No books of accounts to be maintained If Income was offered on Presumptive Basis u/s 44AD

Pramod Pareek Vs ITO (ITAT Jaipur)

Conclusion: Where income was offered on presumptive basis under section 44AD, there was no need to maintain books of accounts therefore addition made against the vegetable vendor was deleted for failure to substantiate the unexplained cash deposit.

Held: During the course of assessment proceedings, AO found that assessee had made cash sales of Rs.17,76,160/- against cash purchase of Rs. 1,90,500/- only. He submitted that he was not required to maintain any books of accounts as income was declared u/s 44AD for which assessee furnished copies of P&L account as well as balance sheet. AO noted that against the cash deposits assessee issued cheque in the name of share brokers almost on the same date for which no detailed had been furnished by assesee. Thus AO observed that it was failure on the part of the assessee to substantiate the unexplained cash deposit of Rs. 17,01,150/- in his bank account and AO treated as income of assessee under the head ‘’Income from other sources’’. Thus, AO completed assessment u/s 147 r.w.s. 143(3) and made addition at Rs.17,01,150/-. It was held that assessee was a vegetable vendor and he declared his income on presumptive basis u/s 44AD of the Act @ 8% being Rs. 1,42,093/-. Being income declared u/s 44AD,  assessee was not required to maintain books of accounts. It was noted from assessment order wherein the AO alleged that the assessee made cash sale of Rs.17,76,160/- against cash purchase of Rs. 1,90,500/- for which assessee submitted that out of the cash deposited by the assessee in his bank account payments were made for purchase of vegetables, resultantly, out of total purchases of Rs. 11,00,997/-, Rs.9,10,947/- were made through banking channel, Rs.1,90,500/- were in cash and Rs. 1,25,000/- remained as payable and this factual position was clearly disenable from the books of accounts and financial statements submitted by the assessee. It was also noted from the assessment order that assessee had paid interest of Rs.57,935/- on the outstanding balance of the bank account maintained by the assessee and assessee was having cash balance with him. It was noted that the AO had considered certain percentage at which interest had been paid by the assessee i.e. 22.20% but the AO had not given any basis of arriving at such interest percentage. Assessee had supplied all the details before the lower authorities like books of accounts, details of financial statement and bank account etc. but it was ignored. Thus, the addition sustained amounting to Rs.13,83,300/- by CIT(A) was deleted.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

This appeal filed by the assessee is directed against order of the ld. CIT(A)- 2, Jaipur dated 7-02-2020 for the assessment year 2008-09 wherein the assessee has raised the following grounds of appeal.

‘’1. In the facts and circumstances of the case and in law the AO has erred in reopening the case of the assessee u/s 147 of the I.T. Act, 1961. The action of the AO is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said order being without jurisdiction.

2. In the facts and circumstances of the case and in law the AO has erred in issuing notice u/s 148 without obtaining proper sanction u/s 151 of the I.T. Act. The action of the AO is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said order being without

3. In the facts and circumstances of the case and in law the AO has erred in confirming the action of the AO in considering the cash deposits to be unexplained and thereby sustained the addition to the tune of Rs.,13,83,300/-. The action of the AO is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the addition of Rs.13,83,300/-.’’

2.1 During the course of hearing, the Bench observed that there is delay of 71 days in filing the appeal by the assessee for which the assessee has filed an application dated 10^th July, 2020 praying therein that Govt announced lockdown from 20-03-2020 because of COVID-19 break out which has prevented the assessee in timely filing the appeal before the ITAT. Further the ld. AR of the assessee took the resort of Hon’ble Supreme Court dated 10-01-2022 (M.A. No. 21 and 665/2021 regarding cognization of extension limitation from 15-03-2020 till 28-02-2022) and thus prayed that the assessee is prevented by sufficient reasons in filing the appeal within due date and further prayed to condone the delay.

2.2 On the other hand, the ld. DR objected to such delay but left the matter on the Bench to consider it as deem fit and proper in the case.

2.3 The Bench has heard both the parties and perused the materials available on record. The Bench has taken into consideration the order of Hon’ble Apex Court as to the condonation of delay due to outbreak of Covid- 19 pandemic vide its decision dated 10-01-2022 in Misc. Application No. 21 of 2022, 665 of 2021 and Suo Motu Writ Petition© No. 3 of 2020 wherein it has been mentioned at Para III by the Hon’ble Supreme Court.

‘’III. In cases the limitation would have expired during the period between 15-03-2020 till 28-02-2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01-03-2022. In the event of actual balance period of limitation remaining, with effect from 01-03-2022 is greater than 90 days, that longer period shall apply.’’

Thus the Bench finds that there is nationwide Covid 19 Pandemic situation which is beyond the control of the human being and the assessee is prevented by sufficient cause in not filing the appeal in time. The Hon’ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Katiji, 167 ITR 471 observed as under:-

‘’The Legislature has conferred power to condone delay by enacting section 5 of the Limitation Act, 1963, in order to enable the courts to do substantial justice to parties by disposing of matters on merits. The expression ” sufficient cause ” in section 5 is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice–that being the life-purpose of the existence of the institution of courts. A justifiably liberal approach has to be adopted on principle.

“Every day’s delay must be explained” does not imply a pedantic approach. The doctrine must be applied in a rational, common sense and pragmatic manner.

The doctrine of equality before law demands that all litigants, including the State as a litigant, are accorded the same treatment and the law is administered in an evenhanded manner. There is no warrant for according a step-motherly treatment when the State is the applicant praying for condonation of delay.

“When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non-deliberate delay.”

Keeping in view the present facts and circumstances of the case and the Orders of the Hon’ble Supreme Court (supra), the application of the assessee for condonation of delay in filing the appeal is allowed.

3.1 During the course of hearing, the Bench observed that the assessee has raised the Ground No. 1 and 2 for adjudication. It would not be advisable to consider these ground No. 1 and 2 which were not raised before the ld. CIT(A). Hence, the same are dismissed being not adjudicated by the ld. CIT(A)

4.1 Apropos Ground No. 3 of the assessee, the facts as emerges from the order of the ld. CIT(A) are as under:-

‘’2.5. 1The Authorized Representative argued that the addition was made without considering the bank withdrawals and cash sales. He further contended that cash deposit after considering withdrawals is Rs. 18,83,300/-,

2.5.2 On perusal of overall facts, I find that neither during assessment nor in appellate proceedings filed any justification of source of cash deposit. Assessing Officer already considered the sales while making the addition therefore objection that cash sales is not considered is rejected. However, appellant’s claim that net cash deposit after allowing benefit of withdrawals is only Rs. 13,83,300/- seems acceptable. On verification, this claim is found correct. Therefore, addition of Rs.17,01,150/- is restricted to Rs.13,83,300/-. Assessee gets relief of Rs.3,17,850/-. These grounds of appeal are partly allowed.

4.2 During the course of hearing, the ld. AR prayed that the ld. CIT(A) has erred in sustaining the addition. He further submitted that the addition sustained by the ld. CIT(A) deserves to be deleted for which following submission has been forwarded.

2.1. In order to prove the bona-fides of the business transaction, assessee, before the lower authorities, prepared, entire books of accounts, which were submitted to them during the course of assessment and the appellate proceedings. Entire such books of accounts have also been enclosed as part of Paper Book before the Hon’ble Bench. [PB: 4-15, 31-33]

2.2. No defects, with any cogent basis, could be pointed out by the lower authorities in the books of accounts so produced before them.

2.3. It is a trite law that once the assessee offers income under Section 44AD on presumptive basis, the assessee is not required to maintain books of accounts on a regular basis.

2.4. Even though the assessee was not required to maintain Books of Accounts, however, in order to substantiate the cash receipts for the year under consideration, entire Books of Accounts were prepared. No defects could be pointed out by the lower authorities in the Books of Accounts so produced before them.

2.5. Ld. AO during the assessment proceedings [AO Order Page 4], alleged certain details regarding the payment made through banking channel made by assessee, could not be submitted. However, Ld. AO has ignored the fact that the entire books of account were produced before him during the course of assessment proceedings. No specific defect could be pointed out.

2.6. Ld. AO alleged that assessee made cash sales of Rs. 17,76,160, against cash purchase of Rs. 1,90,500 [AO Order Page 4]. It is submitted that out of the cash deposited by the assessee in his bank account, payments were made for the purchase of vegetables, resultantly out of total purchase of Rs 11,00,997. Rs. 9,10,497 were made through Banking Channel, Rs.1,90,500 were in cash and Rs. 1,25,000 remained as payable. This factual position was clearly disenable from the Books of Accounts and Financial Statements submitted by the assesse, before the lower authorities.

2.7. Ld. AO observed that assessee had paid interest of Rs. 57,935 on the outstanding balance of the bank account maintained by the assessee, whereas, assessee was having cash balance with him [AO Order Page 4]. Ld. AO has considered certain percentage at which interest has been paid by the assessee according to him, which is 22.20 %. Ld. AO has not given any basis of arriving at such interest percentage. Also, Ld. AO has not doubted other aspects of the books accounts maintained by the assessee. The assessee might have been not properly maintaining his cash flows but that does not entitle the Id.AO to disregard, the cash receipts generated by him through his Business operations. Against this, elaborate submissions were also made before Id. CIT(A), who has also not controverted to the submissions made by the assessee.

2.8.Ld. AO, during the course of assessment proceedings, also compared the turnover declared by the assessee at the time of filing the return of income pursuant to the notice issued under Section 148, vis a vis the details submitted such assessment proceedings [AO Order Page 3].Ld. AO completely ignored the fact that assessee was not required to maintain books of accounts. Accordingly, subsequent to the filing of return of income, assessee did precise working and also prepared his books of account. As a result, assessee could arrive at the actual turnover from his business operations, for the relevant previous year, during the assessment proceedings.

2.9. Ld. AO has stated in the assessment order that assessee could not submit the details que the amount paid to share brokers [AO Order Page 4]. Ld. AO ignored the fact that entire books of accounts were submitted to him during assessment proceedings, wherein, all such details were mentioned. Moreover, Id. AO is doubting the utilization of funds of the assessee, whereas, Id, AO ultimately made additions by considering the cash received by the assessee and subsequently deposited by him in his bank account, to be unexplained.

2.10. Contentions were raised, during the appellate proceedings, before id. CIT(A). against the observations made by the Id. AO, during assessment proceedings. However, those contentions were not controverted by the Id. CIT(A).

2.11. Ld. CIT(A) simply, without any cogent basis, without controverting to the submissions made by the assessee, upheld the additions made by the Id. AO However, Id. CIT(A) provided relief to the extent of the amount withdrawn by the assessee, from his bank account, subsequent to its deposition. Such amount was Rs. 3,17,850. [CIT(A) Order 9-10]

Further, the ld. AR of the assessee relied upon the following case laws.

1. Mansukh K Vaghasia s ITO (2022) 139 com 84 (Surat Trib).

2. Thomas Eapen vs ITO, Ward 5, Alappuzha (2020) 113 com 268 (Cochin – Trib)

4.3 On the other hand, the ld. DR supported the orders of the ld. CIT(A).

4.4 The Bench has heard both the parties and perused the materials available on record. Brief facts of the case are that during the course of assessment proceedings, the AO fund that the assessee had made cash sales of Rs.17,76,160/- against cash purchase of Rs.s1,90,500/- only. The assessee submitted reply to the AO that he is not required to maintain any books of accounts as income is declared u/s 44AD of the Act for which the assessee furnished copies of P&L account as well as balance sheet. The AO noted that against the cash deposits the assessee issued cheque in the name of share brokers almost on the same date for which no detailed had been furnished by the assesee. Thus the AO observed that it is failure on the part of the assessee to substantiate the unexplained cash deposit of Rs. 17,01,150/- in his bank account with Standard Chartered Bank of Rs.11,31,350/- and in Allahabad Bank of Rs.5,69,800/- which the AO treated as income of the assessee under the head ‘’Income from other sources’’. Thus the AO completed the assessment u/s 147 r.w.s. 143(3) of the Act and made addition at Rs.17,01,150/-. In first appeal, the ld. CIT(A) has restricted the addition to the extent of Rs.13,83,300/- giving the relief of Rs.3,17,850/- to the assessee. From the available record, it is noted that the assessee was a vegetable vendor and this fact has not been disputed by the lower authorities. Out of the receipt from the sale of vegetables which took place in cash, the amount was deposited by the assessee in his bank account. The turnover of the assessee was Rs,.17,76,160/- during the relevant previous year out of the vegetable business and the assessee declared his income on presumptive basis u/s 44AD of the Act @ 8% being Rs. 1,42,093/-. Being income declared u/s 44AD of the Act, the assessee was not required to maintain books of accounts. It is also noted that in order to prove the bona fides of the business transaction, the assessee submitted the entire books of accounts before the AO during the course of assessment proceedings as well as before the ld. CIT(A) (PB4- 15, 31-33) and no defect was pointed out by the lower authorities in the books of account produced by the assesse. It is a trite law that once the assessee has offered income u/s 44AD of the Act on presumptive basis then assessee is not required to maintain books of account on a regular basis but the assessee produced the books of account before the lower authorities. It is noted from page 4 of the assessment order wherein the AO alleged that the assessee made cash sale of Rs.17,76,160/- against cash purchase of Rs. 1,90,500/- for which the ld. AR of the assessee submitted that out of the cash deposited by the assessee in his bank account payments were made for purchase of vegetables, resultantly, out of total purchases of Rs. 11,00,997/-, Rs.9,10,947/- were made through banking channel, Rs.1,90,500/- were in cash and Rs. 1,25,000/- remained as payable and this factual position was clearly disenable from the books of accounts land financial statements submitted by the assessee. It is also noted from the assessment order that the assessee had paid interest of Rs.57,935/- on the outstanding balance of the bank account maintained by the assessee and it can be seen at page 4 of the Assessment Order that the assessee was having cash balance with him. It is noted that the AO had considered certain percentage at which interest had been paid by the assessee i.e. 22.20% but the AO has not given any basis of arriving at such interest percentage. The Bench finds from the available records that during the course of hearing the assessee had supplied all the details before the lower authorities like books of accounts, details of financial statement and bank account etc. but it was ignored. It is also noted that the assessee had made elaborate submissions before the ld. CIT(A) which were also not controverted by the ld. CIT(A) in his order. In view of the above facts and circumstances of the case, the Bench finds that the addition sustained amounting to Rs.13,83,300/- by the ld. CIT(A) is deleted. Thus the Ground No. 3 of the assessee is allowed.

5.0 In the result, the appeal of the assessee is partly allowed Order pronounced in the open court on 08/ 02/2023.