Presumptive Taxation: Assessee not under obligation to explain cash deposit when ITR is filed u/s 44AD, says ITAT

The facts in brief are that the assessee filed return of income of Rs. 1,44,320/- by computing income u/s 44AD of the Act.

The case of the assessee was taken up for scrutiny and the ld AO made an addition of Rs. 2 lakh in term of observation at para 2 of the assessment order as below:-

During the course of assessment proceedings assessee has submitted written reply of questionnaire and mentioned that he submitted the ITR u/s 44AD on presumptive basis an J by mistake while preparing the return the income has been mentioned Rs. 1,74.2 DO/- instead of Rs. 3,74.290/- @ 8% on the gross receipts of Rs. 46.78.625/-. Assessee further submitted that revised ITR for the year under consideration may be accepted and assessee is agree to pay the tax assessed. Considering the submission of the assessee addition of Rs. 2,00,000/- is made on account of un-declared income.”

The ld Revisional Authority was of the view that during the assessment proceedings, the assessee submitted written reply to the questionnaire and submitted that in the original Income Tax Return filed on presumptive basis, stake the gross total income has been mentioned at Rs.1,74,290/- instead of Rs.3,74,290/-. Accordingly, he filed a belated revised Return for the year under consideration and requested the AO to consider this Revised Return and he would be paying the tax on Rs. 2 lacs addition. The assessee also submitted that he is deriving income from work of small contractor, sale purchase tie and Dairy etc. Regarding the query related to the cash deposited in the Bank, the assessee submitted that he had to keep cash in hand and whenever required he deposited cash in the Bank after collecting the business receipts from the market, so the source of cash deposited in his Bank account was claimed to be out of his business receipts of Rs.46,78,625/- on which he has declared income @ 8% u/s 44AD. Ld. Revisional authority observed that from the perusal of the Saving Bank account of the assessee in SBI, Kunjpura Branch, it is apparent that on certain dates cash is deposited and after accumulation of a particular amount, almost the entire cash is withdrawn and the same is apparently used for applying for some licenses and paid to D.E.T.C. (Deputy Excise & Taxation Commissioner), accordingly. Thus, prima-facie the entire cash deposited in the Bank account appeared to be un- explained. Accordingly, the assessment order dated 31.01.2014 passed by the A.O. was considered to be erroneous as well as pre-judicial to the interest of Revenue and the same needed Revision U/S 263 of the Act. Accordingly, a show-cause notice u/s 263 of the I.T. Act was issued to the assessee on 27th October, 2015 in which the assessee was asked to explain the source of entire cash deposit to the tune of Rs.45.22 lacs. The assessee from time to time attended the proceedings and also submitted written submissions. During the proceedings u/s 263, the assessee was also asked whether interest income from his Saving Bank account was declared by him in his Return of income. The assessee was also asked the purpose for which DD/Pay order/Withdrawals were made on 8th & 9th March, 201 1 (for DETC). The assessee in response admitted that the interest earned on his Saving Bank Account (Rs.909./- + Rs.247/-) by him was not declared (inadvertently) in his ITR for A.Y. 11 -12. The assessee further submitted that the Demand Drafts issued on 8th & 9th March, 2011 for DETC, Karnal were for seeking liquor vends for F.Y. 2011-12. As far as for the source of cash deposits, the assessee submitted that he was not maintaining books of account in view of Section 44AD of the I.T. Act and the cash deposits in his Bank account were made from his gross business receipts declared in his Revised Return to the tune of Rs.46,78,625/-. He has also submitted a photocopy of some register showing the sale of milk and some buffalos by him. Ld. Revisional authority observed that in this so called register dates are mentioned and against the same some numbers presumably the quantity of milk are mentioned and on write hand side at some places sale of buffalos is also shown. Finally the ld Revisional Authority observed that the assessment order is erroneous and prejudicial to the interest of revenue as the ld AO failed to make necessary enquiries.

Assessee has challenged the order of Ld Revisional authority raising following grounds:-

“1. That the order of the learned Pr. Commissioner of Income Tax is bad in law.
2. That the learned Pr. Commissioner of Income Tax has erred in reopening the case of assessee U/s 263(1) of the Income Tax Act, 1961.”

ITAT Observations & Order

5. Heard and perused the record.

6. The ld AR contended that the ld AO had conducted a detailed enquiry/ scrutiny in regard to issues examined by the ld Pr. CIT while exercising powers u/s 263 of the Act. Referring to page No. 3 of the notice issued u/s 143(3) he referred to Question No. 20 which mentions a query “you have deposited Rs. 10 lakh or more in saving bank account. Please explain the source of the same.” Referring to the reply to this query the ld AR submitted that return was filed u/s 44AD on presumptive basis, the query was relevant. The ld AR referred to copy of the assessment order filed at page 34 and 35 of the paper book and submitted that there is specific reference in the assessment order by way of office note that “explanation of the assessee that various cash deposits made in his bank account were out of business receipts on which income u/s 44AD has been computed, is duly considered and accepted.” It was submitted by the ld AR that the settled proposition of law is that when on the basis presumptive basis return is filed u/s 44AD then the assessee is not under obligation to explain individual entry of cash deposit and reliance was placed on the judgment of Hon’ble Jurisdictional High Court of Punjab and Haryana in case of CIT Vs. Surinder Pal Anand (2010) 192 Taxmann 0264.

7. On the other hand the ld DR submitted that there is no error in the findings of the revisional authority.

8. Giving thoughtful consideration to the matter on record it can be observed that revenue cannot disputed the fact that while making assessment specific queries were raised by the ld AO questioning the deposit of amounts in the bank account and taking rescue of section 44AD the assessee had sought immunity of explanation and offered income to be tax @8%, u/s 44AD. The office note referred by ld AR explicitly determines the issue in favour of the assessee. However, ld Revisional Authority has gone into the questions of facts about the source of the deposits and giving his own reasons concluded that the deposits were unaccounted/ concealed income. The ld Revisional Authority has not only examined the deposits but also the manner of withdrawal. The copy of register showing the sale of milk and buffalos have been discredited to reach a finding that the ld AO failed to make enquiry.

9. The findings of ld Revisional Authority cannot be sustained as the enquiry in to the relevant issues is duly reflected in the assessment proceedings and only because the ld Pr. CIT being a higher authority and more wiser in experience considered that enquiry in some other aspects would have resulted in different opinion, does not give jurisdiction to exercise revisional power u/s 263. That being so the grounds raised are allowed and the impugned order of revisional authority is set aside. The appeal is allowed.

Click here to Download the Order