Addition u/s 69A for solely cash deposits in bank account deleted as it was covered by income declared u/s 44AD of the Act
In a recent judgment, ITAT Rajkot held that AO erred in making addition under section 69A of the Income Tax Act, 1961 solely on the basis of cash deposits in the bank account without credit to the extent of the income already taxed in the return of income filed by the assessee under section 44AD of the Act.
ABCAUS Case Law Citation:
4802 (2025) (10) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition made by the Assessing Officer (AO) as unexplained money u/s 69A towards cash deposit in bank.
The assessing officer was in possession of information that during the relevant previous year the assessee had deposited large amount of cash in his bank account. However, assessee had not filed his return of income within the time frame as provided under the provision of section 139(1) of the Act. Therefore, assessing officer initiated assessment proceedings u/s 147 of the Act and issued notice u/s 148.
The AO did not accept the reply of the assessee and completed of reassessment u/s 143(3) r.w.s. 147 of the Act vide impugned order bringing to tax cash deposits as unexplained money u/s 69A of the Act.
Before the Tribunal the assessee submitted that during the assessment proceedings, he had submitted a detailed explanation of the cash deposits, including particulars of his trading activity, details of customers including address and phone number of the parties, and the method of business at the time of assessment proceeding.
It was further argued that assessee is a simple person doing small business and was not familiar with income tax rules and procedures. The assessee genuinely believed that he was not required to file a return of income, as his income was below the maximum amount which is not chargeable to tax.
It was contended that the assessing officer passed the order by making addition under section 69A of the Act, without bringing any contrary evidence or conducting independent verification of the names, addresses and contact details of customers already furnished by the assessee, during the assessment proceedings.
It was also submitted that the assessee had already shown gross business receipts of more than amount of cash depoists in the return filed under section 148, as per section 44AD of the Act and paid the taxes thereon. Therefore, the assessing officer erred in passing the order without giving credit for the income which was already declared by the assessee in the return filed under section 148 of the Act. The income was offered under the presumptive taxation scheme as per section 44AD of the Act, therefore, further addition should not be made in the hands of the assessee.
The Tribunal observed that on account of cash deposited in the bank account, the assessee had shown turnover and paid the taxes (including other income), under section 44AD of the Act.
The Tribunal further noted that despite the return being filed under section 44AD of the Act, where books of accounts are not required, to be maintained and business involving normal cash transactions, both, assessing officer as well as CIT(A) ignored these facts.
The Tribunal opined that assessing officer, had erred in passing the order by making the addition solely on the basis of cash deposits in the bank account, without considering the corresponding cash withdrawals made from the same account for the purpose of retail business of the assessee. Also, assessing officer had not given credit to the extent of the income already taxed in the return of income filed by the assessee under section 44AD of the Act.
The Tribunal quoted the judgment of Hon’ble Supreme Court where his Lordship applying the legal maxim of ex majorie cautela stated that “the taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not in a partisan manner. Although, it is a part of the duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time act in a manner that might indicate scales are weighed against the assessee. We are wholly unable to subscribe to the view that unless those authorities exercise the power in a manner most beneficial to the revenue and subsequently most adverse to the assessee they should be deemed not have exercised it in a proper and judicial manner.”
The Tribunal held that the assessee had paid the legitimate taxes on the cash deposit in the bank account by showing the turnover and paid the taxes under section 44AD of the Act. Therefore, assessee did not have any further liability to pay the tax.
As a result, the appeal was allowed.
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