The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) held that addition under Section 69 of the Income Tax Act was not justifiable when the income was estimated under Section 44 A.D of the Income Tax Act,1961.
The assessee Mahendra Kumar, an individual engaged in the business of distribution and sale of pharmaceuticals and medicines on rental basis filed its return of income on for Assessment Year 2017-18 by declaring an income of Rs.8,27,300/-.
During the course of assessment proceeding, notice under Section 143(2) of the Income Tax 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 Income Tax Act and Rs.10,85,157/- upon estimation of income under Section 44AD of the Income Tax Act at 8% of the sales and the difference between the total income declared and the income estimated.
The Assessing Officer (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 Income Tax Act treating as unexplained cash credit was made.
Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax Appeals[CIT(A)],which confirmed the order of AO, further aggrieved the assessee filed an appeal before the Tribunal.
The Authorised Representative of the assessee appearing relied on judgement passed by Cochin Bench in the case of Thomas Eapen.
The Representative of the Department relied upon the order passed by the authorities below.
The Bench comprising of Chandra Poojari, Accountant Member and Ms. Madhumita Roy, Judicial Member refered the decision of the Cochin Bench that addition under Section 69 of the Income Tax Act was not justifiable when the income was estimated under section 44 A.D of the Income Tax Act.
It was observed that 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 AO has not accepted this income offered by the assessee from business. He considered the income of the assessee under Section 44AD of the Income Tax 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/-.
The Bench further held that once the 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 under Section 68 or 69 of the Income Tax Act.
Further, the Tribunal noted that the AO made addition under Section 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.
Accordingly, the addition was deleted and so the appeal of the assessee was allowed.
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