The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has recently held that commission income earned from real estate business should not be attracted to Section 44AD of the Income Tax Act.
The assessee Sukhbir Shokeen is engaged in the sale and purchase of properties as a broker and deals in real estate and agricultural land. The assessee filed a return of income declaring income at Rs. 10,65,080.
When a search and seizure action was conducted on the premises of the assessee it was found the substantial cash credits in his bank accounts. Assessee submitted that he mostly acted as a broker for trading in agricultural land.
During the proceedings, AO observed that the assessee could not explain the substantial credits including the cash deposits in his different bank accounts.
Thus, the income of the appellant has been computed by the AO at the rate of 8% of the total receipts/credits of Rs.11,08,41,059, under Section 44AD of the Income Tax Act at Rs.88,67,284.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), who allowed the appeal filed by the assessee. However, the aggrieved revenue filed an appeal before the tribunal.
Karan Kumra, Counsel for the assessee submitted that The assessee is a broker in the real estate business and has no other substantial source of income than the real estate business, these credits represent the receipts of the assessee from the real estate business.
H.K. Choudhary, Counsel for the revenue supported the decision of the Assessing officer.
The provisions of Section 44AD of the Income Tax Act are clear and unambiguous. Section 44AD (6)(ii) of the Income Tax Act clearly provides that the provisions of this section do not apply to a person who earns income in the nature of commission or brokerage. Further observed that the application of Section 44AD Income Tax Act is not correct.
No evidence has been brought on record by the AO to attract provisions of section 44AD Income Tax Act to all credits of the appellant’s bank statements. In the absence of any such basis or reasoning, it was held that the application of Section 44AD Income Tax Act to the facts of the appellant’s case is not proper.
Further, the tribunal determined that sources of the entire amounts, the credits and debits in the bank account have been duly explained
Moreover, during the search, no incriminating evidence was discovered or seized to show that the credits of the assessee’s bank statements were in the nature of income or that he was engaged in any other line of work.
Therefore the two-member bench of Dr. B. R. R. Kumar, (Accountant Member) and Yogesh Kumar US, (Judicial Member) dismissed the appeal filed by the revenue.
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