POONGOTHAI SRINIVASAN,CHENNAI vs. ITO NON CORPORATE WARD 22(3), CHENNAI

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ITA 1878/CHNY/2018Status: DisposedITAT Chennai28 October 2020AY 2013-145 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that since the assessee declared a net profit of 11.97%, which is above the threshold for Section 44AD, the Assessing Officer could not disallow expenditure for want of bills and vouchers. The addition made towards disallowance of expenditure was directed to be deleted.

What were the facts?

The assessee, engaged in supplying manpower for excavation, offered contract receipts under 'income from other sources' and claimed expenditure. The Assessing Officer disallowed a portion of the expenditure for lack of bills and vouchers.

What were the issues?

Whether the Assessing Officer can disallow expenditure claimed against contract receipts when the assessee's income falls under the presumptive taxation scheme of Section 44AD.

Which sections of the Income-tax Act were involved?

Section 44AD,Section 57

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI

Before: SHRI MAHAVIR SINGH, VICE- & SHRI G.MANJUNATHA

Pronounced: 28.10.2020

PER G.MANJUNATHA, ACCOUNTANT MEMBER:

1.

This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals)-10, Chennai dated 23.04.2018 and it pertains to assessment year 2013-14.

2.

The assessee has raised the following grounds of appeal:-

“1. The order of The Commissioner of Income Tax (Appeals) - 10, Chennai dated 23.04.2018 in I.T.A.No.11 0/15-16/CIT(A)-10 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case.

2. The CIT (Appeals) erred in sustaining the order of the Assessing Officer in making the estimated addition in computing

the assessable contract receipts under the head 'income from other sources' in the computation of taxable total income without assigning proper reasons and justification. 3. The CIT (Appeals) failed to appreciate that the restriction of the claim of expenses for earning contract income was wrong, erroneous, unjustified, incorrect and not sustainable in law.

4. The CIT (Appeals) failed to appreciate that having not carried out comparable study and further having not noticed the fact of the gross profit reported at 11.97%, the partial sustenance of disallowance of expenses for earning the contract receipts/income within the scope of section 57 of the Act was wrong, erroneous, unjustified, incorrect and not sustainable in law.

5.

The CIT (Appeals) went wrong in recording the findings in this regard in paras 6.4 & 6.5 of the impugned order without assigning proper reasons and justification.

6.

The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.”

3.

Brief facts of the case are that the assessee is an individual engaged in the business of supplying of manpower for excavation of earth and boulders from the quarry owned by M/s.

Venkateswarar Engineering & Constructions (I) P.Ltd. The assessee has offered receipts from M/s. Venkateswarar Engineering & Constructions (I) P.Ltd., under the head ‘income from other sources’ and as against this claimed expenditure of `21,83,024/- under section 57 of Income Tax Act, 1961 (hereinafter referred to as “ the Act”). During the course of assessment proceedings, the Assessing Officer was of the opinion that assessee is not able to substantiate the expenditure claimed u/s.57 of the Act to the extent of ` 21,83,024/- with necessary supporting bills and vouchers and accordingly reworked the income under the head “income from other sources” and has allowed total expenditure of `19,83,400/- out of the total expenditure claimed by the assessee at ` 21,83,024/- and balance amount has been disallowed for want of bills and vouchers.

4.

The assessee carried the matter in appeal before the First Appellate Authority, but could not succeed. The learned CIT(A) for the reasons stated in his appellate order confirmed the additions made by the Assessing Officer on the ground that even the assessee’s case falls within the ambit of section 44AD of the Act, but nothing prevented him from furnishing the details to substantiate the claim of expenditure. Aggrieved by the learned CIT(A) order, the assessee is in appeal before us.

5. The learned A.R for the assessee submitted that the learned CIT(A) has erred in sustaining the additions made by the Assessing Officer towards disallowance of expenditure against income computed under the head ‘income from other sources’ without assigning proper reasons and justification. The learned AR further submitted that the assessee has declared gross profit of 11.97% on total receipts, which is above the normal profit declared under this line of business and hence disallowance of expenditure on adhoc basis is incorrect.

6. The learned DR, on the other hand, strongly supported the order of the learned CIT(A).

7.

We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. It is not in dispute that the assessee has not maintained books of accounts. The assessee has estimated the net profit from contract receipts and has declared 11.97% of gross profits from contract receipts. Once income declared by the assessee is more than or equal to 8% of contract receipts , then as per provisions of Section 44AD of the Act, the assessee does not require to maintain books of accounts. Further, when the income is estimated under the provisions of Section 44AD of the Act, then the Assessing Officer has no role to examine the expenditure claim against said income and also cannot disallow the expenditure for want of bills and vouchers. Therefore, we are of the considered view that the Assessing Officer as well as the learned CIT(A) were erred in making ad-hoc disallowance of expenditure without assigning proper reasons for not furnishing bills and vouchers, when the assessee has specifically made out a case that her case falls under section 44AD of the Act. Hence, we direct the Assessing Officer to delete the addition made towards disallowance of expenditure.

8.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 28th October, 2020

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