The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that no addition can be made under section 68 of the Income Tax Act, 1961 based on turnover declared under 44 AD of the act.
The revenue challenged the order of Commissioner of Income Tax, Appeals, / National Faceless Appeal Centre [the CIT(A)]. The assessee, Shri Kalpesh Kantilal Gada is a partner in R.K. Construction, B.K. and K.K. Developers and K.K.Tex Enterprises and during the year the assessee also carried out trading in Grey clothes. For the assessment year 2017-18 the assessee has disclosed income under section 44AD of the Income Tax Act (the Act) declaring a profit of Rs.15,11,950 against a gross receipt of Rs.1,88,98,744. The assessee filed the return of income for assessment year 2017-18 on 02.01.2018 declaring total income of Rs.15,53,600. The case was selected for scrutiny under CASS and the statutory notices were duly served on the assessee.
During assessment proceedings, the assessing officer noticed that assessee has deposited an amount of Rs.1,96,87,000 in the bank account with Axis Bank. The assessee submitted before the assessing officer the cash deposits are arising out of cash income generated from his trading activity. The assessee also submitted various details with regard to his trading activity such as sales register, stock statement, purchase register etc. The assessing officer after perusing the details furnished by the assessee treated the trading activity of the assessee as non-genuine and accordingly made an addition of the entire turnover of the assessee from trading activity to the tune of Rs.1,88,98,744 under section 68 of the Act.
The CIT(A) allowed the appeal in favour of the assessee by holding that the additions under section 68 cannot be made in the case where the assessee has declared income under section 44AD of the Act.
The revenue argued that CIT has erred in deleting the addition made u/s 68 of the Income-tax Act, 1961 to the tune of Rs. 1,88,98,744/- shown as sales turnover by the assessee in cash generated from his non-existent trading activity.
On the facts and circumstances of the case, CIT(A) has erred in not appreciating the facts that mere filing of ITR under section 44AD of the Act, the assessee cannot claim any credits or debits in his bank a/c as business related sales or expenditure respectively since assessee has failed to prove the genuineness of his business nature and purpose of credits and debits in his bank a/c.
The assessee has declared the income from trading in grey clothes under section 44 AD of the Act whereby the assessee is not required to maintain any books of accounts. The Ld. AR further submitted that for the purpose of making an addition under section 68 of the act, the amount should have been credited in the books of accounts for which the assessee does not have proper explanation about the nature and source.
The assessee in the year under consideration has declared income under section 44AD of the act with regard to the trading activities since the turnover from the trading activity is less than Rs.2 crores. The assessee has declared income on presumptive basis under section 44AD and therefore the requirement for maintenance of books of accounts does not arise.
It was viewed that addition under section 68 cannot be made in the assessee’s case since the assessee has offered income on an estimation basis under section 44AD of the act.
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.
A two-member bench comprising Shri Narender Kumar Choudhry, JM & Ms Padmavathy S, Am viewed that the addition made by the assessing officer under section 68 of the entire turnover which the assessee declared under section 44 AD of the act is not tenable. The Tribunal deleted the addition made by the assessing officer and dismissed the appeal of revenue.
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