The Chennai Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that the entire bank credit of the assessee should be treated as business receipts for income estimation under Section 44AD of the Income Tax Act,1961. Rahimathulla Abdul Rahman, appellant-assessee, engaged in the iron and steel trading but did not  file return of income for the Assessment Year (AY) 2017-18.

During the scrutiny, it was found that the assessee had deposited a total of Rs. 129.98 Lacs in his bank account, which included Rs. 10.18 Lacs in cash deposits made during the demonetization period. Boost Your Business with SME IPO Funding Strategies – Enroll Now The Assessing Officer (AO) treated the sales turnover of Rs. 119.80 Lacs under Section 44AD, estimating business income at 8%, but added the Rs. 10.18 Lacs cash deposit as unexplained, considering it unrelated to the business.

The assessee argued that the cash deposits were sourced entirely from business transactions and therefore should not be considered as unexplained income. He contended that the income should be reasonably estimated based on the overall business receipts. However, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s order, granting only a partial relief of Rs. 2.5 Lacs on the cash deposit.The assessee being aggrieved by the order of the CIT(A) appealed before the tribunal. Boost Your Business with SME IPO Funding Strategies – Enroll Now During the hearing,the tribunal observed that there was no valid basis for differentiating between the business receipts and the cash deposits.

It concluded that the cash deposits were indeed part of the business activity. The two member bench comprising Manu Kumar Giri (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) directed the AO to treat the total bank credits of Rs. 1,29,98,619 as business receipts. The income was then to be estimated at 8% of the total business receipts, which amounted to Rs. 10,39,890/-. As a  result, the  tribunal partly allowed the appeal, modifying the assessment by including the entire amount as business receipts and adjusting the income accordingly.