The Income Tax Appellate Tribunal has issued a ruling stating that not all bank deposits under Section 44 AD should be automatically classified as taxable income. This decision emphasizes the need for tax authorities to assess the source and nature of these deposits before making any tax additions. The ruling aims to provide clearer guidelines for taxpayers and tax officials alike.
Instead, it allows income to be presumed based on business’s turnover/ gross receipts, subject to conditions of the provision. The tax department put his case under scrutiny based on the cash deposits made in his bank account during demonetisation . He further highlighted that the unsecured loans mentioned by the AO were from previous years. The ITAT judges found that the cash deposit figures prepared by the assessing officer (AO) were completely incorrect and did not match the bank records. They acknowledged errors in the Income Tax Officer’s data, and stated that every amount deposited in a bank account cannot be considered taxable income without examining its source and nature under Section 44AD. However, instead of cancelling the officer’s assessment, the tribunal remanded the matter to the tax officer for further verification.
Section 44 AD provides a presumptive taxation system for eligible small businesses, and does not require taxpayers to calculate taxable profit by maintaining detailed accounts for every individual business expense. The assessing officer added about ₹ 2.43 crore as bank deposits and credits, ₹ 71.87 lakh as unsecured loans and about ₹ 1.79 crore as loans and advances. Following this, the total estimated income of the businessman became around ₹ 5.09 crore, Navbharat Times reported. The taxpayer argued before the tribunal that the figures used by the officer were incorrect, and that the actual cash deposit in his bank account was only ₹ 89.16 lakh, not ₹ 2.43 crore.
