Tax authorities not bound with provisions of section 44AE once assessee waived option

Tax authorities not bound with provisions of section 44AE of the Act once assessee waived the option available

In a recent judgment, ITAT has held that Tax authorities are not bound with provisions of section 44AE of the Act once assessee waived the option available to assess income on presumptive taxation basis

ABCAUS Case Law Citation:
ABCAUS 3988 (2024) (04) ITAT

Important Case Laws relied upon:
Mrs. S. Bakkiam Vs. ITO  Chennai
Hersh Washesher Chadha (2023) 157 taxmann.com 418 (Delhi)
CIT Vs. Jain Construction Co. & others (1999) 156 CTR (Raj) 290
Balaji Construction vs. ACIT (2000) 66 TTJ (Pune) 718; (2000) 72 ITD 559 (Pune)
Abhi developers v. ITO (2007) 12 SOT 444 (Ahd)
Girish Yalakkishettar Vs. ITO (2020) 115 taxmann.com 489
P K Noorjahan reported in (1999) 103 Taxman 382 (SC)
IT Vs Bhaichand N Gandhi (1983) 141 ITR 67
Smt. Manshi Mahendra Pitkar Vs. ITO 1 (2), Thane (2016) 73 taxmann.com 68

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition u/s 69A as unexplained investment towards cash deposits in bank account.

The Assessing Officer (AO) while pursuing the records noticed that assessee has deposited large amount of cash in her bank account but not filed return of income for the relevant assessment year as per provisions of section 139(1) of the Act.

Accordingly, notice u/s 142(1)(i) of the Act was issued and served on the assessee. However, the assessee failed to file return of income.

Even after issuing the show cause notice to explain the amount of cash deposits, the assessee failed to give any explanation regarding source of that deposit. Accordingly, the addition was made.

Against the addition made, the assessee went in appeal before CIT(A) and pleaded that the assessee had earned income by giving two tractors for hire and that income to be considered under presumptive taxation u/s 44AE of the Act and as per this provision of the Act, income to be estimated at certain percentage of that total gross receipts, other than unexplained credits.

The assessee has also taken a plea before the CIT(A) that earlier cash was available to the assessee but redeposited to bank account and also explained that the source of deposit to bank account was hire charges collected from plying two tractors and loan borrowed from the parties.

However, the assessee had not filed any evidence to support that assessee has given two tractors for hiring in the assessment year under consideration and not placed any evidence to support the claim of cash deposits.

Hence, the CIT(A)/NFAC confirmed the addition.

Before the Tribunal the assessee contended that submitted that in following two assessment years the assessee’s income had been accepted u/s 44AE of the Act and on the same principle, in this assessment year also assessee’s income has to be assessed u/s 44AE of the Act.

The assessee submitted that the facts of the case were squarely covered by the decision of Co-ordinate Bench where addition was made under section 68 of the Act by making general

observations that there is no material on record to show that the assessee was engaged in contract work and construction activities. In the above background, The Income Tax Appellate Tribunal held that the AO was not entitled to make any guess work and there must be something more than suspicion to support the Assessment. It was further held that there was no necessity of maintaining books of accounts when the income was offered under section 44AD of the Act. It was submitted that by making above observations the Tribunal deleted the addition made under section 68 and directed that income should be computed under Section 44AD of the Act.

It was further submitted that the Co-ordinate Bench observed that presumptive taxation is brought into Income Tax Act to facilitate ease of doing business to the small entrepreneurs and not to burden them with drudgery of maintaining books of accounts and getting the same audited.

Further, it was argued that even if 8% of total receipts are considered, the income is in fact less than income computed under section 44AE.

It was contended that the assessee had no means/avenues to make any Unexplained income. On similar facts he relied on the judgement of the Hon’ble Supreme Court wherein Hon’ble Supreme Court upheld the order of ITAT and High Court deleting the addition made U/s 69 and laid down that addition U/s 69 of the Act is not automatic.

Further relying upon the Co-ordinate Bench of Tribunal which in turn relied on the decision of Mumbai high court wherein held that the bank passbook do not constitute books of account. It was contended that the assessee was not maintaining any books of account and section 68 of the Act had been invoked by the Assessing Officer only on basis of he bank Pass Book.

Therefore, it was submitted that assessee was very small entrepreneur, and requested to give finality to the issue by directing AO to compute income under presumptive taxation as per section 44AE. He submitted that for the detailed reasons submitted above, provisions of sec 69A are not applicable to the facts of the assessee’s case and the treatment of the cash deposited into bank account as Unexplained Investment u/s 69A of the Act was not tenable in law and on facts.

Thus, it was submitted that the addition as unexplained investment u/s 69A of the Act made in the assessment order be deleted.

The Tribunal observed that inspite of controversy of treating the assessee’s income as unexplained, the assessee had not able to produce Registered Certificates (RCs) of the said tractors at any stage of proceedings.

Further the Tribunal observed that even otherwise, assessee pleaded that income should to be estimated at least 8% of the total deposit made into assessee’s bank account. However, she was not able to show that she received her income only in the form of cheque and not in the form of cash also. There was other possibility of receiving money in cash form also and not only by way of cheque. More so, the assessee had not produced any evidence to suggest that assessee has been carrying on the business in the assessment year under consideration by producing any license issued by Government authorities like GST, Labour License etc.

In view of the above, the Tribunal rejected the argument that income of the assessee to be estimated at fixed percentage of total deposits made into bank account. In other words, total deposit into bank account is required to be explained by the assessee that it is from business, then only we could estimate the income of the assessee at prescribed percentage. In the absence of proving the carrying on business in the assessment year under consideration, the Tribunal expressed inability to apply presumptive taxation.

Further, the Tribunal stated that assessee never opted for computation of income on presumptive basis u/s 44AE of the Act and not only she has not maintained the books of accounts but also never filed the return of income. In these circumstances, the tax authorities below were not bound with the provisions of section 44AE of the Act and once the assessee had waived the recourse available to her to assess her income on presumptive taxation basis and the revenue authorities were not bound to extend the benefit on presumptive income to the assessee as prescribed u/s 44AE of the Act.

The Tribunal held that entire deposit made in to assessee’s bank account to be considered as income of the assessee.

Accordingly, the appeal of the assessee was dismissed.

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