Case Law Details
Rahimathulla Abdul Rahman Vs ITO (ITAT Chennai)
In the case of Rahimathulla Abdul Rahman vs ITO, the Income Tax Appellate Tribunal (ITAT) Chennai addressed the treatment of bank credits for income estimation under Section 44AD of the Income Tax Act. The case arose from a best judgment assessment for AY 2017-18, where the Assessing Officer (AO) estimated business income at 8% on Rs.119.80 lakh, the bank turnover, and added Rs.10.18 lakh as unexplained cash deposits during the demonetization period. While the Commissioner of Income Tax (Appeals) granted partial relief by excluding Rs.2.5 lakh from the cash deposit addition, the rest of the AO’s order was upheld, prompting the assessee to appeal further.
The ITAT observed that the assessee, engaged in iron and steel trading, had no maintained books of accounts, making Section 44AD presumptive taxation provisions applicable. It ruled that distinguishing between cash deposits and other bank credits lacked merit since the only source of deposits was business receipts. Consequently, the tribunal treated the entire bank credit of Rs.129.98 lakh as business receipts and recalculated income at 8% of this total, amounting to Rs.10.39 lakh. The appeal was thus partly allowed, modifying the tax computation while reinforcing the presumptive income principles under Section 44AD.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of an order passed by learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] on 13-03-2024 in the matter of an assessment framed by the Ld. AO on best judgment basis u/s 144 of the Act on 02-12-2019. In the assessment order, Ld. AO estimated business income @8% which came to Rs.9.58 Lacs and also made addition of cash deposits for Rs.10.18 Lacs. The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us.
2. The Ld. AR advanced arguments and submitted that the only source of cash deposits was business receipts and therefore, income was to be estimated on a reasonable basis. The Ld. Sr. DR supported the orders of lower authorities. Having heard rival submissions and upon perusal of case records, our adjudication would be as under.
3. The assessee being resident individual is stated to be engaged in trading of iron and steel. The assessee did not file return of income. Pursuant to information that the assessee deposited cash in Specified Bank Notes (SBNs), the case was scrutinized. It transpired that the assessee had Bank credit of Rs.129.98 Lacs out of which cash deposited during demonetization period was Rs.10.18 Lacs. The remaining amount of Rs.119.80 Lacs was considered to be the sales turnover of the assessee and accordingly, the same was assessed u/s 44AD @8%. The amount of Rs.10.18 Lacs was held to be unexplained money and fully added to the income of the assessee. The Ld. CIT(A) confirmed the same except for granting a relief of Rs.2.50 Lacs from demonetization cash as deposited by the assessee. Aggrieved, the assessee is in further appeal before us.
4. From the facts, it is clear that the assessee has carried out trading activity. The business receipts have been deposited into the bank account. The assessee has not maintained any books of accounts. In such a case, the presumptive provisions of Sec.44AD have correctly been applied by Ld. AO. However, the artificial distinction as created by Ld. AO between business receipts is without any basis. The only source of cash deposits is business receipts only. Considering the same, we direct Ld. AO to consider the entire credit of Rs.1,29,98,619/- as business receipts only. The income on the same shall be estimated @8% which comes to Rs.10,39,890/-. We order so.
5. The appeal stands partly allowed.
Order pronounced on 5th November, 2024
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