2025 (6) TMI 160 - AT - Income Tax

Addition u/s 68 - assessee did not filed return of income voluntarily u/s 139(1) of the Act and has taken recourse to the provision of section 44AD to avoid paying higher tax by hiding under the provisions of section 44AD - as per CIT(A) in the absence of any documentary evidence of carrying out retail trade as well as in the absence of sale bills it will not be appropriate to consider these cash deposits in the bank account as business receipts of the appellant - HELD THAT - There is material substance in the submissions advanced on behalf of the assessee that the addition u/s 68 of the Act can only made where any sum is found credited in the books of accounts maintained by the assessee. AR also submitted that the amount of cash deposits which the AO made addition u/s 68 of the Act is already included in the turnover declared by the assessee in his return of income which is total receipts received by the assessee during the relevant year and the AO nowhere mentioned that the cash deposits which made addition u/s 68 of the Act is different from those mentioned by the assessee as turnover in his return of income. We find merit in the contentions raised by the assessee. Accordingly the appeal of the assessee deserves to be allowed. The impugned addition made in the assessment order and as sustained by the order of the CIT(A) is directed to be deleted. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

a. Whether the Assessing Officer (AO) had valid reasons to initiate proceedings under sections 147/148 of the Income Tax Act, 1961 ("the Act") for reopening the assessment, specifically regarding alleged escapement of income due to cash deposits.

b. Whether the AO was justified in passing an order under sections 143(3)/147/148 determining taxable income at Rs. 54,57,128/- against the returned income of Rs. 4,68,380/- without plausible basis.

c. Whether the addition of Rs. 49,88,748/- on account of cash deposits in bank accounts by invoking section 68 of the Act was legally sustainable.

d. Whether credit for self-assessment tax of Rs. 55,542/- was wrongly denied.

e. Whether charging interest under section 234B of the Act was appropriate.

2. ISSUE-WISE DETAILED ANALYSIS

Issue a: Validity of Reopening Assessment under Sections 147/148

Relevant legal framework and precedents: Section 147/148 permits reopening of assessment if the AO has reason to believe that income chargeable to tax has escaped assessment. The validity of reopening depends on existence of such reason to believe.

Court's interpretation and reasoning: The AO initiated proceedings based on cash deposits aggregating Rs. 49,88,748/- in three bank accounts, which exceeded the amount mentioned in the reason recorded (Rs. 16,54,000/-). The AO suspected escapement of income due to these deposits and lack of supporting evidence from the assessee. However, the Tribunal observed that the reopening was primarily triggered by cash deposits and the assessee had filed a return under section 44AD, declaring turnover and income.

Application of law to facts: The Tribunal found that mere issuance of notice under section 148 and filing of return under section 44AD cannot be treated as concealment or escapement of income. The reopening was not supported by valid reasons beyond the cash deposits, which were already reflected in the declared turnover.

Conclusions: The reopening was held to be without valid reason to believe escapement of income, rendering the initiation under sections 147/148 questionable.

Issue b: Justification for Determination of Taxable Income at Rs. 54,57,128/-

Relevant legal framework and precedents: The AO's power to determine income under section 143(3)/147/148 must be based on plausible reasons and evidence. The presumptive taxation scheme under section 44AD allows assessee to declare income at 8% of turnover without detailed books of account.

Court's interpretation and reasoning: The AO disregarded the return filed under section 44AD and determined income by adding cash deposits as unexplained income under section 68. The Tribunal noted that the assessee declared turnover of Rs. 55,49,170/- and income of Rs. 4,56,697/- (8.23%) under section 44AD, consistent with presumptive taxation provisions.

Application of law to facts: Since the presumptive taxation scheme is designed to simplify assessment and avoid detailed scrutiny, the AO's addition without disproving the declared turnover or income was not justified.

Conclusions: The determination of taxable income at Rs. 54,57,128/- was without plausible basis and hence unsustainable.

Issue c: Legality of Addition under Section 68 on Cash Deposits

Relevant legal framework and precedents: Section 68 applies when any sum is credited in the books of the assessee and the assessee fails to satisfactorily explain the nature and source of such credit. Section 2(12A) defines "books of account" to include ledgers, day-books, cash books, account-books, and electronic records, but does not include bank passbooks or bank statements.

Court's interpretation and reasoning: The Tribunal emphasized that addition under section 68 can only be made if the sum is credited in the books maintained by the assessee. Since the assessee filed return under section 44AD, which does not require maintenance of books of account, and the cash deposits were reflected in bank statements (not books of account), addition under section 68 was inappropriate.

The Tribunal also noted that the cash deposits forming the basis of the addition were already included in the declared turnover.

Key evidence and findings: The assessee maintained three bank accounts with deposits totaling Rs. 49,88,748/-, declared turnover of Rs. 55,49,170/-, and declared income under presumptive taxation. The assessee also held an Importer Exporter Code with the assessee's name as signatory, supporting the business activity.

Treatment of competing arguments: The Revenue contended that the assessee used section 44AD to avoid higher tax and failed to provide documentary evidence of business transactions. The Tribunal rejected this, holding that the law does not mandate filing return under section 139(1) to avail presumptive taxation benefits, nor does section 44AD require maintenance of books.

Conclusions: The addition under section 68 was unwarranted and was rightly deleted by the Tribunal.

Issue d: Denial of Credit for Self-Assessment Tax

The order does not elaborate on this issue in detail. However, since the appeal was allowed on the primary issues, it can be inferred that any denial of credit for self-assessment tax would be consequentially addressed in favor of the assessee.

Issue e: Charging Interest under Section 234B

Similar to issue d, the judgment does not specifically discuss the interest under section 234B. Given the deletion of the addition and the allowance of the appeal, charging interest for non-payment of tax on the disallowed income would no longer be justified.

3. SIGNIFICANT HOLDINGS

"A bare perusal of section 68 of the Act makes explicitly clear that the addition can be made under the section if, any sum is found credited in the books maintained by the assessee. That is the books should be that of the assessee. The 'books or books of account' have been defined in section 2(12A) of the Act. The same reads as under- Books or books of account includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device."

"The definition of books under the Act is inclusive. A perusal of the definition shows that the same does not include bank passbook or bank statement. A conjoint reading of above provisions would thus lead to the conclusion that the addition u/s 68 can be made only where any amount is found credit in the books as defined u/s 2(12A) of the Act maintained by the assessee."

"Since section 44AD did not obligate assessee to maintain books, the provisions of section 68 could not be invoked where assessee had filed return of income under the provisions of section 44AD without maintaining books of account."

"It is nowhere written in the law that the presumptive income can be availed only when the return is filed within due date as prescribed under section 139(1) and not after. The benefit of declaring presumptive income under section 44AD can justifiably be availed even in case of belated returns."

"Mere issuance of notice under Section 148 and filing of return under Section 44AD cannot be the basis of concealment of income."

Core principles established include:

• The reopening of assessment under section 147/148 requires valid reasons to believe escapement of income, which cannot be based solely on cash deposits that are already reflected in declared turnover.
• Additions under section 68 require sums credited in books of account maintained by the assessee; bank statements alone do not constitute books of account.
• Presumptive taxation under section 44AD can be availed even in belated returns and does not mandate maintenance of books of account.
• AO cannot disregard the presumptive income declared under section 44AD without cogent evidence.

Final determinations on each issue were in favor of the assessee, with the Tribunal deleting the addition of Rs. 49,88,748/- made under section 68, holding the reopening invalid, and allowing the appeal.