Presumptive tax u/s 44AE – No addition for cash deposit in bank out of business receipts unless rebutted

Presumptive tax u/s 44AE – No addition for cash deposit in bank made out of business receipts unless rebutted by cogent findings

ABCAUS Case Law Citation:
ABCAUS 3197 (2019) (12) ITAT

Important case law relied upon by the parties:
CIT vs. Nitin Soni (2012) 21 taxmann.com 477.

The instant appeal was filed by the assessee against the order of the Commissioner of Income Tax [Appeals] in upholding the addition of unexplained cash credits u/s 69 of the Income tax Act, 1961 (‘The Act’) despite the fact that that the assessee had offered income from lorries u/s 44AE on presumptive basis and that he was not legally required to maintain regular books of account under the provisions of section 44AA of the Act.

The appellant was an individual engaged in the business of hiring and plying of lorries. The assessee had not filed his return of income voluntarily u/s.139 (1) for the relevant AY. Based on the information received by the Assessing Officer (AO) that assessee had deposits in two bank accounts formed an opinion that income got escaped assessment to tax and accordingly a notice u/s. 148 of the Act was issued and served on the assessee.

In response to the notice, the return of income was filed. The assessment was completed by the Income Tax Officer vide order passed u/s. 143(3) r.w.s. 147 of the Act after making addition as unexplained cash deposits in the said bank accounts rejecting the explanation of the assessee that deposits were made out of gross receipts earned from the business of hiring and plying of lorries.

Before the Tribunal, the assessee submitted that the cash deposits in the banks accounts were made out of the gross receipts from the business of hiring and plying of lorries. Since the return of income was filed under the provisions of Section 44AE of the Act i.e. under presumptive rate of tax, the question of any further addition did not arise.

On the other hand, the Revenue submitted that assessee had failed to disclose said bank accounts and therefore the cash deposited in the Savings Bank accounts has no nexus with the receipts from the business carried on by him and the addition was made under the head ‘’income from other sources’’ and therefore decision of Hon’ble High Court relied upon by the assessee had no application to the facts of the present case.

Presumptive tax u/s 44AE – No addition for cash deposit in bank out of business receipts 

The Tribunal opined that once the assessee opts for presumptive rate of tax u/s.44AE, no further addition can be made in respect of business of plying and hiring of lorries. However, apparently, in the instant case, the addition was related to unexplained deposits made in SB accounts which fall under the head ‘’income from other sources’’.

The Tribunal noted that the explanation of the assessee was that cash deposits were made out of business receipts requires to be established by proving nexus between cash deposited on the bank accounts and business receipts. The Assessing Officer had not rebutted the submissions of the assessee by cogent findings.

Therefore, the Tribunal remanded the matter back to the file of the Assessing Officer with a direction to examine whether or not, there is nexus between business receipts and deposits made in the SB accounts. In the absence of any such nexus the Assessing Officer could be justified in making the addition.

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