Cash deposits in bank can be explained as out of gross receipts u/s 44AD from contract business. ITAT deleted addition made on the basis of peak cash credit
ABCAUS Case Law Citation:
ABCAUS 2818 (2019) (03) ITAT
The assessee had challenged the order of the CIT (Appeals) in confirming addition on the basis of peak credit for cash deposits in bank.
The assessee was an individual engaged in civil contract work. For the relevant AY he filed return of income declaring total income @ 8% on gross receipts from both government and private contract works.
The Assessing Officer (AO) noticed that the assessee had made deposits in his bank account in cash. When asked to explain the source of cash deposits in the bank account, the assessee attributed the same to the contract receipts which were deposited and withdrawn as per the requirements.
The AO, however, refused to accept the explanation of the assessee and he held that only income from executing the contract works can be explained as source and not the gross contract receipts.
The AO, thereafter, proceeded to work out the peak cash credit and made an addition to the income returned by the assessee.
On appeal by the assessee, the CIT(Appeals) confirmed the order of AO.
The Tribunal opined that though the assessee had not filed the cash flow statement regarding receipts from execution of contracts and outflow of cash, yet the fact remained that the assessee had huge receipts from execution of contracts and the sum deposited in the bank account can be explained as receipts from the contract business.
The Tribunal opined that the AO and the CIT(Appeals) were not justified in giving credits only for the profits earned from contract business at 8% of the receipts from contracts.
Accordingly the Tribunal deleted the addition made by the AO and allowed the appeal of the assessee.