Case Law Details
Mahendra Kumar Vs NFAC (ITAT Bangalore)
ITAT Bangalore held that as income is estimated under section 44AD of the Income Tax Act, so addition under section 68/69A of the Income Tax Act is impermissible.
Facts-The assessee, an individual engaged in the business of distribution and sale of pharmaceuticals and medicines on rental basis filed its return of income on for A.Y. 2017-18 by declaring an income of Rs.8,27,300/-.
During the course of assessment proceeding, notice u/s. 143(2) of the Act was issued and the assessment was finalised ultimately upon making addition of Rs.1,00,00,000/- in respect of cash deposited in the bank accounts representing sales of pharmaceuticals/medicine treated as unexplained cash credits u/s. 68 of the Act and Rs.10,85,157/- upon estimation of income u/s. 44AD of the Act at 8% of the sales and the difference between the total income declared and the income estimated.
Conclusion-Held that the ld.AO in assessee’s case has applied section 44AD of the Act and estimated profit at 8% of the turnover and in that view of the matter no further addition under section 68/69A of the Act is permissible.
AO made addition u/s 68 of the Act on account of cash deposit by the assessee into his bank account during demonetization period and the said cash deposit was emanated from the sale proceeds, which is already included in the total turnover disclosed by the assessee and the revenue accepted that as a revenue receipt, once again invoking the provisions of section 68 of the Act towards the said cash deposit into bank account would result in double taxation, which cannot be permitted. Accordingly, the addition is deleted.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The instant appeal filed by the assessee is directed against the order dated 22/02/2023 passed by the National Faceless Appeal Centre vide DIN and Order No. ITBA/NFAC/S/250/2022- 23/1050014504(1) arising out of the order dated 12/12/2008 passed by the ld.AO u/s 143(3) of the Income-tax Act 1961 (the Act) for the assessment year 20 17-18.
2. The assessee, an individual engaged in the business of distribution and sale of pharmaceuticals and medicines on rental basis filed its return of income on 3 1.03.2018 for Asst. Year 2017-18 by declaring an income of Rs.8,27,300/-.
3. During the course of assessment proceeding, notice under section 143(2) of the Act was issued and the assessment was finalised ultimately upon making addition of Rs. 1,00,00,000/- in respect of cash deposited in the bank accounts representing sales of pharmaceuticals/medicine treated as unexplained cash credits under section 68 of the Act and Rs. 10,85,157/- upon estimation of income under section 44AD of the at 8% of the sales and the difference between the total income declared and the income estimated. The same stood confirmed by the first appellate Hence the instant appeal before us.
4. During the year under consideration, the assessee shown a turnover Rs.2,46,82,938/-and deposited as BN of Rs.29,00,000/-during the demonetisation. Out of which, the assessee given loan of Rs.1,00,00,000/- to 3 parties, as the assessee not produced any relevant documents to compare the sales and cash in hand for the Financial Year 2015-16 and Financial Year 2016-17 as well as the checklist and the cash on hand as on 08.11.2016 could not be verified as of the opinion of the ld.AO particularly in the absence of the details about stock produced by the assessee. The ld.AO was of the opinion that the assessee violated the permission given by the Government of India and uncontraverted the unexplained money of self or others through his business line and in that view of the matter addition to the tune of Rs. 1,00,00,000/-under section 68 of the Act treating as unexplained cash credit was made, which was further confirmed by the first appellate authority. Hence, the instant appeal before us.
5. The case of the assessee is this that the assessee is an exempted entity and allowed to receive the demonetised currency between 09.11.2016 to 30.12.2016 against the sale of medicines. These sales are duly recorded in the books of accounts of the books of accounts and same has also accepted and no assessment is made invoking provision under section 144 of the Act. Furthermore, the income on the sales of medicines, reflected as cash deposits in the bank accounts has already been offered to tax and the sales are also credited in the bank account and the income is taxed and in that view of the matter taxing on the sales i.e. bank deposits against an unexplained cash credits under section 69 of the Act is not sustainable in the eye of law and liable to be deleted as the same suffers from double taxation. Further, the settled principle of law that the bank account is not books of accounts and the deposits in the bank account cannot be added under section 68 of the Act. On this aspect, the ld. Counsel appearing for the assessee submitted that the judgement passed by Cochin Bench in the case of Shri Thomas Eapen in ITA No.451/COCH/2019 for the Asst. Year 20 15-16, a copy has also been handed over to us.
6. On the other hand, the ld. Representative of the Department relied upon the order passed by the authorities below.
7. The crux of the matter is that the ld.AO in assessee’s case has applied section 44AD of the Act and estimated profit at 8% of the turnover and in that view of the matter no further addition under section 68/69A of the Act is permissible. Furthermore, the admitted fact is that the subject cash deposits are sale proceeds of pharmaceuticals and medicines declared in the VAT returns The income embedded in the subject cash deposits is already taxed by the ld.AO by estimating income at 8% of the applicable section 44AD of the Act and estimated profit.
8. We have considered the order passed by the learned Cochin Bench in the case cited (supra) and we find that while dealing with the identical issue, the Bench has been pleased to observe as follows set out power from paragraph 7.1 of Page 6 to 9.7.
“7.1 The Ld. AR submitted that the AO in the assessment order itself had explained that since the assessee was not maintaining cash book, it was hard to ascertain the actual of cash sales and credit sales. During the course of assessment also, it was submitted that the assessee had produced various vouchers for sales and purchase. At the most, the A.O. could have doubted the quantum of sales instead of treating the same as unexplained cash under Sec 68 and even the benefit of undisclosed sales was not given to the assessee. According to the Ld. AR, it was the AO and the CIT(A) had not considered the applicability of the assessee’s explanation that the said deposits relate to cash sales except making a preposterous assertion that it was not acceptable. It was submitted that except for the small retail trade, the assessee had no other business. It was submitted that even though the assessee could not bring any corroborative evidence for the undisclosed cash sales, it was to be appreciated that Sec 68 is a rule of evidence and the Assessing Officer is expected to consider the explanation rendered in the context of circumstance of each case.
7.2 Reliance was placed on the judgment of the ITAT Delhi Bench in the case of Shamsher Sigh Gill, Haridawr v ITO , Haridwar. The Ld. AR also relied on the view upheld by ITAT Cochin Bench in the case of A R Balakrishna Reddiar and Sons V ITO, Ward -1, Alleppey where it was held that “if it is the case of AO that the credit entries appearing in the bank account are in respect of the transactions of the firm, then what will be assessable is the profit earned by the firm and not the entire amount as it is the nature of suppressed sales on the factum that the assesses is engaged in the business as a wholesale dealer of reputed companies. Further, the Ld. AR placed reliance on the judgment delivered by the Hon ‘ble Supreme Court in the case of Lakhmichand Baijanath v CIT where it was held that “when an amount is credited in business books, it is not an unreasonable inference to draw that it is a receipt from business”. In view of the above, the Ld. AR prayed that the addition of Rs. 2 7,94,306/- made in respect of total income should be deleted.
8. The Ld. DR submitted that there is no prohibition for making addition u/s. 68 or 69A of the I. T. Act, though the assessee offered income u/s. 44AD of the I. T. Act.
9. We have heard the rival submissions ad perused the record. The assessee offered income u/s. 44AD, the assessee being a small trader in medicine. There is no dispute that the assessee falls under the provision of sec. 44AD since the turnover of the assessee is less than Rs. 1 crore from eligible business. The Assessing Officer also accepted that the assessee’s case falls under the purview of section 44AD and computed the income declared by the assessee at Rs.3,37,160/- and thereafter made addition towards undisclosed profit u/s. 68 of the Act. In other words, the Assessing Officer has not at all rejected the books of accounts of the assessee. Section 44AD provides that where the assessee is engaged in eligible business as proprietor under that section, a sum equal to 8% of the gross receipts shall be deemed to be the profits and gains of such business. Section 44AD exempts the assessee from maintenance of books of accounts. Once the income of the assessee is accepted u/s. 44AD, now the question arises for our consideration is whether the Assessing Officer could make further additions towards various discrepancies in the books of accounts of the assessee.
9.1 Section 44AD of the Act gives an option to the assessee to offer income on presumptive basis. These are special provisions. The assessee has opted for the same and offered to tax income at the rate of 8% of his turnover. The issue is whether, the Assessing Officer can examine statement of accounts in such cases, make additions towards undisclosed purchases, undisclosed expenditure, under valuation of closing stock etc., The turnover declared by the asscssee is accepted by the revenue. In our considered opinion such additions go against the spirit of the Act. Section 44AD of the Act was introduced to help the small traders who have difficulties in maintaining books of account and other records. Tax is levied on presumptive basis. The Haryana High Court in the case of CIT vs. Surinder Pal Anand [2010] 192 taxmann 264), under identical circumstances had held as follows:-
“7. Section 44AD of the Act was inserted by the Finance Act, 1994 with effect from 1-4-1994. Sub-section (1) of section 44AD clearly provides that where an assessce is engaged in the business of civil construction or supply of labour for civil construction, income shall be estimated at 8 per cent of the gross receipts paid or payable to the assessee in the previous year on account of such business or a sum higher than the aforesaid sum as may be declared by the assessee in his return of income notwithstanding anything to the contrary contained in sections 28 to 43C of the Act. This income is to be deemed to be the profits and gains of said business chargeable of tax under the head “profits and gains” of business. However, the said provisions are applicable where the gross receipts paid or payable does not exceed Rs. 40 lakhs.
8. Once under the special provision, exemption from maintaining of books of account has been provided and presumptive tax at the rate of 8 per cent of the gross receipt itself is the basis for determining the taxable income, the assessee was not under obligation to explain individual entry of cash deposit in the bank unless such entry had no nexus with the gross receipts. The stand of the assessee before the Commissioner of Income-tax (Appeals) and the Tribunal that the said amount of Rs.14,95,300 was on account of business receipts had been accepted. The Ld. AR with reference to any material on record, could not show that the cash deposits amounting to Rs.14,95,300 were unexplained or undisclosed income of the assessee.
9. In view of the above position, we are unable to hold that any substantial question of law arises in this appeal.
10. The appeal is dismissed.
” 9.2 The Chandigarh Bench of the Tribunal in the case of Nand Lal Popli vs. DC1T in ITA Nos. 1161 & 1162/Chd/2013, order dt. 14/06/2016, held as follows:-
“9. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The issue to be decided by us is whether accepting the case of the assessee as taxable under the presumptive taxation as provided under section 44AD of the Act, the Assessing Officer can make addition under section 69C of the Act making the cash flow statement provided by the assessee the basis of his addition.
10. Section 44 AD of the Act reads as under:-
“44AD (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profit and gains of business or profession”.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of subsection (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.”
10. The provision of the above section are quite unambiguous to the effect that in case of an eligible business based on the gross receipts/total turnover, the income under the head ‘profits & gains’ of business shall be deemed to be @ 8% or any higher amount. The first important term here is ‘deemed to be’ which proves that in such cases there is no income to the extent of such percentage, however, to extent, income is deemed. It is undisputed that ‘deemed’ means presuming the existence of something which actually is not. Therefore, it is quite clear that though for the purpose of levy of income tax 8% or more may be considered as income, but actually this is not the actual income of the assessee. This is also the purport of all provisions relating to presumptive taxation.
11. Putting the above analysis, in converse, it can be easily inferred that the same is also true for the expenditure of the assessee. If 8% of gross receipts are ‘deemed’ income of the assessee, the remaining1 92% are also ‘deemed’ expenditure of the assessee. Meaning thereby that actual expenditure may not be 92% of gross receipts, only for the purposes of taxation, it is considered to be To take it further, it can be said that the expenditure may be less than 92% or it may also be more than 92% of gross receipts.
12. Further, on the reading on the substantive part of the provision, it is quite clear that an assessee availing the benefit of such presumptive taxation can claim to have earned income @ 8% or above of the gross receipts. In that case, the provisions of sub-section (5) of the said section will be applicable to it, which reads as under:
“44AD (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in subsection (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.”
13. From the combined reading of sub-section (1) and sub-section (5), it is apparent that the obligation to maintain the books of account and get them audited is only on the assessee who opts to claim the income being less than 8% of the gross receipts.”
9.3. Now, applying the above to the facts of the present case, we observe that the Assessing Officer, for making the impugned addition has stated that there was total deposit of Rs.94,04,685/- and the assessee has only explained Rs.66,10,379/- and Rs.27,94,306/- , being balance unexplained, which is a totally wrong premise. If the income component is estimated, how the expenditure component on the basis of said income can be considered to have been ‘actually incurred’ and it is only presumption that an amount of 92% of gross receipts was incurred by the assessee as expenditure. We must also observe here that this is not a case, where the Assessing Officer has doubted the gross receipts or gross turnover of the assessee. In fact, accepting the same, estimating income @ 8% on the same at presumptive rate, he preferred to make further addition under section 68/69A of the Act. The argument of the learned D.R. that the turnover of the assessee has been doubted by the Assessing Officer is totally ill-found, in view of the same.
9.4. Further, it is a fact on record that the assessee had not maintained books of account that is why he opted for 8% income as per section 44AD of the Act. The section also does not put obligation on the assessee to maintain books of account, more so, in view of the fact that his income has been assessed as per section 44AD of the Act, he cannot be punished for not maintaining the same.
9.5. Now coming to the argument of the learned D.R. that the addition has been made under section 69A of the Act, on which there is no bar under section 44AD of the Act, we are quite in agreement with the same. The only fetter provided under section 44AD of the Act are the applicability of provisions of sections 30 to 38 of the Act. The provisions of section 69A of the Act reads as under:
“Unexplained expenditure, etc.- Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assesses for such financial year;
Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.”
9.6. The crucial words in the said section for the purposes of present appeal are ‘any financial year’ an assessee has incurred any expenditure. But can we say on the facts and circumstances of the present case that the assessee has incurred any expenses. From an analysis of section 44AD of the Act contained hereinabove, we have already held that the assessee had not incurred the expenses to the extent of 92% of the gross receipts. Therefore, in the present case, the provisions of section 69A of the Act cannot be applied. Asking the assessee to prove to the satisfaction of the Assessing Officer, the expenditure to the extent of 92% of gross receipts, would also defeat the purpose of presumptive taxation as provided under section 44AD of the Act or other such provision. Since the scheme of presumptive taxation has been formed in order to avoid the long drawn process of assessment in cases of small traders or in cases of those businesses where the incomes are almost of static quantum of all the businesses, the Assessing Officer could have made the addition under section 69A of the Act, once he had carved out the case out of the glitches of the provisions of section 44AD of the Act. No such exercise has been done by the Assessing Officer in this case.
9.7. Applying the propositions of law laid down in the above case law lo the facts of the case on hand, we delete the addition in question. The Assessing Officer nor the CIT(A) have given any reason as to why the provisions of Section 44AD of the Act are not applicable to this case. This ground of appeal of the assessee is allowed.”
9. It appears that it has also been decided by the Cochin Bench that addition under section 69 of the Act was not justifiable when the income was estimated under section 44 A.D of the Act. In the present case, assessee offered the income at 3.6% of total turnover of Rs.2,46,82,938/- i.e. Rs.8,89,227/-. The ld. AO has not accepted this income offered by the assessee from business. He considered the income of the assessee u/s 44AD of the Act at 8% of total turnover and determined the same at Rs. 19,74,635/-, which resulted in addition of income on this count at Rs. 10,85,157/-. Thereafter, the ld. AO picked up the credit entries with regard to deposit of SBN notes at Rs. 1 Crore to his bank account and made addition on this count. In our opinion, once the ld. AO rejected the books of accounts and estimated the income of the assessee, thereafter he is precluded from considering any other entries in the books of accounts, so as to make addition u/s 68 or 69 of the Act. Being so, the judgement of Cochin Bench in the case of Shri Thomas Eapen cited (supra) is directly on the issue under dispute. Accordingly, the addition is deleted.
9.1 Further, the ld. AO made addition u/s 68 of the Act on account of cash deposit by the assessee into his bank account during demonetization period and the said cash deposit was emanated from the sale proceeds, which is already included in the total turnover disclosed by the assessee and the revenue accepted that as a revenue receipt, once again invoking the provisions of section 68 of the Act towards the said cash deposit into bank account would result in double taxation, which cannot be permitted. Accordingly, the addition is deleted. This view of ours is supported by the order of Coordinate Bench in the case of Anantpur Kalpana Vs. ITO in ITA No.541/Bang/202 1 dated 13.12.2021. On this count also, addition cannot be sustained. Accordingly, we allow the grounds taken by the assessee.
10. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 21st September, 2023
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