In a recent decision, the Income Tax Appellate Tribunal (ITAT), Mumbai bench deleted the addition made for declaration of income less than that made in the survey proceedings by the director of a company, by following the application of Presumptive Taxation Scheme under Section 44AD of the Income Tax Act, 1961.
A survey action u/s 133A of the Act was conducted in the case of the Assessee on 22.01.2018, wherein the statement of Shri Chandrakanth Ramanna Shetty, one of the partners of the firm-restaurant, was recorded, who has admitted that the diary recovered during survey operation pertains to Hotel Deepak. Shri Chandrakanth Ramanna Shetty made the voluntary declaration of income of Rs.22,51,948/- on total sales of Rs.1,08,80,197/-, however, in pursuance to survey operation, by filling its return of income on 30.08.2018 declared its total income at Rs.12,32,100/-.
Subsequently, the case of the Assessee was selected for scrutiny through CASS and accordingly statutory notices were issued to the Assessee and vide notice dated 21.12.2020 u/s 142(1) of the Act, the Assessee was asked to explain “as to why the difference amount of Rs.10,19,848/- should not be added in the total income of the Assessee as undisclosed income”.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The AO though considered the reply of the Assessee, however, not found the same acceptable mainly on the following reasons:
During the course of survey proceedings, on going through dairy “SMART” found and impounded, the partner of the assessee firm Shri Chandrakant Ramanna Shetty in his statement recorded on oath has declared profit of Rs 22,51,948/- on total sales of Rs 1,08,80,197/- after claiming expenses of Rs.86,28,249/-. He has further stated the firm will not be claiming interest and remuneration to the partners from the above profit.
Further, no expenses will be claimed on the above including depreciation. Therefore, it is established total expenses of the assessee firm of the FY 2017-18 is Rs.86,28,249/-. The bills submitted by the assessee, found that the majority of the bills pertains to the period prior to the survey date.
In view of the above facts and circumstances, the difference of income voluntarily offered for taxation during the survey and income declared in the return of income for the AY 2018-19 amounting to Rs 10,19,848/- was added to the total income for the year under consideration. Penalty proceedings u/s. 270A(1) r.w.s. 270A(9) of the Act are separately initiated for mis reporting of income.”
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The Assessing Officer (AO) considering the aforesaid facts and circumstances, ultimately added the amount of Rs.10,19,848/- being the difference of income voluntarily offered for taxation during the survey and income declared in the return of income for the assessment year under consideration.
The Assessee further submitted that in the Assessee’s own case for the A.Y. 2017-18 (ITA No.1887/M/2022) the Co-ordinate Bench of the Tribunal has also considered the identical facts and circumstances and the disclosure made by Shri Chandrakanth Ramanna Shetty and ultimately justified the Assessee’s declaration of income u/s 44AD of the Act by observing and holding as under —
The assessee firm is engaged in the restaurant business. Pursuant to the survey action u/s.133A of the Act conducted in the business premises of the assessee dated 22.01.2018, the partner of the assessee firm Shri Chandrakant Ramanna Shetty made a voluntary declaration of Rs.26,27,872/- on the total sales of Rs.1,30,15,820/-. The assessee filed its return of income dated 30.03.2018, declaring total income of Rs.19,52,370/-. Subsequent to that, the assessment order dated 29.11.2019 was passed u/s. 143(3) of the Act determining the total income of Rs.26,27,872/- by making the addition of Rs.6,75,502/-.
The assessee preferred an appeal as against the assessment order before the CIT(A) who confirmed the said addition made by the A.O. Further aggrieved, the assessee is in appeal before the Income Tax Appellate Tribunal.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The Delegated Representative for the assessee, Advocate Manish Kumar contended that the addition was made on the basis of the statement of Shri Chandrakant Ramanna Shetty, partner of the assessee firm who had made voluntary declaration of income of the impugned income. The representative further contended that the diary found during survey operation contended the total expenses which amount to Rs.1,03,87,948/-, and that the impugned expenses pertaining to VAT payment amounting to Rs.6,14,820/- was not found in the said diary. The assessee counsel further stated that the alleged VAT payment was made by the customers which was included in the sales bill and that the assessee has no records to prove that the same was paid by the assessee firm.
On the other hand, the departmental representatives placed reliance on the orders of the lower authorities.
Having heard the DR and perused the materials on record, it was observed that the assessee firm has declared its income on a presumptive basis under section 44AD of the Act. It is also observed that the assessee has declared income @ 14.99% of the turnover, which the assessee contends to be much higher than the specified percentage of 8% as per the provisions of section 44AD of the Act.
A ground of appeal pertains to the income declared u/s. 44AD of the Act at a percentage of turnover which is higher than the percentage prescribed u/s. 44AD of the Act.
It is observed that the contention of the assessee is that it had declared higher profit than the percentage specified u/s. 44AD of the Act which is 8%, whereas the assessee has declared an income @ 14.99% of the turnover made during the impugned year. The CIT(A) has held that the A.O. has got extensive power to assess the income beyond section 44AD if the A.O. can substantiate the same by sufficient documentary evidence.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The CIT(A) had further held that the A.O. can tax the assessee at a higher rate than what is specified in section 44AD or than that declared by the assessee.
The bench of Judicial Member Narender Kumar Choudhry noted that the Special provision for computing profits and gains of business on presumptive basis reproducing Section 44AD —
“(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession” :
[Provided that this sub-section shall have effect as if for the words “eight per cent”, the words “six per cent” had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in subsection (1) of section 139 in respect of that previous year.]””
The income tax appellate tribunal bench noted that the Assessee had been able to demonstrate its case for declaring the income below than the disclosure made by one of the directors in the survey operation u/s 133A of the Act and even otherwise the Coordinate Bench of the Tribunal in the case referred to above pertaining to AY 2017-18, had analyzed the identical facts and circumstances as involved in the instant case and by giving clear cut finding approved the Assessee’s income as declared.
Hence, the addition under consideration was held liable to be deleted and the same was deleted.
In the result, the appeal of the Assessee was allowed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
