Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy]
Date of concluding the hearing : April 29th, 2019 Date of pronouncing the order : May 8th, 2019 O R D E R Per J. Sudhakar Reddy :-
This appeal filed by the assesse is directed against the order of the ld. Commissioner of Income Tax (Appeals) - 14, Kolkata, (hereinafter the ‘ld. CIT (A)’), passed u/s 250 of the Income Tax Act, 1961 (the ‘Act’), dt. 01/05/2018, for the Assessment Year 2012-13.
The assessee is a individual and is in the business of dealing in iron and steel, processing work. He filed his return of income for the impugned Assessment Year electronically on 30/03/2013 declaring total income of Rs.1,60,960/-. The return was processed u/s 143(1) of the Act. The assessment was completed u/s 143(3) of the Act, determining total income of the assessee at Rs.12,76,180/-. The assessee in this case filed his return by offering income under presumptive taxation as per the provisions of Section 44AD of the Act. On a query from the Assessing Officer the assessee submitted that he had opted for provisions of Section 44AD of the Act while filing the return of income for the impugned Assessment Year 2012-13 and was under no obligation to maintain books of accounts. He submitted that he does not have quantitative details of stock etc. as directed to be filed by the Assessing Officer. Nevertheless he filed a profit and loss account and balance sheet before the Assessing Officer. The Assessing Officer examined these statements and made the following additions towards:-
Assessment Year: 2012-13 Mohan Kumar Agarwal a) Undisclosed purchases. b) Unexplained expenditure u/s. 69C of the Act. c) Undisclosed sundry debtor. d) Bogus unsecured loan. e) Under valuation of closing stock. 2.1. The assessee carried the matter in appeal. Before the ld. CIT(A), the assessee contended that when he had opted to declare income under the provisions of Section 44AD of the Act, no separate additions can be made by the Assessing Officer on such estimated profits. The ld. CIT(A), did not agree with these submissions. He relied on certain decisions wherein it has be held that an addition can be made u/s 68 of the Act, when profits are estimated. He gave part relief to the assessee.
Aggrieved the assessee is before us.
The ld. Counsel for the assessee relied on a number of decisions to submit that once the income is declared u/s 44AD of the Act, no separate additions should be made by relying on the statement of accounts etc. He submits that the case-laws relied upon by the ld. CIT(A) are cases where an addition was made u/s 68 of the Act, when income was estimated and hence not applicable to the facts of the case on hand. He filed a paper book running into 107 pages to demonstrate that the additions are bad in law.
The ld. D/R, on the other hand, submitted that, the assessee had filed its statement of accounts and the Assessing Officer on going through the statement of accounts has found discrepancies in purchases, expenditure, sundry debtors, closing stock etc. and has made the additions. He relied on the order of the ld. CIT(A) and submitted that additions could be made in a case where the income is estimated u/s 44AD of the Act.
I have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, I hold as follows:-
Assessment Year: 2012-13 Mohan Kumar Agarwal 7. Section 44AD of the Act, gives an option to the assessee to offer income on presumptive basis. These are special provisions. The assessee has opted for the same and offered to tax income at the rate of 8% of his turnover. The issue is whether, the Assessing Officer can examine statement of accounts in such cases, make additions towards undisclosed purchases, undisclosed expenditure, under valuation of closing stock etc., The turnover declared by the assessee is accepted by the revenue. In my considered opinion such additions go against the spirit of the Act. Section 44AD of the Act was introduced to help the small traders who have difficulties in maintaining books of account and other records. Tax is levied on presumptive basis.
8. The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Surinder Pal Anand [2010] 192 Taxman 264 (Punjab & Haryana), under identical circumstances has held as follows:- “7. Section 44AD of the Act was inserted by the Finance Act, 1994 with effect from 1-4-1994. Sub-section (1) of section 44AD clearly provides that where an assessee is engaged in the business of civil construction or supply of labour for civil construction, income shall be estimated at 8 per cent, of the gross receipts paid or payable to the assessee in the previous year on account of such business or a sum higher than the aforesaid sum as may be declared by the assessee in his return of income notwithstanding anything to the contrary contained in sections 28 to 43C of the Act. This income is to be deemed to be the profits and gains of said business chargeable of tax under the head "profits and gains" of business. However, the said provisions are applicable where the gross receipts paid or payable does not exceed Rs. 40 lakhs.
Once under the special provision, exemption from maintaining of books of account has been provided and presumptive tax at the rate of 8 per cent of the gross receipt itself is the basis for determining the taxable income, the assessee was not under obligation to explain individual entry of cash deposit in the bank unless such entry had no nexus with the gross receipts. The stand of the assessee before the Commissioner of Income-tax (Appeals) and the ITAT that the said amount of Rs. 14,95,300 was on account of business receipts had been accepted. Learned counsel for the appellant with reference to any material on record, could not show that the cash deposits amounting to Rs. 14,95,300 were unexplained or undisclosed income of the assessee.
9. In view of the above position, we are unable to hold that any substantial question of law arises in this appeal.
10. The appeal is dismissed.”
The Chandigarh Bench of the Tribunal in the case of Nand Lal Popli vs. DCIT in & 1162/Chd/2013, order dt. 14/06/2016, held as follows:-
Assessment Year: 2012-13 Mohan Kumar Agarwal “9. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The issue to be decided by us is whether accepting the case of the assessee as taxable under the presumptive taxation as provided under section 44AD of the Act, the Assessing Officer can make addition under section 69C of the Act making the cash flow statement provided by the assessee the basis of his addition.
10. Section 44AD of the Act reads as under : "44AD (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". (2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed :"
10. The provisions of the above section are quite unambiguous to the effect that in case of an eligible business based on the gross receipts/total turnover, the income under the head 'profits & gains of business' shall be deemed to be @ 8% or any higher amount. The first important term here is 'deemed to be', which proves that in such cases there is no income to the extent of such percentage, however, to that extent, income is deemed. It is undisputed that 'deemed' means presuming the existence of something which actually is not. Therefore, it it quite clear that though for the purpose of levy of income tax 8% or more may be considered as income, but actually this is not the actual income of the assessee. This is also the purport of all provisions relating to presumptive taxation.
11. Putting the above analysis, in converse, it can be easily inferred that the same is also true for the expenditure of the assessee. If 8% of gross receipts are 'deemed' income of the assessee, the remaining 92% are also 'deemed' expenditure of the 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. To take it further, it can be said that the expenditure may be less than 92% or it may also be more than 92% of gross receipts.
Further, on the reading on the substantive part of the provision, it is quite clear that an assessee availing the benefit of such presumptive taxation can claim to have earned income @ 8% or above of the gross receipts. In that case, the provisions of sub-section (5) of the said section will be applicable to it, which reads as under : "44AD (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB."
From the combined reading of sub-section (1) and sub-section (5), it is apparent that the obligation to maintain the books of account and get then audited is only on the assessee who opts to claim the income being less than 8% of the gross receipts.
Now, applying the above to the facts of the present case, we observe that the Assessing Officer, for making the impugned addition has started with the presumption Assessment Year: 2012-13 Mohan Kumar Agarwal that an amount to the extent of 92% of the gross receipts is the expenditure incurred by the assessee, which is a totally wrong premise. If the income component is estimated, how the expenditure component on the basis of said income can be considered to have been 'actually' incurred. We must also observe here that this is not a case, where the Assessing Officer has doubted the gross receipts or gross turnover of the assessee. In fact, accepting the same, estimating income @ 8% on the same at presumptive rate, he preferred to make further addition under section 69C of the Act. The argument of the learned D.R. that the turnover of the assessee has been doubted by the Assessing Officer is totally ill-found, in view of the same.
Further, it is a fact on record that the assessee had not maintained books of account that is why he opted for 8% income as per section 44AD of the Act. The section also does not put obligation on the assessee to maintain books of account, more so, in view of the fact that his income has been assessed as per section 44AD of the Act, he cannot be punished for not maintaining the same. The argument of the learned D.R. that the assessee was in fact, maintaining books of account is untenable. Keeping or preparing a cash flow statement cannot be considered as keeping the books of account.
Now, coming to the argument of the learned D.R. that the addition has been made under section 69C of the Act, on which there is no bar under section 44AD of the Act, we are quite in agreement with the same. The only fetter provided under section 44AD of the Act are the applicability of provisions of section 30 to 38 of the Act. The provisions of section 69C of the Act reads as under : "69C. Unexplained expenditure, etc.- Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year : Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income."
The crucial words in the said section for the purposes of present appeal are 'any financial year an assessee has incurred any expenditure'. But can we say on the facts & circumstances of the present case that the assessee has 'incurred' any expenses. From an analysis of section 44AD of the Act contained hereinabove, we have already held that the assessee had not incurred the expenses to the extent of 92 % of the gross receipts. Therefore, in the present case, the provisions of section 69C of the Act cannot be applied. Asking the assessee to prove to the satisfaction of the Assessing Officer, the expenditure to the extent of 92% of gross receipts, would also defeat the purpose of presumptive taxation as provided under section 44AD of the Act or other such provision. Since the scheme of presumptive taxation has been formed in order to avoid the long drawn process of assessment in cases of small traders or in cases of those businesses where the incomes are almost of static quantum of all the businesses, the Assessing Officer could have made the addition under section 69C of the Act, once he had carved out the case out of the glitches of the provisions of section 44AD of the Act. No such exercise has been done by the Assessing Officer in this case. Before parting we would like to deal with the case law relied on by the learned D.R.
The only case law relied on by the learned D.R. is that of Ahmedabad Bench of the Tribunal in the case of Shivani Builders (supra). On perusal of the said order, we observe Assessment Year: 2012-13 Mohan Kumar Agarwal that the basis of finding given in this order is mainly the fact that the assessee had failed to record its turnover correctly in its books. However, no such finding is there in the present case. As already held by us in the preceding paragraph, the Assessing Officer himself while computing the income of the assessee has made the business income to be taxable @ 8% of the gross receipts as provided under section 44AD of the Act. The ground No.1 is allowed in favour of the assessee.”
Applying the propositions of law laid down in the above case-law to the facts of the case on hand, I delete the addition in question. The case-law relied upon by the ld. CIT(A) are not applicable to the facts of the case, as in that case what was held is that an addition u/s 68 of the Act could be made when income has been estimated. The Assessing Officer nor the ld. CIT(A) have given any reason as to why the provisions of Section 44AD of the Act are not applicable to this case. Hence, we delete all the addition made in this case. The income returned, is directed to be accepted, by the Assessing Officer.
In the result, appeal of the assessee is allowed.