Duty Drawback and License Sale Income should be included in Gross Receipts u/s 44AD for Presumptive Taxation: ITAT [Read Order]

The Kolkata Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that duty drawback and license sale income should be included in the gross receipts for the purpose of presumptive taxation under Section 44AD of Income Tax Act,1961.

Pradeep Modi,appellant-assessee,was engaged in the export business of leather goods and filed his income tax return for the Assessment Year(AY) 2018-19, showing a net taxable income of Rs. 5,25,250/-. The assessee reported export sales of Rs. 64,74,859/- and declared a profit of 6% on a presumptive basis under Section 44AD of the Act.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The Assessing Officer (AO) added Rs. 57,071/- to the presumptive income of Rs. 9,51,201/- due to a difference in turnover, as the AO found a higher turnover of Rs. 74,26,060/-. The AO also added Rs. 25,37,352/- for the sale of a license and duty drawback receipts, as well as Rs. 6,36,509/- under 'income from other sources.'

The Commissioner of Income Tax(Appeals)[CIT(A)] partly allowed the assesse's appeal, directing the AO to verify the claim related to the difference in turnover. However, the appeal on the aggregate amount of Rs. 25,37,352/- and Rs. 6,36,509/- was dismissed.

The assessee being aggrieved by the order appealed before the tribunal.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The assessee's counsel claimed the total turnover for AY 2018-19 was Rs. 64,74,859/- from export sales, not Rs. 74,26,060/- as computed by the AO, explaining that the AO included sale bills from FY 2016-17. The CIT(A) agreed and directed the AO to recalculate the turnover based on the provided bills and ledger.

The counsel also argued that the addition of Rs. 25,37,352/- for license sales and duty drawback was incorrect, as the assessee had already offered tax on the total turnover and submitted a revised computation under Section 44AD.

The two member bench comprising Pradip Kumar Choubey ( Judicial Member ) and Sanjya Awasthi ( Accountant Member ) reviewed the records and confirmed that the assessee’s total export turnover for AY 2018-19 was Rs. 64,74,859/-, not Rs. 74,26,060/-, as the AO had calculated. The CIT(A) had accepted the assessee’s claim regarding the genuine turnover based on the sale bills and ledger provided.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

Regarding the addition of Rs. 25,37,352/- by the AO, which was upheld by the CIT(A), the tribunal noted that the assessee had already offered income at 6% of the total turnover under Section 44AD, which applies to the overall business income, not item-wise. The Tribunal also highlighted that receipts like duty drawback are considered part of gross receipts under Section 28 and must be included in the turnover calculation.

The appellate tribunal referred to previous rulings, including Sanjay Bahl vs. ITO and Smt. Urmila Tank vs. ITO, which confirmed that duty drawback is part of gross receipts. It concluded that Section 44AD applied in this case, and the assessee’s revised tax offer should be accepted, as it had been inadvertently omitted earlier.

As a result, the tribunal allowed the appeal, set aside the CIT(A) and AO's decisions, and directed the AO to accept the revised income computation provided by the assessee.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates