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Tax Publishers Kokkarne Prabhakara v. ITO [ITA No. 1239/Bang/2019, dt. 11-9-2020] : 2020 TaxPub(DT) 3676 (Bang.-Trib.) Additions under section 68 in the case of presumptive taxation under section 44AD *Facts:* Assessee was under presumptive taxation section 44AD. He had credits in bank account for Rs. 3 lakhs which could not be explained. These were added under section 68 with Commissioner (Appeals) confirming the order of the assessing officer. On higher appeal - Held in favour of the assessee that once the assessee falls into the presumptive taxation scheme under section 44AD there cannot be further additions sustained under section 68 as that would defeat the very purpose of expenditure being 92% of the 100% income based on which only 8% is deemed as taxable income after all expenditure/deductions under the Act. *Editorial Note -* The below principles will need to be read in addition to this verdict. 1. Nothing prevents an ITO to question as to if 44AD should be applied or not to an assessee especially if income is more than the designated 8% on the gross receipts nor does presumptive provisions overrun an assessing officer to pursue normal assessment on fit and judicious reasoning if that warrants. If gross receipts exceed the threshold under section 44AD the application itself would be under debate. This is confirmed by A. Sanyasi Rao case 1996 AIR 1219 SC : 1996 SCC (3) 465 (in the domain of section 44AC) but it's rationale would apply to all presumptive tax sections where in it was held that presumptive tax provisions were adjunct provisions to normal assessment provisions nothing more. 2. As for the issue as to whether additions under section 68 to 69B be applied to a case of presumptive tax the different ITAT have said that section 68 to 69B cannot be applied in the scope of section 44AD. 3. The correct approach of an ITO would be to question application of section 44AD in first place then breach section 68 to 69B based on evidences. 4. Maintenance of books would certainly apply or will become sine qua non if application of section 44AD is questioned as the assessee cannot have any other resort to prove the non-applicability at best he can draw a cash flow and explain for which also he will need some form of books of accounts to be maintained. In such cases section 68 to 69B can also be applied as the restriction to prevent application of section 68 to section 69B is available only if section 44AD is applicable factually. This offers some option for tax planning certainly. A person having say cash credits which are sticky can choose section 44AD and get out of additions thereto possibly but then the department has to think smarter to nail them down by questioning applicability of section 44AD in the first place.

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Kokkarne Prabhakara v. ITO [ITA No. 1239/Bang/2019, dt. 11-9-2020] : 2020 TaxPub(DT) 3676 (Bang.-Trib.)

Additions under section 68 in the case of presumptive taxation under section 44AD

Facts:

Assessee was under presumptive taxation section 44AD. He had credits in bank account for Rs. 3 lakhs which could not be explained. These were added under section 68 with Commissioner (Appeals) confirming the order of the assessing officer. On higher appeal -

Held in favour of the assessee that once the assessee falls into the presumptive taxation scheme under section 44AD there cannot be further additions sustained under section 68 as that would defeat the very purpose of expenditure being 92% of the 100% income based on which only 8% is deemed as taxable income after all expenditure/deductions under the Act.

Editorial Note - The below principles will need to be read in addition to this verdict.

1. Nothing prevents an ITO to question as to if 44AD should be applied or not to an assessee especially if income is more than the designated 8% on the gross receipts nor does presumptive provisions overrun an assessing officer to pursue normal assessment on fit and judicious reasoning if that warrants. If gross receipts exceed the threshold under section 44AD the application itself would be under debate. This is confirmed by A. Sanyasi Rao case 1996 AIR 1219 SC : 1996 SCC (3) 465 (in the domain of section 44AC) but it's rationale would apply to all presumptive tax sections where in it was held that presumptive tax provisions were adjunct provisions to normal assessment provisions nothing more.

2. As for the issue as to whether additions under section 68 to 69B be applied to a case of presumptive tax the different ITAT have said that section 68 to 69B cannot be applied in the scope of section 44AD.

3. The correct approach of an ITO would be to question application of section 44AD in first place then breach section 68 to 69B based on evidences.

4. Maintenance of books would certainly apply or will become sine qua non if application of section 44AD is questioned as the assessee cannot have any other resort to prove the non-applicability at best he can draw a cash flow and explain for which also he will need some form of books of accounts to be maintained. In such cases section 68 to 69B can also be applied as the restriction to prevent application of section 68 to section 69B is available only if section 44AD is applicable factually. This offers some option for tax planning certainly. A person having say cash credits which are sticky can choose section 44AD and get out of additions thereto possibly but then the department has to think smarter to nail them down by questioning applicability of section 44AD in the first place.