discrepancies in the books of accounts of the assessee.
9.1 . Section 44AD of the Act gives an option to the assessee to offer income on presumptive basis. These are special provisions. The assessee has opted for the same and offered to tax income at the rate of 8% of his turnover. The issue is whether, the Assessing Officer can examine statement of accounts in such cases, make additions towards undisclosed purchases, undisclosed expenditure, under valuation of closing stock etc., The turnover declared by the asscssee is accepted by the revenue. In our considered opinion such additions go against the spirit of the Act. Section 44AD of the Act was introduced to help the small traders who have difficulties in maintaining books of account and other records. Tax is levied on presumptive basis. The Haryana High Court in the case of CIT vs. Surinder Pal Anand [2010] 192 taxmann 264), under identical circumstances had held as follows'.- 8
“7. Section 44AD of the Act was inserted by the Finance Act, 1994 with effect from 1-4-1994. Sub-section (1) of section 44AD clearly provides that where an assessce is engaged in the business of civil construction or supply of labour for civil construction, income shall be estimated at 8 per cent of the gross receipts paid or payable to the assessee in the previous year on account of such business or a sum higher than the aforesaid sum as may be declared by the assessee in his return of income notwithstanding anything to the contrary contained in sections 28 to 43C of the Act. This income is to be deemed to be the profits and gains of said business chargeable of tax under the head "profits and gains" of business. However, the said provisions are applicable where the gross receipts paid or payable does not exceed Rs. 40 lakhs.
Once under the special provision, exemption from maintaining of books of account has been provided and presumptive tax at the rate of 8 per cent of the gross receipt itself is the basis for determining the taxable income, the assessee was not under obligation to explain individual entry of cash deposit in the bank unless such entry had no nexus with the gross receipts. The stand of the assessee before the Commissioner of Income-tax (Appeals) and the Tribunal that the said amount of Rs.14,95,300 was on account of business receipts had been accepted. The Ld. AR with reference to any material on record, could not show that the cash deposits amounting to Rs.14,95,300 were unexplained or undisclosed income of the assessee.
9. In view of the above position, we are unable to hold that any substantial question of law arises in this appeal.
10. The appeal is dismissed."
9.2 The Chandigarh Bench of the Tribunal in the case of Nand Lal Popli vs. DC1T in & 1162/Chd/2013, order dt. 14/06/2016, held as follows:-
"9. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The issue to be decided by us is whether accepting the case of the assessee as taxable under the presumptive taxation as provided under section 44AD of the Act, the Assessing Officer can make addition under section 69C of the Act making the cash flow statement provided by the assessee the basis of his addition.
10. Section 44 AD of the Act reads as under: 9
"44AD (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profit and gains of business or profession".
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of subsection (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.”
The provision of the above section are quite unambiguous to the effect that in case of an eligible business based on the gross receipts/total turnover, the income under the head ‘profits & gains’ of business shall be deemed to be @ 8% or any higher amount. The first important term here is 'deemed to be’ which proves that in such cases there is no income to the extent of such percentage, however, to extent, income is deemed. It is undisputed that 'deemed' means presuming the existence of something which actually is not. Therefore, it is quite clear that though for the purpose of levy of income tax 8% or more may be considered as income, but actually this is not the actual income of the assessee. This is also the purport of all provisions relating to presumptive taxation.
Putting the above analysis, in converse, it can be easily inferred that the same is also true for the expenditure of the assessee. If 8% of gross receipts are 'deemed' income of the assessee, the remaining1 92% are also 'deemed' expenditure of the assessee. Meaning thereby that actual expenditure may not be 92% of gross receipts, only for the purposes of taxation, it is considered to be so. To take it further, it can be said that the expenditure may be less than 92% or it may also be more than 92% of gross receipts.
Further, on the reading on the substantive part of the provision, it is quite clear that an assessee availing the benefit of such presumptive taxation can claim to have earned income @ 8% or above of the gross receipts. In that case, the provisions of sub-section (5) of the said section will be applicable to it, which reads as under:
"44AD (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from 10 the eligible business are lower than the profits and gains specified in sub- section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB."
From the combined reading of sub-section (1) and sub-section (5), it is apparent that the obligation to maintain the books of account and get them audited is only on the assessee who opts to claim the income being less than 8% of the gross receipts.”
9.3 . Now, applying the above to the facts of the present case, we observe that the Assessing Officer, for making the impugned addition has stated that there was total deposit of Rs.94,04,685/- and the assessee has only explained Rs.66,10,379/- and Rs.27,94,306/- , being balance unexplained, which is a totally wrong premise. If the income component is estimated, how the expenditure component on the basis of said income can be considered to have been ‘actually incurred’ and it is only presumption that an amount of 92% of gross receipts was incurred by the assessee as expenditure. We must also observe here that this is not a case, where the Assessing Officer has doubted the gross receipts or gross turnover of the assessee.
In fact, accepting the same, estimating income @ 8% on the same at presumptive rate, he preferred to make further addition under section 68/69A of the Act. The argument of the learned D.R. that the turnover of ihe assessee has been doubted by the Assessing Officer is totally ill-found, in view of the same.
9.4 Further, it is a fact on record that the assessee had not maintained books of account that is why he opted for 8% income as per section 44AD of the Act. The section also does not put obligation on the assessee to maintain books of account, more so, in view of the fact that his income has been assessed as per section 44AD of the Act, he cannot be punished for not maintaining the same.
9.5 Now coming to the argument of the learned D.R. that the addition has been made under section 69A of the Act, on which there is no bar under section 44AD of the Act, we are quite in agreement with the same. The only fetter provided under section 44AD of the Act are the applicability of provisions of sections 30 to 38 of the Act. The provisions of section 69A of the Act reads as under:
“Unexplained expenditure, etc.- Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explantation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assesses for such financial year;
Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income."
9.6 The crucial words in the said section for the purposes of present appeal are 'any financial year’ an assessee has incurred any expenditure. But can we say on the facts and circumstances of the present case that the assessee has incurred any expenses. From an analysis of section 44AD of the Act contained hereinabove, we have already held that the assessee had not incurred the expenses to the extent of 92% of the gross receipts. Therefore, in the present case, the provisions of section 69A of the Act cannot be applied. Asking the assessee to prove to the satisfaction of the Assessing Officer, the expenditure to the extent of 92% of gross receipts, would also defeat the purpose of presumptive taxation as provided under section 44AD of the Act or other such provision. Since the scheme of presumptive taxation has been formed in order to avoid the long drawn process of assessment in cases of small traders or in cases of those businesses where the incomes are almost of static quantum of all the businesses, the Assessing Officer could have made the addition under section 69A of the Act, once he had carved out the case out of the glitches of the provisions of section 44AD of the Act. No such exercise has been done by the Assessing Officer in this case.
9.7 Applying the propositions of law laid down in the above case law lo the facts of the case on hand, we delete the addition in question. The Assessing Officer nor the CIT(A) have given any reason as to why the provisions of Section 44AD of the Act are not applicable to this case. This ground of appeal of the assessee is allowed