YOGITA SANJAY JAGUSTE,MUMBAI vs. WARD 41(2)(4), MUMBAI, MUMBAI

Since Ground Nos. 1, 2, and 3 are interconnected and pertain to the assessment of business income and the application of the presumptive provisions of section 44AD, they are taken up together.

Briefly stated, the Assessing Officer (AO) noted that, as per Form 26AS, the gross receipts of the assessee were Rs. 21,58,530/-, whereas, as per the Profit & Loss Account, business receipts were shown at Rs. 19,87,030/-. The AO made an addition of Rs. 1,71,500/- towards the alleged suppressed receipts and further disallowed the entire business expenditure of Rs. 15,72,484/- for want of supporting evidence. The AO declined to extend the benefit of section 44AD on the ground that the original return was not filed claiming such benefit. Upon appeal, the Ld. CIT(A) sustained the action of the AO, observing that the assessee had opted to compute income under the regular provisions and holding that the conditions of section 44AD(4) were not satisfied.

I have heard the rival contentions and perused the material available on record. It is observed that, as per the Profit & Loss Account, the assessee offered business income of Rs. 3,45,338/- on receipts of Rs. 19,87,030/-, which works out to 17.38%. Even if the gross receipts are taken at Rs. 21,58,530/- as reflected in Form 26AS, the income declared at Rs. 3,45,338/- remains well above the presumptive rate of 8% prescribed under section 44AD.

Section 44AD(1) provides a presumptive scheme for eligible assessees whose turnover does not exceed the prescribed limit. Further, as per section 44AD(2), all deductions under sections 30 to 38 are deemed to have been allowed. Consequently, where business income is assessed under section 44AD, or where the income declared is higher than the presumptive income contemplated therein, no separate disallowance of expenditure covered by sections 30 to 38 would ordinarily survive. Reliance is placed on the decisions in Shivani Builders v. ITO [2007] 108 ITD 520 (Ahd) and Balaji Construction v. ACIT [2000] 72 ITD 559 (Pune).

Since the income declared by the assessee (Rs. 3,45,338/-) exceeds 8% of the gross receipts of Rs. 21,58,530/- (which works out to Rs. 1,72,682/-), no separate addition on account of the alleged 3 difference in receipts of Rs. 1,71,500/- is called for. Consequently, the disallowance of business expenditure of Rs. 15,72,484/- also cannot be sustained. The orders of the lower authorities on these issues are, therefore, set aside and Ground Nos. 1, 2, and 3 are allowed.

Ground No. 4 relates to the addition of Rs. 10,49,583/- made u/s 56(2)(x).

The Ld. Counsel submitted that, in response to the notice issued u/s 148, the assessee filed a return of income declaring a total income of Rs. 13,82,590/-, which included income of Rs. 10,49,583/- chargeable under section 56(2)(x). However, while framing the reassessment order, the AO again added the said amount, resulting in taxation of the same income twice. The Ld. CIT(A) upheld the addition by observing that the original return constituted the starting point of the reassessment.

I have considered the submissions. It is a settled proposition that the reassessment has to be framed with reference to the return filed in response to notice u/s 148. Since the assessee had already offered Rs. 10,49,583/- to tax under section 56(2)(x) in the return filed pursuant to notice u/s 148, making a further addition of the very same amount results in double taxation of the same income, which is impermissible. Accordingly, the AO is directed to delete the duplicate addition of Rs. 10,49,583/-. Ground No. 4 is allowed.

Ground No. 5 relates to the denial of exemption u/s 54 amounting to Rs. 4,22,521/-.

The assessee sold a residential flat at Mulund on 03.01.2020 and claimed exemption u/s 54 on the basis of advance payments aggregating to Rs. 13.50 lakhs made during FY 2019-20 towards the acquisition of a new residential flat (Flat No. 407, Vithai Building, Talyachiwadi, Palpene, Guhagar). The lower authorities denied the claim on the ground that the agreement was registered subsequently on 23.08.2023 and that the construction was not completed within the prescribed period.

Having considered the rival submissions and perused the material on record, it is seen that the factum of payment of Rs. 13.50 lakhs by the assessee during the relevant period towards acquisition of the new residential flat is not in dispute. It is well settled that section 54 is a beneficial provision intended to encourage investment in residential property. Where substantial payments have been made within the prescribed period towards the acquisition of a residential house, the exemption cannot be denied merely because the conveyance deed was registered or the construction was completed subsequently, provided the requirements of section 54 are otherwise satisfied. Reliance is placed on the decision of the Co-ordinate Bench in Hasmukh N. Gala v. ITO [2015] 173 TTJ 507 (Mum).

In view of the undisputed payments made towards the acquisition of the new residential property, the assessee has substantially complied with the requirements of section 54. The disallowance made by the lower authorities is, therefore, directed to be deleted. Ground No. 5 is allowed.

In the result, the appeal filed by the assessee is allowed.