TMI Blog2020 (6) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... declared u/s 44AD - Thus no addition is warranted. - Decided in favour of assessee. - ITA No.150/Coch/2020 - - - Dated:- 9-6-2020 - Shri George George K, Judicial Member For the Appellant : Smt.Swathy H.Prasad For the Respondent : Sri.B.Sajjive, Sr.AR ORDER This appeal at the instance of the assessee is directed against the order of the CIT(A), dated 23.01.2020. The relevant assessment year is 2011-2012. 2. The solitary issue that is raised is whether the CIT(A) is justified in confirming the addition of ₹ 11,52,273 on account of unexplained investments made by the Assessing Officer. 3. Brief facts of the case are as follow: The assessee is an individual, who is engaged in running a houseboat for tourists under the name and style of Aria Holidays and Resorts. For the assessment year 2011-2012, the return of income was filed on 31.12.2011 declaring total income of ₹ 4,46,220, being 25% of the net profit u/s 44AD of the I.T.Act. The assessment was taken up for scrutiny by issuance of notice u/s 143(2) of the I.T.Act on 25.09.2012. During the course of assessment, the Assessing Officer called for explanation for the debits and credit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.f Loan repaid (SBT, Cherthala) 7,85,870 4.h Household expenses 1,50,000 LIC 2,668 Tax paid 9,260 Cash deficiency 11,52,273 21,30,798 21,30,798 6. The above revised cash flow statement prepared from the known sources of the assessee shows a deficiency of ₹ 11,52,273/- in the inflow side which represents assessee s unexplained expenses / investments. As can be seen from the replied, the assessee went on arguing that since she had declared the income under the provisions of section 44AD and instead of declaring 8%, she had declared 25% of the gross receipts which is already on the higher si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee failed to furnish cash flow statement and to substantiate with valid evidence the sources for these expenses/investments made during the year to the extent of ₹ 11,52,273/-. Accordingly the sum of ₹ 11,52,273/- expended / invested over and above receipts is treated as unexplained and the same is now brought to tax in assessee s hands. 4. Aggrieved by the addition of ₹ 11,52,273, the assessee preferred an appeal to the first appellate authority. The CIT(A) called for remand report from the Assessing Officer and on receipt of the same, confirmed the addition made by the Assessing Officer amounting to ₹ 11,52,273. The relevant finding of the CIT(A) reads as follow:- 4.4 The facts of the case, the grounds of appeal and the arguments of the Appellant have been considered. From the assessment order, it is evident that the Appellant had done transactions through National Commodity Exchange and had not disclosed the said transactions in the return of income. Therefore, the hands of the Appellant are not clean and it is evident from the facts brought on record that the Appellant is suppressing these transactions under the guise of disclosin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rival submissions and perused the material on record. The assessee is an individual, who is running a houseboat for tourists under the name and style of Aria Holidays and Resorts. The assessee filed return of income disclosing income of ₹ 4,46,224 u/s 44AD of the I.T.Act. There is no dispute that the assessee falls under the provisions of section 44AD of the I.T.Act since the turnover of the assessee is less than ₹ 1 crore from eligible business. The Assessing Officer also accepted that the assessee s case falls under the purview of section 44AD of the I.T.Act and accepted the income declared by the assessee at ₹ 4,46,224. However, the A.O. made addition u/s 69 of the I.T.Act. The Assessing Officer did not reject the books of account of the assessee. Section 44AD of the I.T.Act 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. (In the instant case the assessee has declared 25% of gross receipts). Section 44AD of the I.T.Act exempts the assessee from maintenance of books of accounts. The question t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / transfers and calculated the cash deficiency of ₹ 11,52,273. On a careful perusal of the cash flow statement prepared by the Assessing Officer, except for investments in Multi Commodity Exchange, Cochin Stock Exchange and Household expenses of ₹ 2,53,000, ₹ 25,000 and ₹ 1,50,000 respectively all other amounts considered as application, is directly or indirectly linked to the business of running houseboats. Therefore, the inclusion of the business transaction as unexplained investments / expenditure would go against the provisions of section 44AD of the I.T.Act. The Assessing Officer has also not considered the opening cash and bank balances as on 01.04.2010 and only the profits declared is considered as inflow in the cash flow prepared by him. The cash flow statement prepared by the A.O. is based on assumption and the same needs to be rejected. Moreover, in the cash flow statement, the A.O. has added household expenses to the tune of ₹ 1,50,000 (This is apart from household expenses declared by the assessee to the tune of ₹ 78,400). The Assessing Officer in the assessment order has stated as follows. - The assessee showed her household expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as declared the income of 8% under section 44AD of the I.T.Act by relying on the above Chandigarh Bench order, has held as follows. - 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 ₹ 94,04,685/- and the assessee has only explained ₹ 66,10,379/- and ₹ 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 DR that the turnover of the assessee has been doubted by the Assessing Officer is totally ill-found, in view of the same. 7.4 As me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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