Under presumptive taxation u/s 44AD, assessee could not have maintained sales bills and bank statement, bank balance and gross receipt in terms of explanation (f) of section 139(9) of the Act were sufficient.
In a recent judgment, ITAT Bangalore has held that when provisions of presumptive taxation u/s 44AD are applied, the assessee could not have maintained sales bills and the requisite details shown in the form of bank statement, bank balance and gross receipt in terms of explanation (f) of section 139(9) of the Act were sufficient.
ABCAUS Case Law Citation:
4804 (2025) (10) abcaus.in ITAT
In the instant case the appellant assessee was an individual who did not file any return of income. As per the information available, under Risk Management Strategy (RMS), it was found that in her savings bank account there was large amount of cash deposits and therefore, notice u/s 148A(b) of the Income Tax Act, 1961 (The Act) was issued and subsequently order u/s 148A(d) of the Act was passed and subsequently notice u/s 148 of the Act was issued.
In response to the above reassessment notice, the assessee filed her return of income showing income @ 5% on the gross sale under the provisions of section 44AD of the Act.Â
The assessee, during proceedings submitted that she had made cash deposit to clear credit card purchases of her son. She stated that assessee was procuring mobile phones and electronic goods which are purchased from 7 credit cards of his son.Â
The assessee explained the modus operandi of her business that she purchased mobile phones from Amazon, Flipkart, Reliance Digital and Croma. These mobile phones were billed in the name of 9 persons, who are friends of the son of assessee for the reason that in one name assessee could not brought these electronic goods i.e. mobile phones. When mobile phones are received, the son of the assessee was selling these mobile phones in the local grey market at the margin of Rs.100/- or Rs.150/- per phone. On sale of these mobile phones, cash received was deposited in Bank. It was submitted that the sale declared was determined on the basis of the bank statement.
However, AO disbelieved the above transaction and made an addition of total cash deposits u/s 69A of the Act and passed a reassessment order u/s 147 r.w.s. 144 r.w.s. 144B of the Act.
The CIT(A) rejected the submission of assessee observing that the assessee did not furnish party-wise details to whom the sales were made with name, address and account number along with details of sales. Accordingly, the CIT(A) confirmed the action of the AO.
The Tribunal observed that the assessee had offered income @ 5% which was rectified before the AO oferring tax @ 8%. Now the issue was whether the income earned by the assessee was from sale of electronic goods or not? To support this the assessee has submitted the details of 6 credit cards used for making total purchases The extract of credit card statements showed that for the purpose of purchase of electronic gadgets, these credit cards were used by the assessee. Thus, it was apparent that assessee had purchased these electronic goods.Â
The Tribunal further noted that according to the assessee, the actual cash sale was higher than amount of cash deposit mentioned by the AO. On the basis of the above circumstantial evidences, the Tribunal opined that it was the plausible argument that when it purchased the electronic goods naturally the amount credit received in the bank account was from the sale of those goods. This was also linked from the fact that amount deposited in the bank in cash was used repay dues of the same credit cards. In view of the above facts, the addition made by the AO u/s 69A of the Act did not survive.
The Tribunal further noted that the appeal of the assessee was dismissed by the CIT(A) as assessee failed to submit the copies of the bills and the name, address, account numbers of the parties who have purchased the goods.
However, the Tribunal opined that naturally, assessee did not have these kinds of evidences at all. Further, when the provisions of section 44AD of the Act are applied, the assessee could not have maintained atleast the sales bills. The assessee had disclosed gross receipt and appropriate profit on that.Â
The Tribunal noted that explanation (f) of section 139(9) of the Act requires that where regular books of account are not maintained by the assessee, the return should be accompanied by a statement indicating the amounts of turnover or, as the case may be, gross receipts, gross profit, expenses and net profit of the business or profession and the basis on which such amounts have been computed, and also disclosing the amounts of total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year:
The Tribunal opined that, the requisite details shown in the form of bank statement, bank balance and gross receipt were in accordance with the said explanation (f) of section 139(9) of the Act. Therefore, the finding of the CIT(A) for rejecting the explanation of the assessee was also not proper looking at the provisions of section 44AD of the Act. Â
However, the Tribunal opined that the assessee was also supposed to pay tax on the income earned from the sale of goods. The assessee had offered a sum of 5% on its own. Before the Bench, the assessee had stated that correct figure should be 8% of the total turnover, which was accepted by the assessee.Â
Accordingly, AO was directed to adopt 8% as the income of the assessee and consequently delete the addition u/s 69A of the Act.Â
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