Demonetisation Cash Deposits Cannot be Doubted if ITR Filed u/s 44AD: ITAT

The petitioner, Daxaben Ashokkumar Dattani, had filed her return under the presumptive taxation scheme of Section 44AD, declaring a gross turnover of Rs 68,28,565 and presumptive income of Rs 5,35,052 under the provisions of Section 44AD of the Act.

The assessee did not maintain formal books of accounts, which is allowed under Section 44AD for taxpayers having a turnover of less than Rs 2 crores. However, even after this, the AO and the CIT(A) treated the cash deposits in her bank account amounting to less than her declared turnover as unexplained income.

Petitioner’s Arguments

The key argument of the petitioner was as follows:

• The CIT(A) erred in confirming the addition of Rs 53,27,000 as unexplained cash deposits under Section 69A, even after it was recorded as cash sales.
• The cash deposits of Rs 53.27 lakhs were within the declared turnover of Rs 68.28 lakhs. The amount has been added as cash sales. Adding the same amount under section 69A of the Act will lead to double taxation.
• Bank statements are not books of account and therefore, hence, addition under Section 69A is not valid, especially when income is declared under Section 44AD.
• Both the lower authorities passed the orders without considering the facts and the submissions made by the appellant, which violated the Principles of Natural Justice.
• Interest charged under Sections 234A/B/C/D is not valid.
• Penalty levied under Section 271AAC is incorrect.

ITAT Decision

The Income Tax Appellate Tribunal (ITAT) agreed with the petitioner and observed that the AO had accepted the income declared under Section 44AD. The cash deposited in the bank account of the assessee of Rs 53,27,000 was less than the turnover reflected by the assessee of Rs 68,28,565, on which she had declared income as per Section 44AD of the Act of Rs.5,85,552.

The Tribunal noted the concern of the CIT(A) about cash deposits during demonetization. However, just because money was deposited during demonetization does not mean it is unexplained without proof. The authority also noted that it was a small business where the sales are mostly made in cash with small customers. In such cases, it was logical that cash receipts from sales would be deposited in the bank.

The ITAT deleted the entire addition of Rs 53,27,000 made under Section 69A and allowed the appeal.