2019 (6) TMI 1365 - AT - Income Tax

Addition u/s 68 - assessee opted to declare income u/s 44AD @ 8% - HELD THAT - Section 44AD gives an option to the assessee to offer income on presumptive basis. These are special provisions. The assessee has opted for the same and offered to tax income at the rate of 8% of his turnover. The issue is whether, the AO can examine statement of accounts in such cases, make additions towards undisclosed purchases, undisclosed expenditure, under valuation of closing stock etc., The turnover declared by the assessee is accepted by the revenue. In my considered opinion such additions go against the spirit of the Act. Section 44AD was introduced to help the small traders who have difficulties in maintaining books of account and other records. Tax is levied on presumptive basis. Thus delete the addition in question. The case-law relied upon by the CIT(A) are not applicable to the facts of the case, as in that case what was held is that an addition u/s 68 could be made when income has been estimated. AO nor the CIT(A) have given any reason as to why the provisions of Section 44AD of the Act are not applicable to this case. Hence, we delete all the addition made in this case. The income returned, is directed to be accepted, by the Assessing Officer. - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Undisclosed purchases.
2. Unexplained expenditure under Section 69C of the Income Tax Act.
3. Undisclosed sundry debtor.
4. Bogus unsecured loan.
5. Under valuation of closing stock.
6. Applicability of Section 44AD of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Undisclosed Purchases:
The Assessing Officer (AO) made additions towards undisclosed purchases after examining the profit and loss account and balance sheet submitted by the assessee. The AO found discrepancies in the purchases reported by the assessee, leading to the addition.

2. Unexplained Expenditure under Section 69C of the Income Tax Act:
The AO added unexplained expenditure under Section 69C of the Act. The assessee argued that under Section 44AD, he was not obligated to maintain books of accounts and that the income was declared on a presumptive basis. The AO, however, found inconsistencies in the expenditure reported.

3. Undisclosed Sundry Debtor:
The AO included an undisclosed sundry debtor in the total income of the assessee. The assessee contended that such additions should not be made when income is declared under Section 44AD.

4. Bogus Unsecured Loan:
An addition was made for a bogus unsecured loan identified by the AO. The assessee argued that under the presumptive taxation scheme, such detailed scrutiny was not warranted.

5. Under Valuation of Closing Stock:
The AO also made an addition for under valuation of closing stock. The assessee maintained that under Section 44AD, the AO should not delve into such specifics.

6. Applicability of Section 44AD of the Income Tax Act:
The central issue was whether the AO could make separate additions when the income is declared under Section 44AD. The assessee argued that once income is declared under this section, no further additions should be made based on the statement of accounts. The CIT(A) disagreed, citing precedents where additions under Section 68 were upheld even when income was estimated.

Judgment Analysis:

Section 44AD of the Act:
Section 44AD allows an assessee to offer income on a presumptive basis, particularly for small traders who face difficulties in maintaining detailed books of accounts. The income is presumed to be 8% of the turnover.

Case Law References:
The judgment referenced the case of CIT vs. Surinder Pal Anand [2010] 192 Taxman 264 (Punjab & Haryana), where it was held that under Section 44AD, the assessee is not obligated to explain individual entries unless they have no nexus with the gross receipts. The Tribunal also cited Nand Lal Popli vs. DCIT, where it was held that the AO cannot make additions under Section 69C when income is assessed under Section 44AD, as the expenditure is also deemed.

Tribunal's Findings:
The Tribunal held that the additions made by the AO towards undisclosed purchases, unexplained expenditure, undisclosed sundry debtor, bogus unsecured loan, and under valuation of closing stock were against the spirit of Section 44AD. The Tribunal emphasized that Section 44AD was introduced to simplify taxation for small traders by allowing them to declare income on a presumptive basis without maintaining detailed books of accounts.

Conclusion:
The Tribunal concluded that the AO and CIT(A) erred in making separate additions when the income was declared under Section 44AD. The additions were deleted, and the income returned by the assessee was directed to be accepted. The appeal of the assessee was allowed.