Facts of the Case

The assessee, a small transport dealer, filed returns showing modest income from plying trucks. Information from AIR indicated substantial cash deposits in his bank account. For Assessment Year 2009-10, deposits of ₹1,14,10,112 were noticed. Due to non-response, the Assessing Officer assessed the entire amount as income and initiated penalty proceedings under Section 271(1)(c).

The assessee later explained that he owned two trucks and earned freight income taxable under Section 44AE. He also claimed to earn transport commission income. However, documentary evidence supporting commission activity was not furnished.

Appeals before the Commissioner (Appeals) were dismissed, including penalty proceedings. After earlier restoration by the Tribunal, the CIT(A) again dismissed the appeals citing non-compliance.

For Assessment Year 2011-12, similar issues arose. Deposits in the bank account were treated largely as unexplained, except for a portion attributed to transportation business.

 Issues Involved

  1. Whether deposits representing truck freight could be taxed under presumptive provisions of Section 44AE.
  2. Whether the assessee was required to maintain books or audit under Sections 44AA/44AB when covered by Section 44AE.
  3. Whether deposits attributed to transport commission business could be accepted without documentary evidence.
  4. Whether penalty under Section 271(1)(c) was sustainable.
  5. Whether matters required re-examination by the Assessing Officer.

 Petitioner’s Arguments (Assessee)

The assessee contended that:

  • He owned two trucks and income from their operation was correctly declared under Section 44AE.
  • Section 44AE exempts eligible transport operators from maintaining books of account or undergoing audit.
  • Cash deposits represented freight receipts and transport commission.
  • Due to lapse of many years, detailed documentation could not be produced.
  • Earlier compliance had been made before appellate authorities.

Registration certificates of the trucks and copies of earlier returns were also produced to substantiate the claim of transport business.

 Respondent’s Arguments (Revenue)

  • Persistent non-compliance by the assessee.
  • Absence of supporting evidence for commission income.
  • Large unexplained deposits in bank accounts.

It was argued that without proof of business activity, the deposits could be treated as income.

 Court Order / Findings (ITAT Allahabad)

1. Truck Income (Section 44AE)

  • The assessee owned two trucks and declared income under Section 44AE.
  • Section 44AE specifically exempts such taxpayers from maintaining books or audit.
  • Therefore, additions ignoring this statutory scheme were unsustainable.
  • Deposits attributable to truck freight turnover were entitled to presumptive treatment.

2. Transport Commission Income

  • Commission income is not covered under any presumptive taxation scheme.
  • The assessee failed to produce evidence of clients, contracts, or business activity.
  • Therefore, the claim could not be accepted without verification.
  • The matter was remanded to the Assessing Officer to examine evidence and determine whether deposits represented turnover or income.

3. Penalty Proceedings

Since the quantum issues were restored, penalty proceedings were also remanded for fresh decision after final determination of income.

4. Assessment Year 2011-12

  • Similar directions were issued.
  • The assessee was required to produce bank statements and explain deposits in relation to transportation business.
  • Deposits from commission activity also required verification.

 Important Clarification

  • Section 44AE provides a complete presumptive scheme for small transport operators owning up to the specified number of goods vehicles.
  • When applicable, requirements of Sections 44AA and 44AB regarding books and audit do not apply.
  • Commission income must be supported by evidence unless covered by a presumptive scheme.
  • Bank deposits cannot automatically be treated as income if they represent business turnover.
  • Penalty proceedings depend on the final outcome of quantum additions.

 Final Outcome

 Relief granted for deposits attributable to truck business taxable under Section 44AE
  Issue of transport commission deposits remanded to Assessing Officer for verification
  Penalty proceedings restored for fresh consideration
  Appeals partly allowed / allowed for statistical purposes

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771064850_DILSHADHUSAINALLAHABADVS.ACITCIR.1ALLAHABAD.pdf

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