No Addition can be made on Account of Unexplained Closing Cash filed u/s 44AD of Income Tax Act: ITAT [Read Order]

The Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) has recently held that no addition could be made on account of an unexplained closing case filed under Section 44AD of Income Tax Act 1961.

Section 44AD defines the Presumptive Taxation Scheme. The presumptive taxation scheme under these provisions can be opted for by the eligible assessee who is engaged in any business and whose turnover or gross receipts from such business does not exceed the limit of audit prescribed under Section 44AB of the Act.

Assessee Shailesh Popatbhai Katrodiya, is an individual and claimed to be an agriculturist.

Assessee has filed the belated return of income for the year under consideration dated 26/11/2016 declaring an income of ₹2,66,710/- only.

The income tax return was filed by the assessee under the provisions of Section 44AD of the Act disclosing the closing cash balance .

As per the assessee, the income tax return was filed under Section 44AD by the accountant inadvertently.

As such, the assessee being an agriculturist was not under the obligation to file the income tax return. The assessee to support his contention has filed form No. 7/12 and 8A to demonstrate the landholding and sales bills of the agricultural produce.

Thereafter the assessing officer without considering the contentions of the assessee observed that the income tax return was filed belatedly in order to justify the cash deposits of ₹10,20,000/- during the demonetization period.

Thus, AO treated the amount of ₹7,81,648/- shown as closing cash balance as unexplained cash credit under section 68 of the Act and accordingly made the addition to the total income of the assessee.

Aggrieved assessee filed an appeal before the CIT(A).

Before the CIT(A), assessee submitted that he did  not carry out any business activity and he is depending only upon the agriculture income for which he does not maintain any cash book and other books of accounts.

However, the CIT-A disregarded the contention of the assessee and confirmed the addition made by the assessing officer. Being aggrieved, the assessee filed a second appeal before the tribunal.

M.K. Patel, counsel for the assessee submitted that revenue has not brought anything on record suggesting that the cash balance was generated from the activity other than the agricultural activity. Also the cash balance shown at the end of the financial year did not itself represent the income.

Sanjay Kumar counsel for the revneue supported the order of the authorities below.

The provisions of section 44AD are applicable to such resident assessee who is an Individual, Hindu Undivided Family and Partnership Firm but not Limited Liability Partnership Firm.

It was observed by the tribunal that the cash balance shown at the end of the financial year represents the cash available with the assessee out of various transactions carried out by him in the relevant financial year.

Moreover, assessee generally receives cash against the sales and makes payments for the purchases and other expenses. Whatever is left at the end of the financial year is shown as closing cash balance.

Therefore, the tribunal of Waseem Ahmed, Accountant Member held that the “revenue failed to discharge the onus imposed upon it to disprove the contention of the assessee. Thus, it is transpired that whatever cash was available with the assessee was out of the agricultural activity of the earlier years carried out by him.”

To Read the full text of the Order CLICK HERE

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