PATTAPIRAMAN DINESHKUMAR,NAMAKKAL vs. ITO, WARD-2,, NAMAKKAL

The assessee has raised the following grounds of appeal:

The brief facts of the case emanating from the records are that the assessee is an individual carrying on the business in the name of Sri Sai Agency, as a trader in confectioneries and household goods. During the assessment year 2017-18, though the assessee had a turnover of Rs.90,51,808/- had not filed the return of income. As per the information available with the department, the assessee had deposited cash of Rs.17,53,400/- during the demonetization period into his bank account. Hence, the AO issued the notice u/s.142(1) of the Act to file the valid return of income on or before 31.03.2018. Subsequently, other statutory notices were also issued to the assessee. However, the assessee did not respond to any of the statutory notices issued by the AO and hence, the AO obtained the details from the bank by issuing the notice u/s.133(6) of the Act and found that the assessee had total credits in his bank accounts of Rs.84,86,076/-. Since, the assessee

In response to the notices issued by the ld.CIT(A), the assessee submitted a detailed written submission by giving the details of his turnover for the assessment year 2017-18 and stated that all the credits including cash deposits made in the bank account are on account of trading receipts only. In support of that, the assessee filed the VAT return filed before the authorities for a turnover of Rs.90,51,808/-. Further, the assessee stated that the cash deposits during the demonetization period of Rs.17,53,400/- represents trading receipts and cash balance available on the date of demonetization. Further, the assessee also relied on the following Tribunal decisions in support of his claim of cash deposits made is in accordance with law:

The assessee also stated that he has been filing the income tax returns regularly by declaring income on presumptive basis @ 8% of the turnover. Further, he also stated that during the impugned assessment year, LIC Premium of Rs.2,29,250/- has been paid which is eligible for deduction under Chapter VIA of the Act.

Based on the submissions made by the assessee, the ld.CIT(A) sought for a remand report from the AO and the same has been filed by the AO on

Aggrieved by the order of the ld.CIT(A), the assessee preferred an appeal before us.

Before us, the ld.AR of the assessee submitted that the assessee is a trader in confectionaries and house hold goods and has been regularly filing the return of income by declaring an income on presumptive basis u/s.44AD of the Act. Further, the ld.AR filed a paper book consisting of 198 pages providing the details of return of income dated 15.11.2019, statement of income, copies of VAT returns filed for the impugned assessment year along with the registration certificate of both VAT and GST and also the return of income for the assessment year 2024-25 along with the Form 3CB and 3CD. Further, the ld.AR stated that the assessee had submitted the details of VAT returns, bank transaction details, cash balance held as on 08.11.2016, cash flow and fund flow statements and also financial statements for the subsequent assessment years. However, the ld.CIT(A) has confirmed the order of the AO, though the remand report has been given without any negative observations by the AO. Further, the ld.AR stated that the assessee’s turnover is less than Rs.1 crore for the impugned assessment year and is eligible for declaring the income u/s.44AD of the Act on presumptive basis and hence, prayed for considering the entire amount of credits of Rs.84,86,076/- which is already included in the

Per contra, the ld.DR supported the orders of the ld.CIT(A) and prayed for confirming the same.

We have heard the rival submissions perused the material available on record and gone through the orders of the lower authorities along with the paper book and judicial precedents relied upon by the ld.AR. The assessment in the present case was admittedly completed ex parte u/s.144 of the Act. However, during the appellate proceedings, the assessee has furnished detailed evidence which was also subjected to verification in remand proceedings. Therefore, the issues are required to be adjudicated in the light of the evidence now placed on record.

The primary issue for consideration is the addition of Rs.17,53,400/- made u/s.69A of the Act on account of cash deposits during the demonetisation period. The consistent stand of the assessee is that he is engaged in the business of trading in confectionery and household goods and that the impugned cash deposits represent business receipts and cash balance generated in the normal course of business, which are duly reflected in the turnover declared in the VAT returns.

We find that the assessee has placed on record VAT returns, evidencing a turnover of Rs.90,51,808/-, which has not been disputed by the Revenue. Further, in the remand report, the AO has not brought any adverse material on record to disprove the explanation of the assessee and has, in fact, accepted

In the case of ACIT vs. Hirapanna Jewellers (ITA No. 253/Viz/2020 dated 12.05.2021), the Coordinate Bench of the Tribunal held that where the assessee is engaged in regular business and the cash deposits made during the demonetisation period are out of recorded sales duly reflected in the books, the same cannot be treated as unexplained income merely on account of timing of deposits. Similarly, in R.S. Diamonds India (P) Ltd. vs. ACIT (198 ITD 344), the Tribunal held that when the sales are accepted and not rejected, the corresponding cash deposits cannot be treated as unexplained under section 69A of the Act. Further, in Eagle Fleet Services vs. ACIT (105 ITR (Trib) 78, Chennai), it was held that once the receipts are part of regular business activity and duly accounted for, no separate addition is warranted under deeming provisions. 14. The ratio laid down in the aforesaid decisions is that where the source of cash deposits is traceable to business receipts already recorded or disclosed, the provisions of section 69A cannot be invoked in the absence of any contrary material to establish that such deposits represent unaccounted income. The Revenue cannot, on mere suspicion or surmise, disregard the explanation of the assessee without bringing cogent evidence on record.

In the present case, the Revenue has neither rejected the turnover declared by the assessee nor pointed out any discrepancy in the VAT returns, bank statements, or cash flow statements furnished by the assessee. Further, there is no material to show that the impugned cash deposits are over and above the declared turnover. In such circumstances, the explanation of the

The next issue relates to the estimation of income at Rs.5,38,614/- being 8% of certain cash deposits. We find that both the AO and the ld.CIT(A) have adopted an inconsistent approach by estimating profit on a portion of the bank deposits instead of considering the total turnover of the assessee. Once it is accepted that the assessee is engaged in business and the turnover has been determined, and further that the assessee is eligible for presumptive taxation u/s.44AD of the Act, the income is required to be computed on the basis of the total turnover and not on selective credits or deposits. The approach of estimating profit at 8% on isolated cash deposits, without rejecting the overall business turnover and without establishing that such deposits are independent of business receipts, is arbitrary and contrary to the scheme of presumptive taxation. Moreover, such a method leads to duplication, as the same receipts are subjected to multiple additions in different forms, which is impermissible in law. 18. Accordingly, we direct the AO to compute the income of the assessee u/s.44AD of the Act by applying the prescribed rate of 8% on the total turnover of Rs.90,51,808/- as declared by the assessee.

Insofar as the applicability of section 115BBE is concerned, the same is only consequential to additions made u/s.69A of the Act. Since we have deleted the addition made u/s.69A, the question of invoking section 115BBE does not arise and is rendered academic. 20. The assessee has also claimed deduction u/s.80C of the Act in respect of LIC premium paid during the relevant financial year. Since the income is directed to be computed u/s.44AD of the Act, the assessee would be eligible to claim deduction under Chapter VI-A from the gross total income, subject to verification of the claim of LIC Premium of Rs.2,29,250/-. Therefore, the AO is directed to verify the evidence and allow the deduction in accordance with law.

In the result the appeal of the assessee partly allowed for statistical purposes.