INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “B”, HYDERABAD
ITA No. 581/Hyd/2013
Assessment Year: 2009-10
Kadigari Narasimha Reddy (Appellant) vs Income-tax Officer (Respondent)
Date of Order: 30-11-2015

ORDER

PER S. RIFAUR RAHMAN, A.M.:
Both these appeals filed by two assessees are directed against separate orders of CIT(A)-VI, Hyderabad, both, dated 24/01/2013 for the AY 2009-10. As the facts and issues involved in these appeals are common, the same were clubbed and heard together and, therefore, we find it convenient to dispose of these appeals by way of this common order.

2. To dispose of these appeals, we refer to the facts in case of Sri Kadigari Narasimha Reddy in ITA No. 581/Hyd/2013.

3. Briefly the facts of the case are that the assessee an individual, engaged in the business of civil construction and also partners in the M/s BVM Constructions filed his return of income declaring total income of Rs. 4,83,600, which includes remuneration of Rs. 3,00,000 and business profit of Rs. 3,01,920 declared u/s 44AD.

3.1 The main issue in this case is, AO noticed cash deposit of Rs. 31, 04,179 into the bank M/s Karur Vysya Bank, which was treated as unexplained cash credit. The assessee was summoned u/s 131 and sworn statement was recorded on 28/12/2011. The assessee was not able to explain the above cash credit and agreed to submit the same seeking more time. The assessment was completed u/s 143(3) on 31/12/2011.

4. On appeal, the ld. CIT(A) has dismissed the appeal by observing as under:

8.4 Coming to the facts of the case,' the appellant shown to have carried some civil contract works and for the year under reference, a turnover of Rs. 35,52,000/- was at attributed to such works, on which profit was estimated at Rs. 3,01,920 @ 8.5% as per the provisions of Sec. 44AD. The other income admitted is remuneration from M/s. BVM Construct ions, where he is a partner . During the year under reference, the appellant shown to have made certain deposits into bank account (bearing No. 1465172000000292) with Karur Vysya Bank, AS Rao Nagar Branch, Hyderabad, which was quantified at Rs. 31,04,179, and was treated as unexplained for not furnishing the required information. The appellant's quest ion is that where the turnover recorded by the appellant , for filing the return of income as per 44AD i.e. Rs. 35,52,000, which is higher than the amounts reflected though the said bank account (Rs. 31,04,179), the said amount cannot be treated as unexplained credits. The answer would be clear and straight if the quest ion is unambiguous. In this context, it is relevant to refer to the fact of the case that not only the assessee failed before the AO to explain the deposits into the bank account , with the help of the needed and relevant information. related to such contract works, by connecting such activity to the deposits but also failed to prove the same before the appellate authorities. No relevant information was filed before the CIT(Appeals) to indicate that the activity of contract works relate to the cash deposits, specially the cash deposits made into the bank account , referred above, except reiterating the theoretical explanations.
8.5 During the course of assessment proceedings the AO has questioned about the cash deficit statement of the appellant which was not elaborated in detail and time' was sought for explaining the same. The same stood unexplained during the appellate proceedings as well, inspite of the fact that certain details such as the details of receipts and payments appearing in the bank account, were requested from the appellant. Coming to the facts on this issue, it has been revealed that apart from the bank account bearing No. 14651720000000292, the deposits of which the AO has treated as unexplained credits, the appellant maintained another bank account bearing No. 1465155000003830, with the same bank i.e. Karur Vysya Bank, A.S. Rao Nagar , Hvderabad, in which the total deposit of Rs. 29,71,350/- was made during the year including the cash deposits of Rs. 29,60,000/- . Thus, the cash credits into both the accounts, take' the total credits to Rs. 60,64,179/- (Rs. 31,04,179 + 29,60,000). This fact is not denied by the appellant and as such it proves that provisions of Sec. 44AD do not apply for I the appellant, for the year under reference. Since the appellant failed to provide any information or evidence on carrying on the contract works, the credits into the bank accounts, cannot be termed as receipts of business and the same represent the unaccounted income of the appellant, being the unexplained cash credits.
8.6 Having examined the nature of the deposits into the bank accounts, which disproved to be the contract/business receipts, as claimed by the appellant, the profits related to on such receipts cannot be estimated on percentage method. In this context it is relevant to refer to the cash deficit account prepared by the appellant , confirming for both the bank accounts, as per which the peak of such deficit /negative cash balance as on 09.03.2009 stood at Rs. 28,05,679/- . The entries of the account for few of the relevant days for the FY are as under:
.........................
........................

Thus, it prove that there are no adequate receipts of business to the appellant during the year , to support the deposits, specially the cash deposits in the bank accounts and as such the cash deposits into the said bank accounts represent the unexplained income in the form of unexplained credits, for the year under reference. However, the quantum of such credits, found may be restricted to the amounts of Rs. 31,04,179 based on the peak of the deficit cash balances as referred. Thus the addition of Rs. 31,04,179 treating the cash deposits into bank accounts, as unexplained credits is sustained the appellant fails on this ground of appeal. ”

5. Aggrieved with the above order, assessee has raised the following grounds:

1. On the facts and in the circumstances of the case the order of the Commissioner of Income Tax (Appeals) is erroneous, illegal and unsustainable in law.
2. The CIT(A) erred in sustaining the addition of Rs.31,04,179 made by the AO as unexplained cash credits. The CIT(A) failed to appreciate that the appellant in his individual status had handled only small miscellaneous works and it is not practical to have contracts. for such works.
3. The finding of the CIT(A) that the deposits in the bank accounts of the appellant does not relate to contract receipts but is unaccounted income and therefore there is no need of estimation of income is incorrect and unsustainable on the facts of the case.
4. The CIT(A) erred in holding that the credits in the bank accounts of appellant exceeded Rs. 40 lakhs and therefore the provisions of section 44AD of the I.T. Act would not apply.
5. The findings of the CIT(A) with respect to furnishing of information before the AO and so also before him, is factually incorrect. The CIT(A) had convenient ly twisted the facts to suit his convenience while giving above findings which are far from true. ”

6. Ld. AR submitted that the assessee is in the small civil construction business and not able to maintain books as well as able to maintain small contracts, which is practically difficult in this line of business. He submitted that the unexplained cash is nothing but the cash receipts from the civil construction business carried on by the assessee. Ld. AR also submitted that the CIT(A) was wrong in holding that the provisions of section 44AD would not apply when the cash deposit exceeds Rs. 40 lakh.

7. Ld. DR, on the other hand, relied on the order of CIT(A).

8. Heard arguments of both the sides and perused the material on record as well as the orders of revenue authorities. There is no doubt that the assessee is engaged in the small civil construction business and may have received the payments through cash. There is no dispute that assessee has offered the civil construction business u/s 44AD.

8.1 On the other hand, CIT(A) established during the appellate proceedings that the cash deposits were Rs. 60,64,179 in the same year. The assessee was holding another account with the same bank for which the assessee failed to elaborate or explain this findings. This finding of the CIT(A) was not correct since the AO himself prepared the cash deficit statement considering two bank accounts of the assessee. He himself confirmed the same in the next para No. 8.6. The views of the CIT(A) is not considered for further discussion of this matter.

8.2 AO had prepared the cash deficit statement. He had considered only the peak deposit for addition, narrating as ‘has no reference’. AO had completely overlooked the type of business in which assessee is dealing with. Assessee had declared his income on estimation basis @ 8.5%. The gross receipt of the business was Rs. 35,52,000/-. AO also totally ignored the fact that assessee also withdraws cash regularly. The closing balances in the bank accounts reaching the minimum level shows that the assessee utilizes the same for running business.

8.3 The statutes allows and gives benefits to the small business people like the assessee to estimate their income so that they fulfil the statutory obligation of taxation and they also enjoy the benefits like, they don’t have to maintain books of account as stipulated u/s 44AA, they are not subject to payment of advance tax under the provisions of Chapter – XVII – C.

8.4 As far as the cash deposits in the bank are concerned, we have noticed that the assessee has gross receipts of Rs. 35,52,000/- from the construction business, which was not doubted by the tax authorities. In this line of business, contractors do get advances to execute the works undertaken by them. AO/CIT(A) had taken the cash deficit method to arrive the undisclosed income. This is not the right method. They should have investigated whether assessee retains the deposits for long period as unutilized. On analyzing the bank statement, we find that following the deposits, assessee also made several withdrawals both by cheque as well as by cash. Even to the extent of Rs. 15 lakhs in a day. In the civil business contract, they have to make payment for labour and materials invariably by cash

8.5 The cash deposit as per peak deficit cash balance stood as on 09/03/09 was Rs. 28,05,679/-. It reduces to Rs. 8,80,000/- by 20/03/09. Subsequently, there was cash withdrawals as well. Tax

authorities are going by one side of accounting and completely overlooking the other side. Considering the gross receipts of the business and peak deficit cash balance, we reject the method adopt by the AO and consider that the cash deposits were made only for the business and further utilized only for the business.

8.6 There are conditions for the applicability of section 68 are:
i) the existence of books of account maintained by the assessee himself.
ii) credit entry in the books of account and
iii) the absence of a satisfactory explanation by the assessee about the nature and source of the sum credited.

8.7 The first condition is that assessee should maintain the books of account. In the present, case assessee estimates the income and hence, there is no need to maintain books of account. It fails in the first condition itself. The bank statement is not the books of account. Not necessarily the gross receipts alone should be credited in the bank passbook, in the business, they also get advances for future contracts and assessee gets the benefit of doubt because of the small scale business and estimation of profit u/s 44AD.

9. In view of the above observations, we set aside the order of CIT(A) and allow the appeal of assessee.

9. In the result, appeal of assessee is allowed.

ITA No. 582/Hyd/2013

10. As the facts and grounds in this appeal are materially identical to that of ITA No. 581/Hyd/2013, following the conclusions drawn therein we allow the appeal of the assessee.

11. In the result, both the appeals under consideration are allowed.

Pronounced in the open court on 30th November, 2015.
(P. MADHAVI DEVI)     (S. RIFAUR RAHMAN)
JUDICIAL MEMBER    ACCOUNTANT MEMBER