To give relief to small assessees, the Income-tax Law has incorporated a simple scheme commonly known as Presumptive Taxation Scheme. There are two schemes viz. the scheme of section 44AD and the scheme of section 44AE. An assessee adopting these provisions is not required to maintain the regular books of account and also exempt from getting the accounts audited. In this advance learning we will cover the provisions of the presumptive taxation scheme provided in section 44AE.
The scheme of section 44AE is designed to give relief to small assessees engaged in the business of goods carriage. The detailed provisions in this regard are as follows:
To whom the provisions of section 44AE are applicable?
Applicability of the scheme
The provisions of section 44AE are applicable to every person (i.e., an individual, HUF, firm, company, etc.).
Unlike section 44AD, in case of section 44AE there is no restriction on which categories of assessees can opt for the scheme.. All sorts of assessees can opt from this scheme.
Which business is eligible for the purpose of scheme prescribed under section 44AE?
Eligible business
The presumptive taxation scheme under these provisions can be opted for by an assessee who is engaged in the business of plying, hiring or leasing goods carriages and does not own more than ten goods vehicles at any time during the previous year.
The important criteria in this scheme is the restriction of owning more than 10 goods vehicles at any time during the previous year. Thus, if an assessee is owning more than 10 goods vehicles during the year, then such an assessee cannot adopt this scheme.
Further, this scheme can be adopted only by the assessees who are engaged in the business of plying, hiring or leasing goods carriages. Thus, an assessee engaged in the business of passenger transport cannot adopt these provisions.
Illustration
Mr. Kumar engaged in the business of plying, hiring or leasing goods carriages owns 9 goods vehicles during the previous year 2014-15. Can he adopt the provisions of presumptive scheme of section 44AE in respect of this business?
**
The provisions of section 44AE can be adopted by an assessee who is engaged in the business of plying, hiring or leasing of goods carriages and does not own more than ten goods vehicles at any time during the previous year. In this case Mr. Kumar owned only 9 vehicles during the year, thus, he satisfied both the criteria of the scheme and hence, he can adopt the provisions of section 44AE for his business of plying, hiring or leasing goods carriages.
How presumptive income is computed under section 44AE?
Scheme of computation of income
In case of an assessee who is willing to opt for these provisions, income will be computed on an estimated basis. The rate of computation of income on estimate basis is as follows :
In respect of heavy goods vehicle :
In respect of heavy goods vehicle income will be computed @ Rs. 5,000 per month or part thereof during which the heavy goods vehicle is owned by the assessee, during the previous year. From Assessment Year 2015-16 i.e. Financial Year 2014-15 the same is been increased to Rs. 7500/- per month and differentiation between Heavy and other good vehicles been removed.
In respect of other goods vehicle :
In case of any other goods vehicle (i.e. other than heavy goods vehicle) income will be computed @ Rs. 4,500 per month or part thereof during which the goods vehicle is owned by the assessee during the previous year. From Assessment Year 2015-16 i.e. Financial Year 2014-15 the same is been increased to Rs. 7500/- per month and differentiation between Heavy and other good vehicles been removed.
Meaning of Goods vehicle (carriage) and heavy goods vehicle:
The expressions "goods carriage" and "heavy goods vehicle" shall have the meanings respectively assigned to them in section 2 of the Motor Vehicles Act, 1988
Clause (14) and clause (16) of section 2 of the Motor Vehicles Act, 1988, define "goods carriage" and "heavy goods vehicle", respectively, as follows :
"Goods carriage" means any motor vehicle constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage of goods;
"Heavy goods vehicle" means any goods carriage the gross vehicle weight of which, or a tractor or a road-roller the unladen weight of either of which, exceeds 12,000 kilograms;'
Illustration
Mr. Khush engaged in the business of plying, hiring or leasing goods carriages owns 8 goods vehicles (heavy goods vehicles) during the previous year 2014-15. He wants to adopt the provisions of section 44AE in respect of this business. In this case what will be the income as per the provisions of section 44AE?
**
As per the provisions of section 44AE, in respect of heavy goods vehicle income will be computed @ Rs. 7,500 per month or part thereof during which the heavy goods vehicle is owned by the assessee, during the previous year. In the present case Mr. Khush owned 8 heavy goods vehicles during the year and, hence, income will be computed as follows :
| Particulars | Rs. |
| Income per month per heavy goods vehicle | 7,500 |
| (×) No. of goods vehicle | 8 |
| Monthly income as per the provisions of section 44AE | 60,000 |
| (×) No. of months in a year | 12 |
| Total income as per the provisions of section 44AE | 7,20,000 |
Illustration
Mr. Khushal engaged in the business of plying, hiring or leasing goods carriages owns 6 goods vehicles (light goods vehicles) during the previous year 2012-13. He wants to adopt the provisions of section 44AE in respect of this business. In this case what will be the income as per the provisions of section 44AE?
**
As per the provisions of section 44AE, in respect of goods vehicle (other than heavy goods vehicle) income will be computed @ Rs. 4,500 per month or part thereof during which the goods vehicle is owned by the assessee, during the previous year. In the present case Mr. Khushal owned 6 goods vehicles during the year and, hence, income will be computed as follows:
| Particulars | Rs. |
| Income per month per goods vehicle (other than heavy vehicle) | 4,500 |
| (x) No. of goods vehicle | 6 |
| Monthly income as per the provisions of section 44AE | 27,000 |
| (x) No. of months in a year | 12 |
| Total income as per the provisions of section 44AE | 3,24,000 |
Illustration
Miss. Khushali engaged in the business of plying, hiring or leasing goods carriages owns 4 goods vehicles (light goods vehicles) and 5 heavy goods vehicles during the previous year 2012-13. She wants to adopt the provisions of section 44AE in respect of this business. In this case what will be the income as per the provisions of section 44AE?
**
As per the provisions of section 44AE, in respect of goods vehicle (other than heavy goods vehicle) income will be computed @ Rs. 4,500 per month or part thereof during which the goods vehicle (other than heavy goods vehicle) is owned by the assessee during the previous year. In respect of heavy goods vehicle income will be computed @ Rs. 5,000 per month or part thereof during which the heavy goods vehicle is owned by the assessee during the previous year. In the present case Miss. Khushali owned 4 light vehicles and 5 heavy goods vehicles during the year and, hence, income will be computed as follows :
| Particulars | Rs. |
| Income per month per goods vehicle (other than heavy vehicle) | 4,500 |
| (x) No. of goods vehicle | 4 |
| Monthly income as per the provisions of section 44AE | 18,000 |
| (x) No. of months in a year | 12 |
| Total income as per the provisions of section 44AE from goods vehicles (other than heavy goods vehicles) (A) | 2,16,000 |
| Income per month per heavy goods vehicle | 5,000 |
| (x) No. of heavy goods vehicle | 5 |
| Monthly income as per the provisions of section 44AE | 25,000 |
| (x) No. of months in a year | 12 |
| Total income as per the provisions of section 44AE from heavy goods vehicles (B) | 3,00,000 |
| Total income from business of plying, hiring or leasing goods carriages as per the provisions of section 44AE (A + B) | 5,16,000 |
What are the provisions relating to various allowances/disallowances in case of an assessee opting for the scheme of section 44AE?
Provisions relating to various allowances/disallowances
Income computed as above (i.e., @ Rs. 4,500 per month /Rs. 5,000 per month/Rs. 7,500/- per month) will be net income for the business covered under this scheme.
From the net income computed as above, assessee is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation).
Provisions in case of a partnership firm
It should be noted that an assessee, being a partnership firm, can claim further deduction of remuneration and interest to its partners within the limit specified under section 40(b). In other words, in case of an assessee being a partnership firm, separate deduction from the net income computed as per presumptive taxation scheme in respect of remuneration and interest paid to partners is allowed.
Further, from income computed at the aforesaid rate, no disallowance can be made under sections 40, 40A and 43B. Thus, in case of an assessee adopting the presumptive taxation scheme of section 44AE, no disallowance under section sections 40, 40A and 43B will apply.
Illustration
Mr. Kapoor is engaged in the business of plying, hiring or leasing goods carriages. He owned 8 goods vehicles during the previous year 2014-15 and declared income as per the provisions of section 44AE. After computing the income @ Rs. 7,500 per month, he wants to claim further deduction on account of depreciation on the goods vehicle. Can he do so as per the provisions of section 44AE?
**
As per the provisions of section 44AE, from the net income computed at the prescribed rate, i.e., Rs. 7,500 per month, assessee is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation) from such income. Thus, in this case Mr. Kapoor cannot claim any further deduction from the net income computed @ Rs. 7,500/- per month.
Illustration
SM Transport Corporation a partnership firm is engaged in the business of plying, hiring or leasing goods carriages and owned 6 heavy goods vehicles during the previous year 2014-15 and declared income as per the provisions of section 44AE. After computing the income @ Rs. 7,500 per month, the firm wants to claim further deduction on account of remuneration and interest to its partners within the limit specified under section 40(b). Can the firm do so as per the provisions of section 44AE?
**
As per the provisions of section 44AE, from the net income computed at the prescribed rate, i.e., Rs. 7,500 per month, assessee is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation) from such income. However, in case of an assessee, being a partnership firm, further deduction on account of remuneration and interest to its partner within the limit specified under section 40(b) is allowed. Thus, in this case the firm can claim further deduction on account of remuneration and interest to its partners within the limit specified under section 40(b).
What is the manner of computation of WDV of depreciable assets in case of an assessee opting for the scheme of section 44AE?
Manner of computation of WDV of depreciable assets
As discussed above, an assessee opting for the presumptive taxation scheme is not permitted to claim deduction on account of various expenditures including depreciation.
In this context, as regards the computation of the WDV of depreciable asset, following provision should be kept in mind :
Deduction on account of depreciation is not available. However, the WDV of any asset used in the business covered under the scheme of section 44AE shall be calculated as if depreciation as per section 32 is claimed and allowed. Thus, even though no depreciation is available separately, yet for purpose of computation of the WDV of the asset depreciation will be deducted.
Illustration
Essem Transport Corporation a partnership firm is engaged in the business of plying, hiring or leasing goods carriages and owned 8 heavy goods vehicles during the previous year 2014-15 and declared income as per the provisions of section 44AE. After computing the income @ Rs. 7,500 per month, the partners of the firm are of the opinion that in computing the WDV of the vehicles owned by them depreciation will not be deducted since no deduction on account of the same is claimed. Is the contention of partners correct?
**
As per the provisions of section 44AE, from the income computed as per the provisions of section 44AE, further deduction on account of depreciation is not available. However, the WDV of any asset used in the business covered under the scheme of section 44AE shall be calculated as if depreciation as per section 32 is claimed and allowed. Thus, the contention of the partner is not correct. Even though no depreciation is claimed by the firm, yet for purpose of computation of the WDV of the asset, depreciation will be deducted from the value of the block.
What are the provisions relating to maintenance of books of account in case of an assessee opting for the scheme of section 44AE?
Provisions relating to maintenance of books of account
The scheme gives a great relief to the assessee in respect of maintenance of books of account. An assessee, who adopts above provision, is not required to maintain books of account as per section 44AA (applicable only for business covered by this section). Further, in respect of such business, the provisions of section 44AB (relating to audit) are also not applicable.
Thus, the scheme relieves the assessee from the maintenance of regular books of account. Apart from giving relief from maintenance of books of account, the scheme also relieves the assessee from audit of account.
Illustration
Mr. Kaushal is engaged in the business of plying, hiring or leasing goods carriages. He owned 8 goods vehicles during the previous year 2014-15 and declared income as per the provisions of section 44AE. In this case will he be liable to maintain the books of account in respect of aforesaid business?
**
As per the provisions of section 44AE an assessee who adopts above provision is not required to maintain books of account as per section 44AA (applicable only for business covered by this section). However, it should be noted that the relief is available only in respect of business covered by the provisions of section 44AE and not in respect of any other business. Thus, if Mr. Kaushal owns any other business, then in respect of such business the provisions of section 44AA in respect of maintenance of books of account will apply.
Can an assessee covered by section 44AE declare lower income as compared to income specified in section 44AE?
Declaration of lower income
If the actual income from the business covered under section 44AE is lower than the income prescribed under the presumptive scheme, then the assessee can declare income from aforesaid business at a lower rate.
If the assessee does so, i.e., declares lower income, then the relief from maintenance of account in not available and he is required to maintain the books of account as per section 44AA and further, he has to get such books of account audited as per section 44AB.
Illustration
Mr. Kaushal is engaged in the business of plying, hiring or leasing goods carriages and owned 8 heavy goods vehicles during the previous year 2014-15. His actual income per goods vehicle per month is less than Rs. 7,500. In this case can he declare income lower than the limit prescribed under section 44AE?
**
As per the provisions of section 44AE, if the actual income from the business covered under section 44AE is lower than the income prescribed under the presumptive scheme, then the assessee can declare income from aforesaid business at a lower rate (i.e., at less than Rs. 7,500). Thus, in this case Mr. Kaushal can declare lower income. However, in this case he has to maintain the books of account prescribed under section 44AA and has to get the account audited.
Can an assessee covered by section 44AE declaration higher income as compared to income specified in section 44AE?
Declaration of higher income
As regards the declaration of higher income, i.e., declaring income above the prescribed rate of Rs. 7,500 per month, the scheme permits the assessee to declare at his option higher income (i.e., higher than Rs. 7,500).
Illustration
Mr. Kamal is engaged in the business of plying, hiring or leasing goods carriages and owned 9 goods vehicles during the previous year 2014-15. His actual income per goods vehicle per month is more than Rs. 7,500. In this case can he declare income above the limit prescribed under section 44AE?
**
As per the provisions of section 44AE, if the actual income from the business covered under section 44AE is higher than the income prescribed under the presumptive scheme, then the assessee has to declare such higher income from aforesaid business. Thus, in this case Mr. Kamal can declare higher income.
Bhagyanagar Oil Industries vs. ITO (ITAT Hyderabad), ITA No. 1178 of 2012, Date of Pronouncement – June 12, 2015
Brief Facts of the case:
The assessee is a partnership firm which is engaged in the business of manufacture and trading in edible oils. The return of income for the year under consideration was filed by it on declaring total income of Rs.45,008. In the assessment originally completed under section 143(3), the total income of the assessee was determined by the A.O. at Rs.59,14,923 after making additions of Rs.54,49,961 under Sec 68 treating the amount payable by the assessee to farmers towards purchase of sunflower seeds as unexplained cash credits.
Further AO added the opening balances standing to the credit of M/s.Ammireddy Oil Limited & M/s.Krishnaveni Agrotech Products of Rs.2,27,952/- & 1,91,992/-respectively are to be added as the corresponding balances were not found in the books of suppliers.
The appeal filed by the assessee against the said order was dismissed by the CIT (A) and when the assessee filed a further appeal beforethe Tribunal, the Tribunal vide its order dated 12.11.2010 set aside the orders of the authorities below and remanded back the matter to the file of the A.O. for completing theassessment afresh, after giving proper and sufficient opportunity of being heard to the assessee. As per the directions of the Tribunal, fresh assessment proceedingswere initiated by the Assessing Officer.
During the course of the said proceedings, the credit balances appeared in the books of account of the assessee in the name of seven farmers aggregating to Rs.54,49,961 were examined by the A.O. to verify their genuineness. In this regard, summons issued by him under section 131 to the seven creditors returned back un-served by the postal authorities stating that there were no such persons available on the given address. The AO, therefore, issued a commission to the ITO, Ward-1, Adoni who deputed hisInspector to conduct enquires with the concernedcreditors. Such enquires made by the Inspector revealed that the address of the creditors given by the assessee was not sufficient to trace thecreditors. He also reported that it was not possible to find out the address of the said creditors as they were farmers doing cultivation in some village.
The A.O. therefore required the assessee to produce the said creditors/farmers before him for verification along with their bank statements. The assessee however failed to do so and filed only the payment receipts duly acknowledged by the concerned creditors/farmers. The A.O. therefore held that theconcerned credit balances appearing in the name of theseven farmers were not satisfactorily explained by theassessee in terms of section 68 and accordingly, theaggregate amount of Rs.54,49,961 of such credits was added by him to the total income of the assessee under section 68 of the Act.
The AO also added the opening balances standing to the credit of M/s. Ammireddy Oil Limited & M/s.Krishnaveni Agrotech Products of Rs.2,27,952/- & 1,91,992/-respectively as the same were not appearing in the books of suppliers and assessee failed to provide any reconciliation for the difference.
The order of AO was confirmed by CIT (A), being aggrieved by the same assessee preferred an appeal before ITAT.
Contention of the Assessee:
The learned counsel for the assesse submitted, the additions made as cash credits being in nature of trade credits on account of purchase of sunflower seeds, thus, are not in the nature of cash credits as envisaged under section 68 and the same therefore cannot be added to the income of the assessee by invoking the said provision.
The learned counsel also pointed that the trading account of the assessee for the year under consideration the corresponding seeds purchased from the seven farmers for Rs.54,49,961 weresold in the year under consideration itself for Rs.58,89,195 and the said sale was duly credited to the trading account of the assessee. The purchase & corresponding sale clearly indicate that the transaction of purchase is not a bogus one.
In respect of additions made by AO for opening balances of two suppliers (as stated above) the learned counsel contended that the amounts appearing in the name of the said two parties being trade credits could not be added as unexplained cash credits by virtue of provisions of section 68.He also challenged the addition u/s 68C made by CIT(A) for the same stating that the corresponding expenditure on account of purchases having been incurred by the assessee in the immediately preceding year i.e., A.Y. 2004-05, addition under section 69C treating the same as unexplained expenditure could be made only in A.Y. 2004-05 and not in the year under consideration i.e., A.Y. 2005-06.
Contention of the Revenue:
As regards, the first issue the addition made by the A.O. under section 68 for (amounts payable to farmers for purchase of sunflower seeds) that the primary onus to explain the cash credits wason the assessee and the assessee having failed to discharge the said onus satisfactorily, the addition madeby the A.O. under section 68 was fully justified.
As regards, the additions made in respect of opening balances of two creditors (for which the assessee failed to explain the difference in the books of assessee and the creditors), the learned counsel for Revenue contended that the opening balance which could not be explained by the assessee represent liabilities which had ceased to exist could be added to the total income of the assessee alternatively under section 41(1).
Decision of the ITAT:
The ITAT after considering the rival submissions took up both the issues one by one.
As regard the first addition u/s 68 ITAT observed that the impugned credits being trade credits of the assessee on account of purchase of sunflower seedsare not in the nature of cash credits as envisaged undersection 68 and the same therefore cannot be added to the income of the assessee by invoking the said provision because the corresponding sale of the same products credited to the Trading A/c of the assessee. Therefore, it cannot be taxed as unexplained cash credit as the purchase could not be treated as bogus one.
As regards, the second addition in respect of unexplained of opening balances, ITAT observed that the in reply to a query raised by the Bench, that the two amounts in question have not been paid by the assessee till date nor any party has demanded the said amounts appearing in the books of account of the assessee as liabilities. Since the said amounts represented liabilities of the assessee on account of purchases which had been claimed as expenditure in the earlier years, thus, the provisions of section 41(1) are clearly applicable when it is established that the said liabilities as shown by the assessee actually ceased to exist in the year under consideration itself. We, therefore, confirm the addition made on this issue by invoking the provisions of section 41(1) and dismiss the appeal of assessee on this ground.
Appeal of assessee was allowed in part.
Link to Download Order from Official Website of the ITAT
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