DCIT, CIRCLE-1, , THANE vs. SHRI KALPESH KANTILAL GADA, MUMBAI

DCIT, Circle-1, Shri Kalpesh Kantilal Gada Room No.22, B-Wing, 6th Floor, 1503/04, Carlyle Bldg, Raheja Vs. Ashar IT Park, Wagle Industrial Garden, Opp. Tip Top Plaza LBS Estate, Road No. 16Z, Ambika Marg, Thane-400604. Nagar, Thane(W) - 400604. PAN : AGKPG1285F Appellant) : Respondent) Appellant/Assessee by : Ms Dinkle Hariya a/w Ms. Simoni Chouhan, CA Revenue/Respondent by : Shri P.D. Chougule, Sr. DR : 10.01.2024 Date of Hearing : 16.01.2024 Date of Pronouncement O R D E R

Per Padmavathy S, AM:

3. Aggrieved the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal in favour of the assessee by holding that the additions under section 68 cannot be made in the case where the assessee has declared income under section 44AD of the Act.

“1. On the facts and circumstances of the case, Id. CIT(A) has erred in deleting the addition made u/s 68 of the Income-tax Act, 1961 to the tune of Rs. 1,88,98,744/- shown as sales turnover by the assessee in cash generated from his non-existent trading activity.

2. On the facts and circumstances of the case, Ld. CIT(A) has erred in not appreciating the facts that mere filing of ITR u/s 44AD of the Act, the assessee cannot claim any credits or debits in his bank a/c as business related sales or expenditure respectively since assessee has failed to prove the genuineness of his business nature and purpose of credits and debits in his bank a/c.

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5. The Ld. AR submitted that the assessee has declared the income from trading in grey clothes under section 44 AD of the Act whereby the assessee is not required to maintain any books of accounts. The Ld. AR further submitted that for the purpose of making an addition under section 68 of the act, the amount should have been credited in the books of accounts for which the assessee does not have proper explanation about the nature and source. In assessee's case no books of accounts maintained and the assessee has estimated the income under section 44AD of the Act. Therefore the Ld. AR argued that no addition can be made under section 68 in assessee's case since it is a settled position that when the assessee has declared income under section 44 AD of the act no addition can be made under section 68. The Ld. AR also submitted that the assessee also produced various documents in support of the trading activity carried on by him which have been completely ignored by the assessing officer and the addition is made without examining the documents in support of the transactions. It is also submitted that the assessee has declared profit on the entire receipt under section 44AD of the Act more than 8% and the assessing officer has added the entire receipt once again under section 68 is not correct.

4 Shri Kalpesh Kantilal Gada with regard to the trading activity in grey clothes. During the course of assessment the assessee submitted certain documentary evidences in support of the trading activities carried on by the assessee. However the assessing officer held that the trading activity of the assessee to be non-genuine for the reason that the documentary evidences submitted by the assessee do not properly substantiate the genuineness of the activity. The CIT(A) allowed the appeal in favour of the assessee stating that when the assessee has declared income under section 44AD of the act no addition can be made under section 68 of the act by relying on various judicial pronouncements.

9. From the plain reading of the above it is clear that where any sum is found credited in the books of accounts for which the assessee is unable to offer explanation with regard to the nature and source then the same be treated as income under section 68 of the act. Books of accounts have been defined in section 2(12A) of the act to include ledgers, day-books, cash books, account-books and other books, whether kept in the written form or in electronic form or in digital form or as print-outs of data stored in such electronic form or in digital form or in a floppy, disc, tape or any other form of electro-magnetic data storage device. Further it is also settled position that bank passbook cannot be considered as books of accounts. In the light of this legal position, we will now consider the assessee's

5 Shri Kalpesh Kantilal Gada case. The assessee in the year under consideration has declared income under section 44AD of the act with regard to the trading activities since the turnover from the trading activity is less than Rs.2 crores. The assessee has declared income on presumptive basis under section 44AD and therefore the requirement for maintenance of books of accounts does not arise. Accordingly we see merit in the contention that addition under section 68 cannot be made in assessee's case since the assessee has offered income on estimation basis under section 44AD of the act. We in this regard notice that similar issue has been considered by Delhi bench of the ITAT in the case of Narendra Kumar Gupta vs DCIT (ITA No.1186/Del/2023 dated 11.10.2023) wherein it is held that-

“6. As regards the rejection of claim of cash from assessee's proprietorship concern, we find that books have not been rejected. It has also not been proved that cash withdrawn is also put to any other use. In such circumstances, there is no reason to reject the source of cash in this regard. In this regard, we draw support from the decision of Hon'ble Delhi High Court in the case of CIT vs. Kulwant Rai (2007) 291 ITR 36 (Delhi) for the following proposition :- "16. This cash flow statement furnished by the assessee was rejected by the Assessing Officer which is on the basis of suspicion that the assessee must have spent the amount for some other purposes. The orders of the Assessing Officer as well as the Commissioner of Income-tax are completely silent as to for what purpose the earlier withdrawals would have been spent. As per the cash book maintained by the assessee, a sum of Rs.10,000 was being spent for household expenses every month and the assessee has withdrawn from bank a sum of Rs. 2 lakhs on December 4, 2000 and there was no material with the Department that this money was not available with the assessee. It has been held by the Tribunal that in the instant case the withdrawals shown by the assessee are far in excess of the cash found during the course of search proceedings. No material has been relied upon by the Assessing Officer or the Commissioner of Income-tax (Appeals) to support their view that the entire cash withdrawals must have been spent by the assessee and accordingly, the Tribunal rightly held that the assessment of Rs. 2.5 lakhs is legally not sustainable under section 158BC of the Act and the same was rightly ordered to be deleted."

6 Shri Kalpesh Kantilal Gada 7. As regards, the amount belonging to Narender Kumar Gupta and Sons HUF is concerned, we note that 44AD return has been submitted which has been accepted. The income, therefore, therein has been accepted. In such circumstances, there is no reason why the cash due of the income disclosed u/s 44AD should not be accepted. It is settled law that books of account & vouchers are not required in 44AD return. Hence, adverse inference cannot be taken that cash book & vouchers have not been maintained. The same income cannot be taxed twice once in the hands of HUF and once again in the hands of the assessee. In these circumstances, we set aside the orders of the authorities below and decide the issue in favour of the assessee.”

“7. The new ground raised by the assessee challenging action of the Assessing Officer in invoking provisions of section 68 of the Act in absence of books of account goes to the root of validity of addition made u/s 68. The new ground raised by the assessee is legal in nature and hence, can be very well raised even at second appellate stage. The facts and documents to decide the ground are already available on record and no new documents are required to be adduced to decide this legal issue. The coordinate Bench in the case of Manasi Mahendra Pitkar vs. ITO (supra) under similar set of facts admitted the additional ground challenging the addition made by Assessing Officer u/s 68 of the Act merely on the basis of cash deposits in the bank account. The objection raised by the ld. DR is rejected. The new ground raised by the assessee before the Tribunal being legal in nature is admitted for adjudication on merits in the light of decision rendered by Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. vs. CIT reported as 229 ITR 383.

8. Before proceeding further to decide this issue it would be imperative to refer to the relevant provisions of section 68 of the Act. The same are reproduced herein under: "68 Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:"

7 Shri Kalpesh Kantilal Gada A bare perusal of section 68 of the Act makes explicitly clear that the addition can be made under the section if, any sum is found credited in the books maintained by the assessee. That is the books should be that of the assessee.

10. The Hon'ble Bombay High Court in the case of CIT vs. Bhaichand N. Gandhi (supra) upholding the decision of Tribunal concluded that bank passbook does not constitute books as envisaged under u/s 68 of the Act. The relevant extract of the judgement reads as under: "........... the pass book supplied by the bank to its constituent is only a copy of the constituent's account in the books maintained by the bank. It is not as if the pass book is maintained by the bank as the agent of the constituent, nor can it be said that the pass book is maintained by the bank under the instructions of the constituent. In view of this, the Tribunal was, with respect, justified in holding that the pass book supplied by the bank to the assessee in the present case could not be regarded as a book of the assessee, that is, a book maintained by the assessee or under his instructions. In our view, the Tribunal was justified in the conclusions at which it arrived."

11. Under the provisions of section 44AD of the Act, where the assessee is engaged in eligible business and has total turnover or gross receipts in the previous year not exceeding Rs.60,00,000/-, the assessee is eligible to file return of income on the basis of presumptive income @ 8% of total turnover or gross receipts. In the present case undisputedly the assessee has not maintained books and has offered his business income to tax on presumptive basis u/s 44AD of the Act. The same has been accepted by the Assessing Officer except for addition u/s.68 of the Act. It is not mandatory for the assessee to maintain books, if the return of income is filed under section 44AD of the Act.

8 Shri Kalpesh Kantilal Gada 12. As has been observed earlier that addition under section 68 can be made only if any sum is found credited in the books maintained by the assessee for any previous year and the assessee fails to offer valid explanation for credit of such sum in the books or explanation offered is rejected by the Assessing Officer. In other words maintains of books by the assessee is sine qua non for making addition u/s 68 of the Act. Since section 44AD does not obligates the assessee to maintain books, the provisions of section 68 cannot be invoked where the assessee has filed return of income under the provisions of section 44AD of the Act without maintaining books of account.

Order pronounced in the open court on 16-01-2024.