Is it mandatory to file return under presumptive taxation

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 March 2012 Dear Experts,

As per erstwhile section 44AF of the Inccome tax act if a person is not having a turnover over Rs. 40 Lacs in a year and declares a profit @5% or higher of the turnover then he is not required to maintain any books of accounts and other documents. Now Suppose a person made a turnover of Rs. 30 Lacs in retail trade during the financial year 2008-09 and assumed a net profit of 5% under 44AF, which comes to Rs. 1.5 Lacs, now as per the provisions of section 139(1) since his net profit computed as allowed by section 44AF is below the net income which is not chargeable to tax he is not under the obligation to file income tax return. (There is no provision in 44AF or anywhere in the act which mandates the return filling compulsory even if the net income is below the exemption limit). Now my question is that:-
1. If the person has not maintained any books of accounts or other documents except bank statements of 2008-09 which shows cash deposits and withdrawals (Business receipts/expenditure), also total deposists including cash deposits not exceeding the aforesaid turnover of Rs 30 Lacs, if income tax department comes to know about these cash transactions through AIR from bank, can it assume this whole deposit amount as income and not turnover, if yes then under what section.
2. Whether the very fact that person has not filed ITR of the concerned year which he was not obliged to file, excludes him from availing benefit of section 44AF.

Guest

Guest (Expert)

17 March 2012 1. Maintain the records of gross receipts so as if required can be produced before department as proof. 2. Since the income is below the maximum amount not chargeable to tax return is not required to be filed. Also he cannot be deprived to take benefit of section 44 AF.

Querist : Anonymous

Querist : Anonymous (Querist)

17 March 2012 Dear Mr. Ketan, Thanks for the revert, Also thanks for agreeing with point No. 2, but as far as point No. 1 is concerned please note that section 44AF exempts a person from maintaining any books of accounts and other documents under section 44AA if does not claim his net profits below 5%. Now as a practical measure if he is not maintaining any records like purchase, sales cash memos or inventory records etc and depositing all his sales realization in a bank account regularly and making regular withdrawals to make business expenditure and having only this bank statement then also I think AO can not hold him guilty for non maintenance of books of accounts, Also there are mutilple cash deposits during the year and non of them exceeds rs 50K and person is declaring all the cash deposits as his business turnover. Please refer case law of CIT vs Surinder Pal Anand in this situation and provide your views please.

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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01 August 2024 Under the Income Tax Act, 1961, the provisions related to presumptive taxation and the filing of returns can be nuanced. Let's address your queries one by one:

### **1. Maintenance of Records and Income Assessment**

**A. Non-Filing of Return and Cash Deposits:**

- **Turnover vs. Income:** If a person follows the presumptive taxation scheme under section 44AF, they are not required to maintain detailed books of accounts if they declare profits at 5% or more of turnover and their turnover is below Rs. 40 lakhs. However, this does not exempt them from the obligation of filing returns under certain conditions.

- **Cash Deposits and Income:** Even if the person did not maintain detailed books of accounts but has bank statements showing cash deposits and withdrawals, the Income Tax Department can still examine these transactions. Under the provisions of section 68, if the AO finds unexplained deposits or receipts, they can treat these as unexplained income.

**Relevant Section:**
- **Section 68:** This section deals with unexplained cash credits, where any unexplained credit in the books of an individual is treated as income.

**B. Applicability of Section 44AF:**

- Section 44AF allowed certain retail traders to avoid detailed accounting if they met specific conditions. However, it did not exempt individuals from the requirement of filing a return if their income exceeded the basic exemption limit.

### **2. Filing Returns and Benefit of Section 44AF**

- **Filing Requirement:** Even though Section 44AF did not require detailed books of accounts, it did not exempt an individual from the obligation of filing a return under Section 139(1). The return filing requirement is separate and based on the income and turnover thresholds set by the Income Tax Act.

- **Section 44AF and Record Maintenance:** If a person declares income under Section 44AF, they are still required to file a return. Non-filing could lead to the presumption that the person has not complied with the provisions of the Act, and this could result in scrutiny of their financial transactions.

### **Case Law: CIT vs. Surinder Pal Anand**

In the case of **CIT vs. Surinder Pal Anand**, the court observed that merely because the cash deposits are below a certain threshold and are declared as turnover, it does not automatically justify non-maintenance of records. The ruling reinforced that the burden of proving the source of deposits and transactions lies with the taxpayer.

### **Summary and Recommendations:**

1. **Maintenance of Records:** Even if you are using the presumptive taxation scheme, maintaining basic records, like bank statements, and ensuring compliance with tax laws is crucial. The absence of detailed books of accounts does not absolve one from filing returns or explaining cash deposits.

2. **Filing of Returns:** The obligation to file a return under Section 139(1) exists irrespective of whether the net income is below the exemption limit if you are engaged in business or profession.

3. **Explained Cash Deposits:** If the income is below the exemption limit but there are unexplained cash deposits, the AO may still scrutinize and potentially add the unexplained deposits to the taxable income.

It is always advisable to consult a tax professional or legal advisor to ensure compliance with current provisions and interpretations by the tax authorities.