2025 (6) TMI 1929 - AT - Income Tax

Bogus purchases - assessee has opted for presumptive taxation u/s 44AD - HELD THAT - Admittedly in this case assessee has filed return of income u/s. 44AD of the Act. The return of income is accepted under that section. According to the provisions of the Act if the assessee has opted for presumptive taxation u/s. 44AD the assessee is not required to maintain the books of account as well as the details of purchases made. This is relevant till the total turnover of the assessee does not exceed the prescribed limit u/s. 44AD of the Act. Thus prima facie the assessee could not have been asked the information of purchases. Further the assessee has provided information to the ld. AO in a chart of purchases from AR Enterprises. AO merely on the basis of information received from GST Department made disallowance without making any enquiry about the purchases from AR Enterprises where the assessee has provided complete details of address and GST no. of that party. Thus it is clear that the ld. AO has merely relied upon the information furnished by the GST department and did not gather any evidence on his own for making the addition. As decided in Surinder Pal Anand 2010 (6) TMI 404 - PUNJAB AND HARYANA HIGH COURT assessee was not under an obligation to explain individual entry of purchases unless such entry has nexus with gross receipts. In the present case the purchases do not have any nexus with the gross receipt as gross receipt shown by the assessee remained undisputed and was never tested by the Revenue to be beyond the specified limit. Therefore direct the ld. AO to delete the impugned addition. Appeal of the assessee are allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

• Whether addition of Rs. 16,06,692/- on account of alleged bogus purchases can be made against an assessee who has opted for presumptive taxation under section 44AD of the Income Tax Act, 1961 (the Act).
• Whether the Assessing Officer (AO) was justified in making the addition based solely on information received from the GST department without conducting any independent enquiry or verifying the genuineness of purchases.
• Whether the assessee was obliged to maintain books of account or furnish detailed purchase records when filing return of income under section 44AD.
• Whether the delay of 65 days in filing the appeal before the Tribunal should be condoned on the ground of bonafide belief based on wrong advice from the earlier Chartered Accountant (CA).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Legality of addition of Rs. 16,06,692/- on account of alleged bogus purchases when assessee is covered under section 44AD

Relevant legal framework and precedents: Section 44AD provides for presumptive taxation scheme for small taxpayers, allowing them to declare income at a prescribed percentage (8% in this case) of gross receipts without maintaining detailed books of account. Explanation (f) to section 139 mandates that where books are not maintained, the return should be accompanied by a statement indicating turnover, gross profit, expenses, and net profit, along with sundry debtors, creditors, stock-in-trade, and cash balances. However, the assessee is not obliged to maintain detailed purchase records or explain individual transactions if opting for presumptive taxation under section 44AD, provided turnover does not exceed the prescribed limit.

The Tribunal relied on the decision of the Hon'ble Punjab & Haryana High Court in CIT v. Surinder Pal Anand, which held that where income is offered under section 44AD, the assessee is not required to explain individual entries of cash deposits or purchases unless there is a nexus with gross receipts. The Surat Bench of the ITAT decision was also cited supporting this principle.

Court's interpretation and reasoning: The Tribunal observed that the assessee had filed return under section 44AD, accepted by the AO, and had furnished a chart showing purchases from the supplier with GST number and address. The AO made the addition solely based on information received from the GST department alleging bogus purchases and false input credit claims, without conducting any independent enquiry or verifying the genuineness of the purchases. The Tribunal noted that the GST department had not issued any notice to the assessee for withdrawal of input credit, and the assessee had furnished screenshots from the GST portal supporting this.

The Tribunal emphasized that the purchases did not affect the gross receipts declared by the assessee, which remained undisputed and within the prescribed limits of section 44AD. Since the presumptive taxation scheme exempts the assessee from maintaining detailed books and explaining individual purchases, the AO's addition was not justified.

Key evidence and findings: The assessee filed return under section 44AD, provided details of purchases including GST number and address, submitted GST portal screenshots showing no withdrawal of input credit, and the gross receipts remained undisputed. The AO relied only on GST department information without independent verification.

Application of law to facts: Applying the principle that presumptive taxation under section 44AD exempts the assessee from furnishing detailed purchase details and that additions cannot be made unless the declared gross receipts are found to be incorrect, the Tribunal found the addition untenable.

Treatment of competing arguments: The Revenue argued that the addition was justified based on information from the GST department. The Tribunal rejected this, holding that mere information without enquiry is insufficient to make additions against an assessee covered under section 44AD. The assessee's reliance on judicial precedents was accepted.

Conclusions: The Tribunal allowed the appeal on these grounds and directed deletion of the addition of Rs. 16,06,692/-.

Issue 3: Obligation to maintain books and furnish details under section 44AD

Relevant legal framework: Section 44AD provides a presumptive scheme where the assessee is not required to maintain detailed books or furnish particulars of purchases, provided turnover limits are complied with. Explanation (f) to section 139 requires a statement indicating turnover and other broad financial parameters but not detailed purchase records.

Court's reasoning: The Tribunal held that since the assessee opted for presumptive taxation under section 44AD, he was not obliged to maintain or furnish detailed purchase records. The AO's demand for purchase details and consequent addition was contrary to the statutory scheme.

Application: The assessee's return was accepted under section 44AD, and no evidence was found to dispute the turnover or income declared. Hence, no addition could be sustained on account of alleged bogus purchases.

Issue 4: Condonation of delay in filing appeal

Relevant legal framework and precedents: The Tribunal considered the principle that delay in filing an appeal can be condoned if sufficient cause is shown, including bonafide belief based on wrong legal advice. The Tribunal relied on the decision of the Hon'ble Bombay High Court (86 taxmann.com 98) and the Hon'ble Supreme Court (167 ITR 471), which recognized that wrong advice by a professional can constitute sufficient cause for condonation of delay.

Court's interpretation and reasoning: The assessee was not formally educated and relied on advice of a CA who initially advised against filing appeal. The assessee later consulted another CA who advised that the appeal had merit. The delay of 65 days was due to this change in legal advice. The Tribunal found this to be a bonafide cause and condoned the delay.

Key evidence: Affidavit of the assessee narrating the facts causing delay and certificate of the initial CA confirming he advised not to file appeal.

Treatment of competing arguments: The Revenue objected, stating this was not sufficient cause. However, the Tribunal found the explanation credible and unchallenged by the Revenue.

Conclusion: Delay in filing the appeal was condoned and the appeal was admitted.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Bonafide belief of assessee because of CA's advise is clearly a sufficient cause which caused the delay in filing of the appeal."

"Where the income is offered u/s. 44AD under the special provision which gives exemption from maintenance of books of account and taxed @ 8% of the gross receipt, the assessee is under no obligation to explain individual entries of cash deposit etc., provided the annual turnover does not exceed Rs. 40 lakhs."

"The AO merely on the basis of information received from GST Department made disallowance without making any enquiry about the purchases from AR Enterprises where the assessee has provided complete details of address and GST no. of that party. Thus, it is clear that the AO has merely relied upon the information furnished by the GST department and did not gather any evidence on his own for making the addition."

"The purchases do not have any nexus with the gross receipt as gross receipt shown by the assessee remained undisputed and was never tested by the Revenue to be beyond the specified limit."

"Respectfully following the decision of the Hon'ble Punjab & Haryana High Court, I direct the AO to delete the impugned addition."

Core principles established include that presumptive taxation under section 44AD exempts the assessee from maintaining detailed books and furnishing particulars of purchases, and additions cannot be made on the basis of unverified information without independent enquiry. Further, delay in filing appeal can be condoned for bonafide reasons including reliance on wrong professional advice.

Final determinations were that the delay in filing appeal was condoned, the addition of Rs. 16,06,692/- on account of alleged bogus purchases was deleted, and the appeal was allowed.