20 February 2024
For AY under consideration the assessee failed to file a return of income within the time specified under section 139(1) of the Act. It was only in response to notice u/s.148 issued by the Department initiating re-assessment proceedings, that a return has been filed declaring a profit of Rs. xxxx offered for tax under section 44AD of the Act.
Since the assessee failed to fulfill the applicability of section 44AD of the Act the assessee is asked to show cause as to why the profit offered for taxation u/s.44AD of the Act should not be rejected.
Expert view is sought whether the proposed action of AO is Right? Please supplement with relevant section, case laws, if any.
11 July 2024
The proposed action of the Assessing Officer (AO) to question the applicability of Section 44AD and potentially reject the profit offered for taxation under this section appears to be correct based on the information provided. Here’s an analysis supported by relevant sections of the Income Tax Act and relevant case law:
### Understanding Section 44AD:
Section 44AD of the Income Tax Act, 1961, provides for a presumptive taxation scheme for certain eligible businesses. Under this section, eligible taxpayers can declare their income at a prescribed rate (usually a percentage of turnover or gross receipts) without maintaining detailed books of accounts. This scheme is available to resident individuals, Hindu Undivided Families (HUFs), and partnerships (other than LLPs) whose turnover or gross receipts do not exceed Rs. 2 crores.
### Applicability Conditions of Section 44AD:
1. **Timely Filing of Return**: To avail the benefits of Section 44AD, the taxpayer must file the income tax return within the due date specified under Section 139(1) of the Income Tax Act.
2. **Failure to Comply**: If the taxpayer fails to file the return within the due date under Section 139(1), they lose the benefit of presumptive taxation under Section 44AD for that assessment year.
### Relevant Legal Provisions:
- **Section 44AD(4)**: This sub-section specifies that the provisions of Section 44AD shall not apply to an assessee who is required to maintain books of accounts under Section 44AA(1) and fails to do so or fails to furnish the same.
- **Section 139(1)**: This section specifies the due date for filing income tax returns. Failure to file the return within this due date can have implications on claiming benefits under various sections, including Section 44AD.
### Case Law and Judicial Precedents:
1. **CIT vs. Laxman Das Khandelwal (2002)**: In this case, the Madras High Court held that where the assessee failed to maintain books of accounts as required under Section 44AA, the benefit of Section 44AD cannot be allowed.
2. **DIT vs. Spacewood Furnishers Pvt. Ltd. (2016)**: The Bombay High Court observed that the benefits of a presumptive taxation scheme like Section 44AD are conditional upon the taxpayer complying with the statutory requirements, including timely filing of returns.
### Expert View:
Considering the provisions of Section 44AD and Section 139(1), along with judicial precedents, the AO is justified in questioning the applicability of Section 44AD if the assessee failed to file the return within the due date specified under Section 139(1). Failure to comply with this statutory requirement may lead to the disallowance of benefits under Section 44AD, and the AO may proceed with assessing the income based on regular provisions of the Income Tax Act, rather than presumptive taxation.
**Conclusion:** The proposed action of the AO to question the applicability of Section 44AD due to failure to file the return within the specified time under Section 139(1) appears to be legally sound and in line with the provisions of the Income Tax Act and relevant judicial precedents. It is advisable for the assessee to respond to the show cause notice with necessary explanations and documentation to support their case, or seek professional advice for further proceedings.
12 July 2024
Thank You Sir for the Detailed Explanation. However Whether it has been specifically Mentioned anywhere in the Provision of the Act, that the Return needs to be filed within 139(1). Because I didnot find any mentioned anywhere in the Act of such Provisions.
Also What about the case of 139(4), 139(5) and 139(8A).. Can 44AD be Claimed ?
CAclubindia
