Cash, Bank, Stock & Receivables Disclosure Required Under Presumptive Tax Scheme: ITAT Pune

Kamalesh Kantilal Patel Vs ITO (ITAT Pune)

The Income Tax Appellate Tribunal (ITAT) Pune recently delivered a judgment in the case of Kamalesh Kantilal Patel vs. ITO, clarifying the disclosure requirements for assessees opting for the presumptive taxation scheme. The tribunal held that even under this scheme, taxpayers are obligated to disclose details of cash, bank accounts, stock, and receivables.

The case involved an assessee who declared an income of Rs. 5,55,110 for the assessment year 2017-18. During scrutiny proceedings, the Assessing Officer (AO) noted cash deposits made by the assessee during the demonetization period. The assessee claimed these deposits originated from outstanding loans, sundry debtors, and receivables. However, the AO observed that the assessee had declared “Nil” sundry debtors in the previous assessment year’s return and provided no information about cash in hand. Consequently, the AO added Rs. 11,51,000 to the assessee’s income as unexplained cash credit under Section 69A of the Income-tax Act, 1961, and also invoked provisions of Section 115BBE.

The assessee appealed to the National Faceless Appeal Centre (NFAC), submitting that the source of the deposited amount included withdrawals from a partnership firm, refunds of advances, and recovery of advances. While the assessee provided a list of parties from whom refunds were received, the NFAC upheld the AO’s decision, citing the discrepancy between the declared debtors and the claimed source of funds. The NFAC also pointed out the absence of any declared cash in hand in the previous year’s return.

Before the ITAT, the assessee’s counsel presented balance sheets and affidavits from various parties, supporting the claim of recovery of advances. The counsel also argued that the omission of details in the presumptive taxation scheme column of the previous year’s return was an inadvertent error. The ITAT, after considering the arguments and evidence, differentiated between the various sources of the disputed amount. The tribunal accepted the amount withdrawn from the partnership firm, as it was supported by documentation. Regarding the refunds of advances, the ITAT noted that the assessee had provided a list of 17 individuals with affidavits and identity proof. The tribunal emphasized that the revenue authorities should have conducted verification of these individuals under Section 131 before rejecting the assessee’s claim. Therefore, the ITAT accepted the amount attributed to refund of advances.

However, concerning the recovery of receivables, the ITAT upheld the lower authorities’ decision. The tribunal stressed that even under the presumptive taxation scheme, disclosure of cash, bank, stock, and receivables is mandatory. The absence of such details in the previous year’s return, coupled with the lack of concrete evidence and proof of the genuineness of sundry debtors, led the ITAT to disallow this portion of the claim. Consequently, the ITAT sustained the addition of Rs. 3,14,500 related to the recovery of receivables, while granting relief on the remaining amount. The appeal was thus partly allowed. This ruling clarifies that while the presumptive taxation scheme simplifies income computation, it does not exempt taxpayers from disclosing crucial financial details like cash, bank balances, stock, and receivables.

FULL TEXT OF THE ORDER OF ITAT PUNE

The captioned appeal pertaining to Assessment Year 2017­18 at the instance of assessee is directed against the order dated 20.09.2024 passed by National Faceless Appeal Centre, Delhi u/s.250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) which in turn is arising out of Assessment Order dated 22.12.2019 passed u/s.143(3) of the Act.

2. Tersely, the facts of the case emanating from the record are that the assessee is an individual and declared income of Rs.5,55,110/- in the return of income for A.Y. 2017-18 furnished on 10.01.2018. The case selected for scrutiny through CASS for examining the cash deposit during demonetization period followed by validly serving of statutory notices u/s.143(2)/142(1) of the Act. The assessee apart from being engaged in Construction business is also a partner in M/s. Sai Samarth Plaza. Ld. Assessing Officer observed that the assessee has deposited Rs.1,01,000/- and Rs.10,50,000/-on 10.11.2016 and 15.11.2016 respectively with The Palus Sahakari Bank Ltd. in Specified Bank Notes (SBNs) during the demonetization period. The assessee stated that the source of the alleged deposit is cash received from outstanding loans and advances, sundry debtors and sundry receivables. Ld. AO however observed that the assessee has shown sundry debtors at Nil in the return filed for A.Y. 2016-17 and also no information was provided about the cash in hand. Accordingly, the contentions of the assessee were brushed aside and addition of Rs.11,51,000/- was made u/s.69A of the Act and provisions of section 115BBE of the Act was also invoked.

3. Aggrieved assessee preferred appeal before the ld. NFAC and during the course of assessment proceedings before the ld. NFAC it was contended that the source of Rs.11,51,000/- comprises of Rs.1,36,500/- received on account of amounts withdrawn from partnership firm, Rs.7.00 lakh received from refund of advances and Rs.3,14,500/- from recovery of the advances and the list of the parties from whom the refunds are received was also filed. However, ld. NFAC was not satisfied because in the income-tax return for A.Y. 2016-17 the assessee has not reflected any cash in hand by holding as under :

“5.3.2 I have perused the submissions made by the appellant and the facts brought out by the AO and find that details of debtors and cash deposited during demonetisation period do not conform with the information furnished in ITR as observed by the AO. And against this observation of the AO, the appellant says, “none of the required figures were reflected in the return filed. This was due to inadvertent mistake. Not even cash in hand was reflected. It does not mean that there was no cash in hand at all as at 31.03.2016.” Here we must understand that the information furnished in ITR has to be sacrosanct speaking true details of the business, in the instant case the appellant has stated to have admitted that none of the required figures were reflected in the return filed that puts the appellant in gray area. Under these circumstances, the AO is right in rejecting the cash book of the appellant. Further, the appellant has furnished the affidavits in respect of the refund of advances form 17 odd persons with their name and Adhaar details without the PAN and ITR which is not sufficient prove the veracity of transactions and creditworthiness of the payer.

5.3.3 In view of the above discussion, sole ground of the appeal of the appellant is dismissed.”

4. Now the assessee is in appeal before the Tribunal.

5. The ld. Counsel for the assessee apart from referring to the balance sheet as on 31.03.2016 and 31.03.2017 also referred to the affidavit of various parties, copies of whom were placed in the paper book pages 11 to 78 stating that proof of recovery of advances from various sundry debtors/receivables have been furnished along with identity proof and notarized affidavits. It was also submitted that in the return of income for A.Y. 2016­17 the assessee inadvertently did not fill any detail in the column provided for the Presumptive Taxation Scheme but it should not be taken against the assessee.

6. On the other hand, ld. Departmental Representative vehemently argued supporting the orders of the lower authorities.

7. I have heard the rival contentions and perused the material on record. The only issue that arises for my consideration is whether the ld. NFAC was justified in confirming the addition for unexplained cash credit of Rs.11,51,000/-. Before me, ld. Counsel for the assessee submitted that the details of Rs.11,51,000/- is on account of cash received from the following parties :

8. So far as the amount withdrawn from the partnership is concerned, the same is not in dispute as the copy of capital account of Sai Samarth Plaza is placed on page 10 of the paper book which provides detail of the withdrawals.

9. So far as the remaining two items are concerned regarding refund of advances, the assessee has furnished list of 17 persons who have sworn on the affidavits stating that they have given the amount in cash to the assessee prior to the demonetization period scheme. Their proof of identity is also furnished. The Revenue authorities before declining the claim of the assessee ought to have carried out the verification by way of calling the persons to record the statements u/s.131 of the Act. No such exercise has been carried out. Therefore, even if the cash received from those debtors are below Rs.20,000/- on each day creates doubt but in absence of any cross verification, the claim of the assessee cannot be denied. Therefore, to the extent of Rs.7.00 lakh received as cash from refund of advances is hereby also accepted.

10. So far as the amount of Rs.3,14,500/- is concerned, the same is claimed to be recovery of receivables. It is an admitted fact that the assessee had not given any bifurcation of the said sum in the income-tax return for A.Y. 2016-17. Even if the assessee falls under the Presumptive Taxation Scheme, he has to provide the detail of cash, bank, stock and receivables etc. In absence of any other concrete evidence and proof of genuineness of sundry debtors the claim of the assessee having received Rs.3,14,500/- as recovery of receivables did not have any merit and the said claim is not allowed. In other words, the addition of Rs.3,14,500/- is sustained as against the addition made by the AO at Rs.11,51,000/-. Thus, assessee gets part relief.

11. In the result, the appeal of the assessee is partly allowed.

Order pronounced on this 07^th day of January, 2025.