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Facts
The assessee deposited a significant sum of money during the demonetization period without furnishing complete details or filing an income tax return. The Assessing Officer (AO) treated these deposits as unexplained money and made an addition. After the assessee's demise, the legal heir submitted that the deposits were out of the turnover of the assessee's Kirana store, which was later accepted by the CIT(A) as 8% of the turnover.
Held
The Tribunal held that the CIT(A) was justified in accepting the assessee's legal heir's request to assess the income at 8% of gross receipts under section 44AD, considering the business turnover and the circumstances of non-compliance due to illness and demise.
Key Issues
Whether bank deposits made during demonetization, without proper explanation, can be treated as unexplained money, or if they can be assessed as business income based on turnover under Section 44AD, especially after the assessee's demise and subsequent submission by the legal heir.
Sections Cited
143(3), 69A, 144(1)(b), 142(1), 115BBE, 44AD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘B’ BENCH, LUCKNOW
Before: SH. SUDHANSHU SRIVASTAVA & SH. NIKHIL CHOUDHARY
A.Y. 2017-18 Income Tax Officer, vs. Sateesh Kumar, Barabanki, U.P. H. No.9, Bhitariya, Ramsanehighat, H/o Baneekodar, Barabanki, U.P. PAN:CTJPK3341N (Appellant) (Respondent) Assessee by: Sh. Shubham Rastogi, C.A. Revenue by: Sh. Sanjeev Krishna Sharma, Addl. CIT (DR) Date of hearing: 02.04.2025 Date of pronouncement: 25.04.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: [ This is an appeal filed by the Revenue against the order of the ld. CIT(A) dated 13.03.2004 partly allowing the appeal of the assesseee against the assessment made under section 143(3) of the Income Tax Act, 1961 on 24.09.2019. The grounds of appeal preferred by the Revenue are as under:-
1. Because on the facts and circumstances of the case, the Ld. CIT(A) has erred in law and in facts while deleting the addition of Rs. 77,96,530/- under section 69A of the I.T Act 1961 by suo-moto taking the bank deposits as turnover and estimating the profit @ 8% of Rs. 95,83,320/- ignoring the fact that the assessee has not furnished complete details of bank deposits, the same is added to the total income of the assessee as unexplained money u/s 69A of the I.T. Act. 1961.
2. That the order of CIT (A), being erroneous in law and in facts be cancelled and the order of the AO be restored.
3. Any other grounds arose during the proceedings of appeal.”
The facts of the case are that the assessee deposited Rs.11,72,500/- during the demonetization period in his bank accounts maintained with Corporation Bank, Ram Sanehi Ghat, Barabanki and Aryavrat Bank, Bhitaria, Barabanki. Of the total amount, a sum of Rs.9,24,500/- was deposited in Corporation Bank whereas a sum of Rs.2,48,000/- was deposited in Aryavart Bank. The assessee was issued several notices to furnish his explanation with regard to the source of these cash deposits but no response was filed by him. The ld. AO records that the assesseee had not even filed his ITR for the assessment year 2017-18 despite issue of notices to him for the said purposes. Therefore, quoting from section 144(1)(b) of the Income Tax Act, 1961, the ld. AO held that, as the assessee had failed to furnish the income tax return in response to his notices under section 142(1) and to furnish details regarding his income, the provisions of section 144(1)(b) were being invoked to complete the proceedings as a best judgment assessment, after affording the assessee an opportunity with a show cause notice. The ld. AO pointed out that since the assessee had not filed a return and had not filed any explanation regarding the source of credits and cash deposits in his bank accounts, he was of the opinion that all credit in the said bank account should be treated as unexplained credit. He noted that the total deposits i.e. cash plus other than cash deposits during the year, made by the assessee in the two bank accounts, totaled to Rs.77,96,359/-. He, therefore, made an addition of Rs.77,96,359/- in the hands of the assessee by treating the same as unexplained money and levied tax upon the same under section 115 BBE of the Income Tax Act, 1961.
Aggrieved with this assessment, an appeal was filed by the legal heir of the assessee before the CIT-2, Lucknow. During the course of appeal proceedings, it was brought on record that the assessee had expired on 10.12.2018 and since that day, Smt. Sunita Gupta, Wife of the assessee had been carrying on the business on behalf of her husband. The legal heir submitted that the assessee i.e late Sh. Sateesh Kumar 2 was running a Kirana Store and the total turnover of his business was Rs.95,83,320/-. It was also submitted that a VAT audit had taken place and the taxable turnover as per the VAT orders was Rs.95,83,320/-. The legal heir requested that in the facts and circumstances of the case, the case may be treated as one eligible to be assessed under section 44AD of the Income Tax Act, 1961 at a profit of 8% on this turnover. The ld. CIT(A) called for a remand report from the ld. AO on this issue. In his remand report, the ld. AO confirmed the facts as stated by the assessee’s legal heir i.e. that the assessee had passed away on 10.12.2018 and prior to his death he had been running a general store in the name of M/s Vikas Kirana Store which traded in products such as Salt, Kala Namak, Sendha Namak, Puffed rice, flattened rice etc,. He did not dispute the total turnover claimed by the legal heir and also perused the VAT orders for the said period which were produced before him. Thereafter, he recorded the plea of the assessee to be assessed at 8% of the turnover, without offering his comments on the justifiability of the same or otherwise. The ld. CIT(A) took this as an acceptance of the proposal of the assessee for assessment at 8% of the gross receipts. He, therefore, directed the ld. AO to restrict the addition to the extent of 8% of profit on the total turnover of Rs.95,83,320/- against the addition made of Rs.77,96,530/- that had been made in the assessment order.
Aggrieved with this order of the ld. CIT(A), the Revenue has come in appeal before us. Arguing on behalf of the Revenue, Shri. Sanjeev Krishna Sharma, ld. Addl CIT DR pointed out that the ld. CIT(A) had erred in law and in facts while deleting the addition of Rs.77,96,530/- under section 69A of the Act by accepting that the bank deposits were turnover, ignoring the fact that the assessee had not furnished the complete details of bank deposits, He, therefore, submitted that it was fit to be considered from the point of section 69A and the decision of the ld. CIT(A) to accept the deposit as turnover and tax them @ 8% was not justified.
On the other hand, the ld. AR, Shri. Shubham Rastogi, C.A., submitted that the reason for non-compliance before the ld. AO was the illness of the assessee and his subsequent demise shortly after the filing of the return. However, the legal heir of the assessee had filed the explanation with regard to the cash deposits, explaining them to be out of the receipts of the Kirana Store run by the assessee prior to his death. She had also satisfied the ld. AO by the production of a VAT assessment order for the concerned period, that the turnover of the said business was Rs.95,83,320/-. Therefore, once it was established that there was a regular business that had turnover in excess of the cash that was deposited in the bank account, there was no reason to dispute the deposits in the bank account and the decision of the ld. CIT(A) to accept the income of the assessee @ 8% of such deposits under section 44AD, was therefore, justified.
We have duly considered the facts and circumstances of the case. In our view, the legal heir of late assessee has furnished evidence to show that, prior to his death, the assessee was running a Kirana business which had a turnover of Rs.95,83,320/- that had been verified by the VAT authorities in the course of an assessment. We observe that the non-compliance before the ld. AO is explained by the illness and subsequent demise of the assessee during the period of assessment. Therefore, the lack of explanation furnished before the ld. AO, in the given circumstances of the case, should not be viewed as an attempt to evade notices but has to be seen in the light of the circumstances that befell the assessee and his family. Since, the total amount of cash deposit and even the total amount of credits in the said bank account are well below the turnover of the late assessee’s business, and since the ld. AO has verified this in the course of remand proceedings and not recorded any adverse comments, when given the opportunity to do so, we are of the opinion that the ld. CIT(A) is justified in accepting the request of the assessee’s legal heir to assess the income from the said business @ 8% of gross receipts in view of 4