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Income Tax Appellate Tribunal, ‘D’ (SMC
Before: SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
In this appeal filed by the assessee which is directed against an order dated 28.02.2017 of ld. Commissioner of Income Tax (Appeals)- 12, Chennai, he is aggrieved on denial of presumptive tax benefit u/s. 44AD of the Income Tax Act, 1961 (in short ‘’the Act’’), apart from ITA No. 1188/Mds/2017 :- 2 -: disallowance of 50% of expenditure claimed in his profit and loss account.
Assessee running a computer coaching centre had filed his return of income for the impugned assessment year disclosing income of �1,95,340/-. During the course of assessment proceedings before the ld. Assessing Officer, assessee was required to produce cash book, ledger and supporting records for expenditure claimed in profit and loss account. In the profit and loss account assessee had shown gross receipt of �51,14,732/- against which expenditure of �48,53,818/- was claimed, including depreciation of �15,830/-. However, assessee stated that the business was closed down and the bills and book misplaced. Further, as per assessee books were lost in the floods which came to Chennai in December, 2015. Ld. Assessing Officer however verified the bank statement of the assessee and came to a conclusion that expenses claimed were not met by bank withdrawals.
He made a disallowance of 50% of the total expenditure of Rs.48,53,818/- claimed by the assessee. Effectively an addition of Rs.24,26,909/- was made.
Aggrieved, assessee moved in appeal before the ld. Commissioner of Income Tax (Appeals). In such appeal assessee made a fresh claim stating that Sec. 44AD of the Act should be ITA No. 1188/Mds/2017 :- 3 -:
applied. As per assessee it had gross receipts of Rs.52,14,732/- and if Sec. 44AD of the Act is applied, its income would not be more than Rs.4,17,178/-. Further, as per assessee disallowance of 50% of the expenditure was excessive. Ld. Commissioner of Income Tax (Appeals) after going through the submissions held that assessee had deliberately destroyed the books of accounts. According to him, by virtue of Sec.44AA(2) of the Act every person carrying on business or profession was duty bound to maintain books of accounts and other documents which would enable the ld. AO to compute the total income. Further, as per the ld. Commissioner of Income Tax (Appeals) Sec. 44AD of the Act could not be applied since assessee being covered u/s. 44AA, fell outside the scope of the former section.
He also found that assessee had claimed gross receipts of Rs.52,14,732/- in the profit and loss filed before him, though in the profit and loss account filed alongwith the return, gross receipts was shown as Rs.51,14,732/-. With these observations, he confirmed the disallowance made by the ld. Assessing Officer.
Now before me, ld. Authorised Representative strongly 4. assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that assessee should have been given the benefit of Sec.
ITA No. 1188/Mds/2017 :- 4 -:
44AD of the Act. In any case, according to him, the disallowance of 50% of expenditure was not fair.
Per contra, ld. Departmental Representative strongly supported the orders of the authorities below. According to him, Section 44AD of the Act had no application to a person carrying on a profession.
I have considered the rival contentions and perused the 6. orders of the authorities below. For a claim of the assessee to fall u/sec. 44AD of the Act, it is necessary that he should come within the meaning of eligible assessee and should be carrying on an eligible business. Section 44AD (1), (4) to (6) and Explanation which are apposite here are reproduced hereunder:-
(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”. (2) .......................... (3)............................. (4) The provisions of Chapter XVII-C shall not apply to an eligible assessee in so far as they relate to the eligible business. (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that ITA No. 1188/Mds/2017 :- 5 -: his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB. (6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to— (i) a person carrying on profession as referred to in sub- section (1) of section 44AA ;
(ii) a person earning income in the nature of commission or brokerage ; or (iii) a person carrying on any agency business.
Explanation For the purposes of this section,— (a) “eligible assessee” means,—
(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009) ; and (ii) who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” in the relevant assessment year ;
(b) “eligible business” means,—
(i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE ; and (ii) whose total turnover or gross receipts in the previous year does not exceed an amount of one crore rupees.
ITA No. 1188/Mds/2017 :- 6 -:
A reading of the sub section (6) of Sec. 44AD of the Act clearly indicate that a person carrying on profession is not covered by the above said section. The assessee was admittedly running a coaching centre giving computer classes. What the assessee submitted before the ld. Assessing Officer with regard to his profession is reproduced hereunder:-
‘’I am living in my wife’s inherited residence at Perambur. Being going abroad, I was running a typewriting institute at the said premises. Besides, because of my experience in educational field, I wished to start a coaching class in different fields of subjects, So, I myself, alongwith 3 other faculties, with a lot of oscillation started ‘’City Raffles Institute’’ . Based on the coincidence of the same, the three faculties, having joined with me, while starting the institute, left one by one on getting better placements. My native place is parangipettai. I have an ancestral property there, by which I am getting Rs.8,000/- as rent. Excepting that, I do not have any other source of income. Moreover, after the faculties left the institute, I became dejected. So, I have nor preserved any other records. Since the institute was closed once and for all the premises vacated, the records were buried alongwith it. Had the Institute been in existence, I could have maintained all the relevant records called for, by you’’. It is clear from the above that assessee was carrying on a profession in the field of education by running coaching centre and assessee himself was one of the faculty. Thus by virtue of sub section (6) of Sec. 44AD of the Act, assessee fell outside the scope of the said section. The only question remaining is whether 50% disallowance was justified. The claim of the assessee before ld. Assessing Officer
ITA No. 1188/Mds/2017 :- 7 -: was that the books of accounts and bills were lost in the Chennai floods. This has not been effectively rebutted by the Revenue. Considering the facts and circumstances of the case, we are of the opinion that disallowance of 50% of total expenditure claimed by the assessee was on the higher side. I direct that such disallowance be restricted to 20% of the expenditure claimed by the assessee. Orders of the lower authorities are set aside and the ld. Assessing Officer is directed to disallow only 20% of the total expenditure claimed by the assessee for the impugned assessment year. Ordered accordingly.
In the result, the appeal of the assessee is partly allowed. 7.