Santosh Kumar Vs ITO (ITAT Jaipur)
ITAT Jaipur ruled on the applicability of Section 44AD of the Income Tax Act in assessing the taxable income of Santosh Kumar, a retail trader in Kota stones. The case arose after the assessee failed to file a return for the 2011-12 assessment year despite depositing Rs. 25.56 lakh in cash at ICICI Bank. The Assessing Officer (AO) treated the amount as income from undisclosed sources under Section 144. The assessee’s appeal was dismissed by the Commissioner of Income Tax (Appeals) [CIT(A)], who also rejected additional evidence under Rule 46A, citing non-compliance with assessment proceedings. However, the ITAT noted that only real income should be taxed, and a liberal approach was required when the assessee later submitted evidence, including a VAT registration certificate confirming his business activities.
The tribunal observed that the revenue had accepted the assessee’s business income in the previous year under scrutiny. Applying Section 44AD, which prescribes an 8% tax rate on gross turnover for small retail businesses, the ITAT ruled that instead of taxing the entire Rs. 25.56 lakh as undisclosed income, only Rs. 2.05 lakh should be considered as taxable profit. As a result, the excessive addition made by the AO and confirmed by the CIT(A) was deleted, and the appeal was partially allowed. This decision reinforces the principle that business income should be assessed based on reasonable profit estimation rather than treating cash deposits as undisclosed income.
