(2023) 10 ITAT CK 0027

In The Income Tax Appellate Tribunal (Delhi E Bench)

Case No : Income Tax Appeal No. 1186/DEL/2023

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M/S. Economical Credit & Construction Co. Pvt. Ltd

APPELLANT

Vs

ITO

RESPONDENT


Date of Decision : 11-10-2023

Acts Referred:

  • Income Tax Act, 1961 — Section 44AD, Section 69A, Section 132(1), Section 143(3), Section 153A, Section 153D, Section 158BC

Citation : (2023) 10 ITAT CK 0027

Hon’ble Judges : Shamim Yahya ; (AM) ; Astha Chandra, J

Bench : Division Bench

Advocate : Gaurav Jain, Sudarshan Roy, Shweta Bansal, Subhra Jyoti Chakraborty

Final Decision : Allowed


Judgement

1. This appeal by the assessee is directed against the order of the ld. CIT (Appeals)-27, New Delhi dated 22.03.2023 pertaining to the assessment year 2019-20.

2. Grounds of appeal taken by the Revenue read as under :-

“1. That on the facts and circumstances of the case and in law the Ld. CIT(A) grossly erred in sustaining the addition of Rs.52,02,500/ – made u/ s. 69A of the Income Tax Act (hereafter ‘the Act’) by the ld. AO vide the assessment order dated 16.06.2021 failing to appreciate that the Assessment order is ex facie illegal and arbitrary since the same was passed without appreciating the documents and explanations furnished by the Appellant during the course of assessment.

2. That on the facts and circumstances of the case and in law the ld. CIT(A) erred in sustaining the addition of Rs.24,71,352/ – made by the ld. AO u/ s 69A of the Act failing to appreciate that the: same was not unaccounted money of the Appellant but was proceeds of cash sales and bank withdrawals of the sole proprietorship concern of the appellant namely, M/ s. Nelly’s Creations Inc. and was duly accounted in the books of the proprietorship concern for the relevant previous year under consideration.

3. That on the facts and circumstances of the case and in law the ld. CIT(A) erred in sustaining the addition of Rs.27,31,148/- made by the ld. AO u/ s. 69A of the Ad failing to appreciate that the same was not unaccounted money of the Appellant but pertains to the business operations of Narendra Kumar Gupta and Sons HUF and the same is derived out of cash sales of kirana-items as well as from periodic bank withdrawals, thereby, do not warrant invocation of section 69 A of the Act.

4. That on the facts and circumstances of the case and in law, the impugned assessment order passed under section 143(3) read with section 153A deserves to be quashed, since the same has. been passed without obtaining valid approval of Addl CIT /Jt. CIT under section 153D of the Act.”

3. Brief facts of the case are that there was a search & seizure operation on Faquir Chand Lockers and Vaults Pvt. Ltd. group of cases. The assessee’s locker No.237 at 6704A, Khari Baoli, Delhi-6 was also covered under section 132(1) of the Income-tax Act, 1961 (for short ‘the Act’).On operation of the locker no.237, cash amounting to Rs.52,02,500/- was found and seized. On an enquiry in this regard, assessee submitted that cash of Rs.24,71,352/- was from assessee’s proprietorship concern, Nelly Creations and the remaining cash of Rs.28,00,000/- was from trading of kirana items by Narender Kumar Gupta and Sons HUF. AO was not convinced with this explanation. He rejected the cash found said to be from Nelly Creation. He also rejected the claim of Rs.28,00,000/- from trading of kirana items by Narender Kumar Gupta and Sons HUF.

4. Against the above order, assessee appealed before the ld. CIT (A). Ld. CIT (A), as regards the cash from Narender Kumar Gupta and Sons HUF, rejected the same on the ground that return filed u/s 44AD was an after-thought. He also took adverse inference that books and vouchers were not produced. Hence, he rejected the assessee’s plea in this regard. Therefore, he rejected the amount of Rs.27,30,648/- out of cash seized of Rs.52,02,500/- pertains to Narender Kumar Gupta and Sons HUF.

4. 1 As regards remaining cash of Rs.24,71,352/-, ld. CIT (A) referred to assessee’s cash book and ledger. He found fault therein that sales in cash are very law and the expenditure incurred by the assessee was also very low. He noted that assessee has withdrawn cash in the months of July, September, October and November. He also found that it was not logical that assessee withdrew total amount of Rs.19,00,00/- from the bank and put in locker. Hence, he rejected this aspect also.

5. Against this order, assessee is in appeal before us. We have heard both the parties and perused the records.

6. As regards the rejection of claim of cash from assessee’s proprietorship concern, we find that books have not been rejected. It has also not been proved that cash withdrawn is also put to any other use. In such circumstances, there is no reason to reject the source of cash in this regard. In this regard, we draw support from the decision of Hon’ble Delhi High Court in the case of CIT vs. Kulwant Rai (2007) 291 ITR 36 (Delhi) for the following proposition :-

“16. This cash flow statement furnished by the assessee was rejected by the Assessing Officer which is on the basis of suspicion that the assessee must have spent the amount for some other purposes. The orders of the Assessing Officer as well as the Commissioner of Income-tax are completely silent as to for what purpose the earlier withdrawals would have been spent. As per the cash book maintained by the assessee, a sum of Rs.10,000 was being spent for household expenses every month and the assessee has withdrawn from bank a sum of Rs. 2 lakhs on December 4, 2000 and there was no material with the Department that this money was not available with the assessee. It has been held by the Tribunal that in the instant case the withdrawals shown by the assessee are far in excess of the cash found during the course of search proceedings. No material has been relied upon by the Assessing Officer or the Commissioner of Income-tax (Appeals) to support their view that the entire cash withdrawals must have been spent by the assessee and accordingly, the Tribunal rightly held that the assessment of Rs. 2.5 lakhs is legally not sustainable under section 158BC of the Act and the same was rightly ordered to be deleted.”

7. As regards, the amount belonging to Narender Kumar Gupta and Sons HUF is concerned, we note that 44AD return has been submitted which has been accepted. The income, therefore, therein has been accepted. In such circumstances, there is no reason why the cash due of the income disclosed u/s 44AD should not be accepted. It is settled law that books of account & vouchers are not required in 44AD return. Hence, adverse inference cannot be taken that cash book & vouchers have not been maintained. The same income cannot be taxed twice once in the hands of HUF and once again in the hands of the assessee. In these circumstances, we set aside the orders of the authorities below and decide the issue in favour of the assessee.

8. In the result, assessee’s appeal stands allowed.

Writeup on the Issue

Yes, that is correct. Books of Account and Vouchers are not required in 44AD return. This is because Section 44AD of the Income Tax Act, 1961 provides for a presumptive method of taxation for certain businesses and professions. Under this method, the assessee’s income is deemed to be a certain percentage of their gross receipts, and the assessee is not required to maintain any books of account to support this income.

The following businesses and professions are eligible to opt for presumptive taxation under Section 44AD:

  • Retail trade
  • Wholesale trade
  • Restaurants and hotels
  • Transport
  • Professional services (e.g., doctors, lawyers, accountants, etc.)

To opt for presumptive taxation, the assessee must have a gross turnover of less than Rs. 2 crore. If the assessee’s gross turnover exceeds Rs. 2 crore, they will be required to maintain books of account and pay tax on their actual income.

It is important to note that if an assessee opts for presumptive taxation under Section 44AD, they will not be allowed to claim any deductions for expenses. The only deductions that are allowed are interest and payments to partners.

Here is an example of how presumptive taxation works under Section 44AD:

Suppose an assessee is engaged in the business of retail trade. Their gross turnover for the year is Rs. 1 crore. If the assessee opts for presumptive taxation, their income will be deemed to be 8% of their gross turnover, i.e., Rs. 80,000. The assessee will then be required to pay tax on this income.

It is important to note that presumptive taxation is a voluntary option. Assessees who are eligible to opt for presumptive taxation may also choose to maintain books of account and pay tax on their actual income.

There are a number of ITAT judgments on the issue of whether books of account and vouchers are required in a 44AD return. Some of the key judgments are as follows:

  • ITA No. 451/Coch/2019 (Thomas Eapen vs. ACIT): The ITAT held that Section 44AD exempts the assessee from maintaining books of account. The assessee had not maintained books of account, but had opted for presumptive taxation under Section 44AD. The Assessing Officer made additions to the assessee’s income, but the ITAT set aside these additions on the ground that the assessee was not required to maintain books of account.
  • ITA No. 1981/Hyd/2019 (ACIT vs. M/s. Sri Srinivasa Constructions): The ITAT held that the assessee, who had opted for presumptive taxation under Section 44AD, was not required to produce books of account and vouchers to support its income. The ITAT also held that the Assessing Officer could not make additions to the assessee’s income on the basis of estimates.
  • ITA No. 1543/Del/2019 (ACIT vs. M/s. JVS Retail Pvt. Ltd.): The ITAT held that the assessee, who had opted for presumptive taxation under Section 44AD, was not required to produce books of account and vouchers to support its income. The ITAT also held that the Assessing Officer could not make additions to the assessee’s income on the basis of discrepancies in the assessee’s bank statements.

These judgments clearly establish that books of account and vouchers are not required in a 44AD return. However, it is important to note that the Assessing Officer may still require the assessee to produce certain documents, such as bank statements and purchase invoices, to verify the assessee’s income.

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