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Facts
The assessee, an individual engaged in retail ladies' garment business, filed income tax returns under the presumptive taxation scheme (u/s 44AD). During the demonetization period, a total of Rs. 32,00,000 was deposited in bank accounts. The Assessing Officer added this amount as unexplained cash under Section 69A read with 115BBE, a decision upheld by the CIT(A). The assessee claimed Rs. 27 lakhs as recovery of trade dues from M/s. Sarita Exports and Rs. 5 lakhs from past/household savings but failed to provide satisfactory substantiation.
Held
The Tribunal rejected the assessee's specific explanations for the cash deposits. However, considering the assessee's business nature and consistent filing under presumptive taxation, it treated the cash deposits as undisclosed business sales rather than unexplained cash from other sources. Consequently, the Tribunal applied an 8% net profit rate on the Rs. 32,00,000, restricting the addition to Rs. 2,56,000, and reclassified it as income from business and profession, thus not taxable under Section 69A read with 115BBE.
Key Issues
Whether unexplained cash deposits during demonetization by an assessee filing under presumptive taxation should be treated as unexplained cash under Section 69A read with 115BBE, or as undisclosed business income by applying a net profit rate.
Sections Cited
143(3), 69A, 115BBE, 44AD, 44AB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC‘ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against order dated 09/01/2024 passed by NFAC, Delhi for the quantum of assessment passed u/s.143(3) for the A.Y.2017-18. 2. Assessee is aggrieved by addition of Rs. 32,00,000/- of aggregate cash deposit during demonetization period which has Jayesh Jagat Parekh been taxed u/s.69A r.w.s. 115BBE. The relevant grounds raised
by the assessee reads as under:- 1.On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming addition of Rs. 27,00,000 under section 69A r.w.s. 115BBE of Income Tax Act, 1961 being cash deposited during demonetization period out of the recovery of trade dues after polish compliance and legal cases.
2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming addition of Rs. 5,00,000 under section 69A of Income Tax Act, 1961 without considering the facts that cash was deposit out of past savings and household savings of appellant.
3. On the facts and circumstances of the case and law, the Ld. CIT(A) failed to considered that the provision of section 69A of Income Tax Act, 1961 not applicable when the return is filed under presumptive taxation scheme under section 44AD of Income Tax Act, 1961 in which the appellant is not required to maintain any books of account.
4. On the facts and circumstances of the case and law, the Ld. CIT(A) failed to considered that provision of section 115BBE of Income Tax Act, 1961 is not applicable when the source of deposit is trade receipt and past savings.
3. The brief facts are that assessee is an individual deriving income from manufacturing and selling of ladies lower garments. Since assessee’s total sales were below the threshold limit of getting the accounts audited u/s.44AB, it has been filing its return of income under presumptive rate of taxation u/s.44AB. It has filed its return of income for A.Y.2017-18 on 02/08/2017 declaring total income of Rs.2,69,780/- which included profit u/s.44AD @8% of Rs.22,53,441/-. The assessee’s case was selected for scrutiny under CASS to verify the cash deposits Jayesh Jagat Parekh during the demonetization period. As per the information available on ITBA portal, assessee has deposited cash of Rs.32,00,000/- in Kotak Mahendra Bank during the year in three different accounts which were as under:-
Sr. Name of Bank A/c. No. Total Amount No. (Rs.) 1. Kotak Mahindra 4411405041 27,00,000/- Bank 2. Kotak Mahindra 2311714324 2,50,000/- Bank 3. Kotak Mahindra 2311714324 2,50,000/- Bank Total Rs. 32,00,000/-
In response to the show-cause notice to submit the nature of source of cash deposits, assessee submitted that since he has been filing his return of income u/s.44AD and offered 8% net profit of total recipts as income for the year under consideration, therefore, he was not maintaining any books of accounts. Regarding source of cash deposits, assessee submitted that he has received dues from the party name M/s. Sarita Exports in cash amounting to Rs.27,00,000/- during the demonetization period. Earlier this party had given cheques to the assessee in the earlier years which was dishonored following which assessee had filed police complaint against the said party M/s. Sarita Exports. However, during the demonetization period, the said Jayesh Jagat Parekh party returned the amount in cash out of which was deposited in the bank account and Rs. 5,00,000/- was from his personal savings which were deposited in the minor account of his child of Rs.2,55,000/- and Rs.2,50,000/- was from his saving account and Rs.27,00,000/- was deposited in the current account which was for the business of the assessee. Since, assessee could not submit the details of sale and purchase made with the party and address and PAN of M/s. Sarita Exports nor he could produce any bills and delivery challans, therefore, ld. AO rejected the claim of the assessee. Neither assessee could establish the creditworthiness and genuineness of the transaction done with M/s. Sarita Exports by the assessee dated 25/02/2013 mentions that there is no liability towards the assessee. On enquiry the party stated that they had already returned all the supplied material back to the assessee before the date of dishonor of cheques. Accordingly, ld. AO after enquiry from the said party treated the entire amount deposited in the bank account of Rs.32,00,000/- as unexplained and added u/s.69A r.w.s. 115BBE. The ld. CIT (A) too has confirmed the said addition on the reasoning given by the ld. AO. 4. We have heard both the appeals and also perused the relevant material placed on record. It is an undisputed fact that assessee is in the business of retail sale of ladies garments and only source of income is through this business. Further, the sales have been recorded in cash which was regularly deposited in the bank account. Since assessee’s turnover was ranging between 25-35 lakhs in a year, he has been showing the profit Jayesh Jagat Parekh under presumptive rate of 8% u/s.44AD not only in the past but also in the subsequent years. Even if assessee’s explanation that assessee has received cash of Rs.27,00,000/- from M/s. Sarita Exports has been found to be not acceptable in view of various findings given by the ld. AO and assessee could not rebut such finding, then source of these cash is out of business only. Looking to the fact that assessee was showing income from business of retail sale of ladies garments, then the cash deposits could be from unaccounted sales from the business which assessee had not disclosed in the return of income. Accordingly, source of cash deposit of Rs.32,00,000/- is treated to be out unaccounted sales made by the assessee. Admittedly, assessee has been making sales in cash from his small retail outlet for lades lower garments that the price of such garment is less than Rs.2,000/- per piece. Thus, it would be better to apply net profit rate of 8% on these unaccounted sales of Rs.32,00,000/- which works out to Rs.2,56,000/-. Thus, the addition is restricted to Rs.2,56,000/- as against addition of Rs.32,00,000/- made by the ld. AO. The reason for adopting the net profit rate of cash deposit is that assessee does not have any source of income nor has made any investment and is only involved in petty retail business. Thus, it cannot be held that assessee had some other unexplained cash from some other sources. Accordingly, the addition is sustained on the basis of application of net profit of 8% on cash deposits as the same is treated as income from business and profession and not to be taxed u/s.69A r.w.s.
Jayesh Jagat Parekh 115BBE. Accordingly, the appeal of the assessee is partly allowed.
In the result, appeal of the assessee is partly allowed. Order pronounced on 28th June, 2024.