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Facts
The assessee, engaged in trading waste home products, filed return under Section 44AD. The AO made an addition on account of alleged bogus purchase bills from M/s. ARS Enterprises, which was confirmed by the CIT(A). The assessee contended that purchases details are not maintained under Section 44AD and the AO relied solely on GST information without independent enquiry.
Held
The Tribunal held that when income is offered under Section 44AD, the assessee is not obliged to maintain books of account or explain individual purchase entries, especially when the turnover does not exceed the prescribed limit and the gross receipts are undisputed. The AO's addition based on third-party information without independent verification was not sustainable.
Key Issues
Whether addition on account of alleged bogus purchases is permissible when the assessee has opted for presumptive taxation under Section 44AD and has not maintained detailed purchase records.
Sections Cited
44AD, 143(3), 144B, 139
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Income Tax Appellate Tribunal, “SMC” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI
This appeal is filed by Lakshmanram Bheemaji Purohit (the assessee/appellant) for the assessment year 2018-19 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 30.9.2024 wherein the appeal filed by the assessee against the assessment order passed u/s. 143(3) of the Income- tax Act, 1961 [the Act] dated 28.9.2021 by the National e-Assessment
Centre was dismissed. Therefore, assessee has filed appeal raising the following grounds of appeal:-
“1. On the facts and circumstance of the case in law the Ld .CIT (A) has erred in confirming addition of Rs.16,06,692/-on account of alleged purchase despite of facts that assesse is covered under section 44AD of the I.T act.
On the facts and circumstance of the case in law the Ld. CIT(A) has erred in confirming addition whereas no disallowance can be made when assesse was covered under section 44AD.
3. On the facts and circumstance of the case in law the Ld.CIT (A) has erred in confirming addition of Rs.16,06,692/-on account of alleged purchase.
4. The assessee craves leave to add, alter or amend the existing grounds of appeal
on or before the date of hearing.”
2. The appeal before us was filed late by 65 days. Assessee has filed an application for condonation of delay along with Affidavit. The main reasons state that the assessee did not have any knowledge of taxation and legal procedure as he was not having any formal education and his case was handled by one, CA Ramesh Nanawati, who was residing in Chennai and managing all taxation and financial compliances. The order of the CIT(A) was passed on 30.9.2024 and the CA advised not to file an appeal. Thereafter, based on the advise of the CA, assessee did not prefer the appeal and also did not consider consulting somebody else. When the assessee approached and discussed his case with another CA, it was advised that assessee has good case to succeed and advise given by earlier CA that assessee does not have any chance to succeed is incorrect. The assessee was a small person, he immediately filed appeal on the basis of advise of the new CA on 3.2.2025 which caused delay of 65 days. It was submitted that wrong advise of CA is sufficient cause in filing of the appeal late. Reliance was placed on the decision of the Hon’ble Bombay High Court in 86 taxmann.com 98. It was also submitted that as per principle laid down in the decision of Hon’ble Supreme Court in 167 ITR 471, the delay is for bonafide reason and therefore should be condoned. To support that assessee was given a wrong advise, assessee has also submitted a Certificate dated 29.5.2025 of the CA stating that he only advised not to file the appeal.
The ld. AR supported the Affidavit of the assessee and CA’s certificate stating that delay needs to be condoned.
The ld. DR vehemently objected to the same and stated that this is not sufficient cause for delay in filing of appeal.
We have carefully considered the rival contentions and perused the Affidavit of the assessee narrating the facts what caused delay and also the certificate of the CA, who initially advised the assessee not to file the appeal, which clearly show that delay was caused on account of bonafide belief of the assessee that appeal need not be filed. Subsequently on the advise of another CA, which is also agreed by the old CA, the appeal was filed. This has caused delay of 65 days. We find that bonafide belief of assessee because of CA’s advise is clearly a sufficient cause which caused the delay in filing of the appeal. This is also identical to the facts of the case before the Hon’ble Bombay High Court in 86 taxmann.com 98. Before us the ld. DR has not contested
the Affidavit filed by the assessee as well as the Certificate of the CA in support of the Affidavit. Therefore, I condone the delay and admit the appeal of the assessee.
Coming to the facts of the case, the assessee is an individual engaged in the business of trading of waste home products in the name of Sri Sudha Sales. He filed his return of income on 8.8.2018 at a total income of Rs.5,87,014 as per provisions of section 44AD of the Act. Information was received that assessee has received bogus purchase bill of Rs.16,09,692 from one M/s. ARS Enterprises. It is alleged that this is a bogus tax invoice wherein false input credit was claimed under GST. Assessee was asked to furnish the details. Assessee submitted that he has filed return of income u/s. 44AD of the Act and therefore the details of purchases are not maintained. A draft order was passed on 22.6.2021 and after that hearing was granted to the assessee. The assessee objected that the addition of Rs.16,09,692 proposed in the draft order does not mention the section under which the addition/ disallowance is made. With respect to the details of purchases, it was submitted that the supplier had GST No. and the address of supplier was provided. The assessee also provided the details of purchases. It was submitted that all these purchases have been made in cash. The assessee also objected that these are not bogus purchases as claimed by the ld. AO because GST department has not at all issued any notice to the assessee for withdrawing input credit. Assessee also explained and submitted proof of screenshot of GST portal. Assessee also challenged that merely information is provided by GST department, addition
cannot be made in the hands of assessee. In the end, it was also submitted that as the assessee has filed a return of income u/s. 44AD of the Act, no addition can be made as there is no increase in the sales reported by the assessee. Assessee also submitted a chart showing the purchase of goods from ARS Enterprises. The ld. AO rejected the explanation of the assessee and made addition of Rs.16,09,692 by passing assessment order u/s. 143(3) r.w.s. 144B of the Act on 28.9.2021 assessing total income at Rs.21,96,730.
Against the assessment order the assessee preferred appeal before the ld. CIT(A). Assessee filed written submissions on 3 different occasions. After considering the same, the ld. CIT(A) dismissed the appeal of the assessee.
The ld. AR firstly referred to para 4 of the order of the ld. CIT(A) and submitted that when the assessee has offered return of income u/s. 44AD of the Act at a specified percentage @ 8% of the total turnover, addition on account of unexplained purchases cannot be made. He referred to the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT v. Surinder Pal Anand, 242 CTR 61 stating that where the income is offered u/s. 44AD under the special provision which gives exemption from maintenance of books of account and taxed @ 8% of the gross receipt, the assessee is under no obligation to explain individual entries of cash deposit etc., provided the annual turnover does not exceed Rs.40 lakhs. He further referred to the decision of Surat Bench of ITAT in 124 taxmann.com 236. Thus,
according to him, the addition could not have been made in the hands of the assessee when income is offered u/s. 44AD of the Act. On the merits of the case, he submitted that the AO has made addition without making an enquiry and merely relying on the information of GST Department. He submits that GST Portal screenshot was provided to the AO where GST credit was not withdrawn by the GST department. Without making an independent enquiry, the AO could not have made this addition. He further referred to the provisions of section 139 of the Act and stated that where the assessee is filing return of income u/s. 44AD of the Act, he is not obliged to have the details of the purchases. Therefore, no addition could have been made in the hands of the assessee.
The ld. DR vehemently supported the orders of the ld. lower authorities.
We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. According to the provisions of section 139 Explanation (f), if the regular books of account are not maintained by the assessee, return should be accompanied by a statement indicating the amounts of turnover showing gross receipt, gross profit, expenses and net profit, based on which income is computed. The assessee is also obliged to disclose the amount of total sundry debtor, sundry creditor, stock-in-trade and cash balances at the end of the previous year. Admittedly in this case assessee has filed return of income u/s. 44AD of the Act. The return of income is accepted under that section. According to the provisions of the Act, if the assessee has opted for presumptive taxation u/s. 44AD, the assessee is not required to maintain the books of account as well as the details of purchases made. This is relevant till the total turnover of the assessee does not exceed the prescribed limit u/s. 44AD of the Act. Thus, prima facie, the assessee could not have been asked the information of purchases. Further the assessee has provided information to the ld. AO in a chart of purchases from AR Enterprises.
The ld. AO merely on the basis of information received from GST Department made disallowance without making any enquiry about the purchases from AR Enterprises where the assessee has provided complete details of address and GST no. of that party. Thus, it is clear that the ld. AO has merely relied upon the information furnished by the GST department and did not gather any evidence on his own for making the addition. Further the decision of Hon’ble Punjab & Haryana High Court and the coordinate Bench specifically cover the issue in favour of assessee. The Hon’ble High Court in para 7 & 8 has categorically held that the assessee was not under an obligation to explain individual entry of purchases unless such entry has nexus with gross receipts. In the present case the purchases do not have any nexus with the gross receipt as gross receipt shown by the assessee remained undisputed and was never tested by the Revenue to be beyond the specified limit. Therefore, respectfully following the decision of the Hon’ble Punjab & Haryana High Court, I direct the ld. AO to delete the impugned addition. Accordingly, the ground Nos. 1 to 3 of the appeal of the assessee are allowed.
In the result, the appeal of the assessee is allowed.