Facts of the Case

Based on AIR information, the Department found that the assessee had deposited ₹35,17,115 in a savings bank account but had not originally filed a return of income for the relevant year. Reassessment proceedings under section 147 were initiated.

The assessee later filed a return in response to notice under section 148 declaring income of ₹3,17,310 under section 44AD at 8% on gross receipts of ₹32,76,000 from trading in fruits and vegetables. The Assessing Officer, however, rejected the claim of business activity due to lack of supporting documents such as Mandi license, trade tax registration, purchase and sales details, and treated the entire deposits as unexplained income. The CIT(A), NFAC upheld the addition.

 Issues Involved

  1. Whether cash deposits can be taxed as unexplained when the assessee declares income under the presumptive scheme of section 44AD.
  2. Whether absence of detailed documentary evidence defeats a presumptive taxation claim.
  3. Whether the Department can depart from its earlier acceptance of similar income in preceding assessment years.
  4. Whether credits in bank accounts of presumptive taxpayers can be examined under sections 68/69.

 Petitioner’s Arguments

The assessee contended that he was engaged in trading of fruits and vegetables, a business accepted by the Department in earlier scrutiny assessments for AYs 2009-10 and 2010-11 under section 143(3). He argued that under section 44AD, maintenance of books of account is not mandatory, and therefore inability to produce detailed records could not justify treating deposits as unexplained.

It was further submitted that fruits and vegetables are exempt from trade tax and that, as a trader (not an Aarathia), he was not required to obtain a Mandi license. The deposits represented business receipts and withdrawals from the same account. Reliance was placed on judicial precedents holding that once presumptive taxation is applied, individual cash entries need not be separately explained.

 Respondent’s Arguments

The Revenue argued that the assessee had not filed the return voluntarily and failed to furnish evidence proving the existence of business. Therefore, the Assessing Officer rightly treated the deposits as unexplained income from undisclosed sources.

 Court Order / Findings (ITAT Allahabad)

The Tribunal held that taxpayers eligible for section 44AD are not required to maintain regular books of account. Consequently, examination of individual bank credits under sections 68 or 69 is generally not warranted if the deposits represent business receipts.

The assessee had filed returns in response to notices under section 148 for multiple years claiming presumptive income, and similar deposits had been accepted in earlier scrutiny assessments.

 On Principle of Consistency

The Tribunal empasized that the Department had already acknowledged the assessee’s business in preceding years as a fruit and vegetable trader. Without evidence showing that the business had ceased or that the assessee was ineligible for presumptive taxation, it was improper to treat similar deposits in the current year as unexplained.

 On Lack of Documentary Evidence

The Tribunal observed that the Assessing Officer demanded documentation inconsistent with the nature of the business and the presumptive taxation scheme. The assessee’s explanation regarding exemption from trade tax and absence of licensing requirements was not disproved by the Department.

Final Decision

Holding that the Assessing Officer failed to conduct sufficient enquiries to disprove the existence of the business, the Tribunal deleted the addition of ₹35,17,115 and directed assessment of income as per section 44AD based on the return filed by the assessee. The appeal was allowed.

Important Clarification

The Tribunal clarified that failure to file a return voluntarily may justify levy of interest or penalty but does not authorize the Department to disregard a consistent business history or deny presumptive taxation without evidence of ineligibility. Deposits consistent with accepted business turnover cannot be taxed as unexplained income.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771065171_AMITCHOPRAALLAHABADVS.ITO11ALLAHABAD.pdf

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