No Illegality in Adopting Presumptive Tax for Professional Receipts from Fashion Designer: ITAT deletes Addition u/s 68 [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the addition of professional receipts as undisclosed income is not tenable.

The assessee was engaged in professional service as production supervisor and the assessee had not filed the return of income for the A.Y 2015-16.The Assessing Officer (A.O) received information that the assessee deposited cash of Rs.3 Crores in the bank accounts and also as per Form no 26AS the assessee was in receipt of income under section 194J of the Income Tax Act of Rs. 14,76,600/- The A.O. issued notice under section 148 of the Income Tax Act 1961 and there was no compliance.

Further, the A.O issued notice under section 142(1) of the Income Tax Act to explain the sources of cash deposits and the taxability of receipts under Section 194J of the Income Tax Act and reasons for not filing the return of income for A.Y 2015-16.

The assessee filed the return of income for A.Y 2015-16 on 22.12.2018 disclosing a total income of Rs.1,95,160/- and notice under section 143(2) of the Income Tax Act was issued. As per the return of income, the assessee was working with the fashion designer and Tax Deduction at Source (TDS) S was deducted under section 194J of the Income Tax Act on the receipts.

The AO found that the assessee computed the income under Section 44AD of the Income Tax Act @ 8% of the gross receipts. The AO dealt on the facts with respect to TDS deduction under section 194J of the Act and further the notice under section 142(1) of the Income Tax Act was issued to submit the documentary evidence/details in compliance.

The AO observed that the TDS was deducted under section 194J of the Income Tax Act and the assessee submitted the details of professional receipts and the assessee had not specified the profession but working with the renowned professional of fashion designing.

The AO found that the assessee filed the return of income for the A.Y 2011-12 and offered the business income and for A.Y 2015-16, the assessee adopted presumptive basis under section 44AD of the Income Tax Act. Whereas for the A.Y 2016-17 to A.Y. 2018-19 the assessee been employee and TDS has been deducted as per the provisions applicable to salary income. Finally, the AO made addition as undisclosed income Under Section 68 of the Income Tax Act of Rs. 14,73,600/-and assessed the total income of Rs. 15,50,870/-.

Aggrieved by the order, the assessee filed an appeal before the CIT(A), where the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the AO but confirmed the addition made by the AO and dismissed the assessee appeal. Aggrieved by the order the assessee filed an appeal before the Tribunal.

It was submitted that the CIT(A) erred in not considering the facts and submissions and various information filed before the A.O and in the proceedings. The assessee offered income as per the provisions of Sec 44AD of the Income Tax Act which is permissible to the assessee and whereas in subsequent years the assessee being an employee, the salary income was offered. The AR substantiated the submissions with paper book and prayed for allowing the assessee appeal.

After hearing both the parties the tribunal, the tribunal observed that the assessee offered the income @ 8% of professional receipts for the present assessment year and for the subsequent years from A.Y 2016-17 to A.Y.2018-19 the assessee being an employee and TDS was deducted on salary income under the provisions of section 192 of the Income Tax Act which is not disputed.

The bench consisting of Pavan Kumar Gadale (Judicial member) held the assessee has adopted provisions of section 44AD of the Income Tax Act which is permissible and the addition of professional receipts as undisclosed income Under Section 68 of the Income Tax Act is not tenable.

Accordingly, the bench set aside the order of the CIT(A) and also directed the assessing officer to delete the addition.

Thus the appeal was allowed.

To Read the full text of the Order CLICK HERE

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