By TIOL News Service

KOLKATA, FEB 22, 2017: THE ISSUE IS - Whether additions can be made on the gross value of cash deposits, when such deposits represents assessee's turnover and the same did not breach the profit limit prescribed by Section 44AD. NO is the answer.

Facts of the case:

The AO taking note of the ITS observes that the assessee has deposited Rs.16,88,500/- in cash. The assessee explained that the sale of the products and related expenditure were duly reflected in the accounts and as the security deposit has been refunded after adjustment and since there was no balance left at the year end, so, no reflection of the said deposit was made in the balance sheet. The AO notes that the assessee in fact has submitted the list of parties from whom the assessee has claimed to have received funds. However, according to the AO the assessee failed to produce any confirmation from these parties. So according to the AO the receipt of fund from the farmers is an afterthought story of the assessee and so the entire deposit of cash of Rs.16,88,500/- Branch was treated as unexplained money and was added back to the total income of the assessee. The assessee has introduced Rs. 1,50,000/- as fresh capital. According to the AO, since the assessee could not support his submission by any documentary evidence he added the same back to the total income of the assessee. Thus making an addition of Rs. 1,50,000/- The CIT(A) restricted the addition from Rs. 16,88,500/- to Rs. 2,02,620/- by estimating the income at 12% of the turnover of Rs. 16,88,500/- and thus he confirmed Rs. 2,02,620/- in place of Rs. 16,88,500/- made by the AO. In respect to Rs. 1,50,000/- on account of fresh capital introduced the CIT(A) has confirmed it.

On appeal, the ITAT held that,

++ the assessee has an opening balance of Rs. 29,70,215/- during the relevant A.Y various withdrawals and cash deposits were made from time to time and the total deposits at any given point of time was less than the preceding aggregate of withdrawals. So, the CIT(A) rightly held that no addition of the gross value of the cash deposit can be made since the deposits of amount represents the turnover of the appellant. It was not disputed by the department that the assessee's turnover does not breach the profit and gains limit prescribed by Section 44AD and, therefore, special provision for computing profit and loss accounts of business on presumptive basis as prescribed u/s 44AD is attracted in this case and, therefore, we estimate the income of the assessee at 8% of the turnover which come to Rs. 1,35,440/-. However the assessee has introduced Rs. 1,50,000/- as capital in his assessment order. Since the assessee has stated before the AO that the capital introduction of Rs. 1,50,000/- is from the funds generated during the instant assessment year, the income of the assessee should be treated as Rs. 1,50,000/- in place of Rs. 2,02,620/- as confirmed by the CIT(A). Thus, we restrict the income of the assessee in respect to the deposit of Rs. 16,88,500/- to Rs. 1,50,000/-;

++ since we have estimated the income of the assessee is Rs. 1,50,000/-, it would be just and proper to treat the capital introduction to be same as the fund generated during the year and, therefore, no separate addition to be made on capital introduction by the assessee and so delete the addition confirmed by the CIT(A) of Rs. 1,50,000/-.

(See 2017-TIOL-160-ITAT-KOL)