The Amritsar Bench of Income Tax Appellate Authority ( ITAT ) ruled that Section 68 of the Income Tax Act,1961 can only be invoked if the taxpayer maintains books of accounts. In this case, the assessee filed an income tax return under Section 44AD which does not require books of accounts.
Ishtiaq Ahmad Rather, the assessee engaged in retail trading of hardware and ceramics, filed a presumptive income return under Section 44AD of the Income Tax Act for the assessment year 2016-17.
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The assessing officer found that the assessee had deposited Rs.1195000 and Rs. 8658000 in the HDFC savings bank accounts. The assessing officer scrutinized and completed the assessment by adding Rs. 9853000 as unexplained cash deposits.
Aggrieved by the AO’s decision, the assessee appealed before the Commissioner of Income Tax (Appeals). However, the CIT(A) confirmed the addition and dismissed the assessee’s appeal.
The assessee challenged the CIT(A) order before the Amritsar Bench of ITAT arguing that the cash deposits were part of the business income and they were adequately explained through sales.
The assessee’s counsel submitted a reconciliation statement showing that the deposits were either cash withdrawals from the same accounts or transfers between the two accounts.
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The counsel further argued that the return was filed under the presumptive taxation scheme ( Section 44AD ) which allows the assessee to declare income on a presumptive basis without the requirement to maintain detailed books of accounts.
The counsel argued that Section 68 can only be invoked where the assessee maintains regular books of account. Thus the addition made under Section 68 was invalid.
The two-member bench comprising M.L. Meena ( Accountant Member ) and Udayan Dasgupta ( Judicial Member ) observed that Section 68 of the Income Tax Act applies only when books of accounts are maintained. Therefore, the application of Section 68 was incorrect as the assessee filed returns under Section 44AD of the Income Tax Act.
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The tribunal found that the cash deposits were matched by equivalent withdrawals, and the assessee was entitled to the telescoping benefit.
Thus, the tribunal deleted the addition of Rs. 9,853,000 made under Section 68 of the Income Tax Act, and the penalty of Rs. 3,271,507 under Section 271(1)(c) was also deleted. The assessee’s appeal were allowed.
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