No Immunity from addition under Section 68 even if taxpayers opts for presumptive scheme of taxation under section 44AD
In The case of Hemant Shah HUF vs. ACIT, ITA No. 4516/Mum/2024, decided on April 30, 2025, by the Mumbai Income Tax Appellate Tribunal (ITAT), addresses the interplay between presumptive taxation under Section 44AD and additions under Section 68 of the Income Tax Act.
Let us have a Short Overview of the case:
Assessee’s Background
Assessee, engaged in trading, filed income under the presumptive taxation scheme of Section 44AD. Upon enquiry, certain purchases were deemed non-genuine. The assessee contended that since income was declared on a presumptive basis, no further additions could be made.
Assessing Officer’s (AO) Action:
The AO rejected this claim, making additions under Section 68 for unexplained cash credits related to the alleged bogus purchases.
ITAT’s Ruling: The Tribunal held that:
1. Neither Section 68 nor Section 44AD explicitly prohibits additions for unexplained cash credits when income is declared presumptively.
2. Citing precedents, including a Chandigarh Tribunal decision, it affirmed that presumptive taxation doesn’t bar Section 68 additions.
3. If transactions are sham or mere accommodation entries, disallowance of purchases is justified, as upheld by the Bombay High Court.
4. Therefore, opting for presumptive taxation doesn’t preclude verification and potential addition of purchases if warranted.
Implications:
This decision underscores that while Section 44AD simplifies taxation for small businesses, it doesn’t shield them from scrutiny regarding the genuineness of transactions.
Taxpayers must ensure authenticity in their dealings, as presumptive taxation doesn’t grant immunity from additions under Section 68 for unexplained credits.
In short, small business taxpayers opting for 44AD must still ensure genuineness and transparency in their books. Presumptive tax doesn’t mean presumptive legitimacy.
The copy of the order is as under:
