INCOME TAX ACT, 1961

Section 69 Section 69C

Income from undisclosed sources - Addition under section 69/69C - Unexplained investment/expenses - Assessee having declared income @ 8% under section 44AD

Assessee was running a houseboat for tourists and her case fell under the purview of section 44AD and AO accepted income declared by assessee at Rs. 4,46,224, However, AO made addition under section 69. Taking note of cash deficiency of Rs. 11 lakhs in cash flow statement prepared by assessee made addition on account of unexplained investment. Also, AO added household expenses to the tune of Rs. 1,50,000 apart from household expenses declared by assessee to the tune of Rs. 78.000) because as per household expenses shown at Rs. 78,400. Considering her social status, standard of living, etc., this is very low.Held: On a careful perusal of cash flow statement prepared by AO except for investments in Multi Commodity Exchange, Cochin Stock Exchange and Household expenses of Rs. 2,53,000, Rs. 25,000 and Rs. 1,50,000 respectively all other amounts considered as application, was directly or indirectly linked to the business of running houseboats. Therefore, inclusion of business transaction as unexplained investments/expenditre would go agianst provisions of section 44AD. AO had also not considered opening cash and bank balances as on 1-4-2010 and only profits declared was considered as inflow in the cash/flow prepared by him. Cash flow statement prepared by AO was based on assumption and same was to be rejected moreover. Estimation made by AO for household expenses was totally arbitrary and without any supporting evidence especially when in hands of assesse's husband a sum of Rs. 2,50,000 was estimated as household expenses. In such circumstances of the case, no addition was warranted especially when 8% of gross receipts are 'deemed' income of assessee, under section 44AD the remaining 92% are also 'deemed' expenditure of assessee, meaning thereby that actual expenditure may not be 92% of gross receipts, only for the purposes of taxation, it is considered to be so.

Supported by:Thomas Eapen v. ITO [ITA No. 451/Coch/2019 - Order dated 19-11-2019] : 2019 TaxPub(DT) 7895 (Coch-Trib) and Nand Lal Popli v. Dy. CIT [ITA Nos. 1161 and 1162/Chd/2013 - Order, dated 14-6-2016] : 2016 TaxPub(DT) 3022 (Chd-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

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