The Income Tax Appellate Tribunal (ITAT), Kolkata bench, held that the assessing officer could not direct the assessee to produce a profit and loss account to show the source of expenditure when the gross receipt under Section 44AD of the Income Tax Act, 1961, was not recorded.
The assessee, Prem Kumar Goutam, was a brick kiln dealer and composition dealer under the provisions of the Bihar Value Added Tax Act, 2005. In the return of income, the assessee offered income under Section 44AD at 8% of the gross receipts, calculated at Rs. 49,45,000.
Accordingly, the AO completed the assessment and made two additions under Section 69C of the Income Tax Act. Furthermore, the AO argued that the assessee failed to explain the sources of the amount paid to the Mining Department, VAT, and professional tax.
Subsequently, the AO initiated penalty proceedings under Section 270A of the Income Tax Act. In response to the penalty proceedings, the assessee was advised to pay taxes and interest to immunize from the penalty. The assessee completed the immunization process, paid the taxes and interest; however, no immunity was granted, and a Section 270A penalty was assessed for underreporting income.
Aggrieved by the revision order, the assessee filed an appeal before the CIT(A), who dismissed the appeal. Therefore, the assessee filed a second appeal before the tribunal.
The tribunal observed that, as per Section 44AD of the Income Tax Act, for certain categories of assesses, a mechanism is provided to offer income at a fixed rate, i.e., 8% of the gross receipts. In the assessee’s case, the Assessing Officer did not contest that the assessee did not fit under the Section 44AD category.
Therefore, if the Assessing Officer failed to document a determination that the assessee is not eligible for the income offered under Section 44AD, which is 8% of gross receipts, he would be unable to order the assessee to submit a profit and loss account outlining the sources of expenditures. Thus, the assessee cannot be accused of underreporting income or be subject to a penalty under Section 270A of the Income Tax Act.
After reviewing the facts and records, the two-member bench of Rajesh Kumar (Accountant member) and Rajpal Yadav (Vice-President) allowed the appeal filed by the assessee. Samit Kumar, counsel, appeared for the assessee, and Rupesh Agrawal, counsel, appeared for the revenue.
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