Availing Presumptive Scheme of Taxation u/s 44AD Needs to Prove Eligibility: ITAT

Appeal of assessee was hence dismissed.

About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.Presumptive taxation scheme has been introduced by government under section 44AD for giving relief to small businesses and taxpayers. Those who have professional income can opt for presumptive scheme as referred to in Section 44ADA. Presumptive taxation allows you to pay your tax based on presumptive income. Meaning, you don't really need to estimate your income by deducting your expenses from revenue. You can simply take a percentage of your total revenue and pay tax on that.

Even after this relief, it is necessary to provide legitimate sources for cash deposits despite attempting to claim the benefits of a presumptive taxation scheme under Section 44AD of the Income Tax Act,1961.

Issues Involved:
Assessee admits to the deposit of cash to his savings account amounting to nearly 21L but he has failed to submit the justification regarding the same. AO has made addition to his income and assessed this amount as unexplained cash and levied tax on it. Assessee filed return of income under presumptive scheme to reply to AO’s notice u/s 148. Will assessee’s failure to provide genuineness relieve him?

Facts of the case explained:
Assessee Anish Rajnikant Shah has made cash deposits of Rs.21,51,200/- in his savings account in AY 2011-12. AO had reopened assessment u/s 147 as assessee had not filed return of income for the relevant assessment year. The source of cash deposit remained unexplained. A notice u/s 148 was issued by AO dated 29.03.2018 and the same was not complied with. A SCN was later issued by AO as to why cash deposit mentioned above shall not be added as income of the assessee.

In response to the above mentioned notice, assessee filed his return of income and paid tax. According to assessee, the transaction dated way back in AY 2011-12 and he is not able to remember the details of the same. The assessee paid tax as per presumptive taxation keeping rate of 8% of total cash and cheque deposits. AO rejected the contentions and made the addition. Aggrieved assessee filed appeal and stated that he was in retail selling of fruits and vegetables and such cash transactions are normal. 

Assessee did not file return of income under section 139, he did not provide valid documentation, no licences were issued by local authorities and no other valid business details etc. were provided by assessee to validate his claim for taxation u/s 44AD. 

The tribunal noted that the assessee had not filed any Return Of Income(ROI)  for any assessment year prior to the aforementioned A.Y and for the impugned A.Y.,a return was filed only in response to the notice issued by the AO under section 148.

Conclusion:
Tribunal while pronouncing its order had emphasised on  the fact that assessee disclosed business code in Income tax return filed in response to notice u/s 148 as business of Shares Trading and not trading in fruits and vegetables. It is necessary for availing benefit of presumptive taxation that assessee must be engaged in eligible and valid business.

The tribunal held that when assessee has benefited from a tax scheme such as section 44AD, they must fully prove their eligibility according to presumptive taxation scheme. Even though maintaining books of accounts is not required under section 44AD, assessee needs to prove eligibility and hence invoking provisions of Section 68 of unexplained cash is valid.