A very interesting judgement on income tax intimations u/s 143(1) of the Income Tax Act
Facts of the Case:
Assessee received his income from professional fees for Rs.15 lacs and savings bank interest income of Rs.14,228. Assessee filed his Itr taking benefit of section 44AD declaring presumptive taxation of 8% of the gross receipts.
Relevant Extract Of Section 44AD:
Sec. 44AD(6) provides that the provisions of section 44AD, 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 to Sec. 44AD provides that for the purposes of section 44AD,–
(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 VIA 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 [two crore rupees].
The receipts disclosed under Form 26AS matched with the receipts disclosed in the ITR and TDS was deducted u/s 194J of the Income Tax Act and was reflected in Form 26AS on the full receipt of Rs.15 lacs.
Processing of ITR by CPC:
The CPC processed the Itr and noticed that tds had been deducted u/s 194J @ 10% but the income was not disclosed u/s 44ADA of the Income Tax Act. No income was disclosed u/s 44ADA, hence the computation summary processed by CPC proposed to add Rs.7.50 lacs (50% of gross receipts of 15 lacs) which was the presumptive taxation u/s 44ADA
Application of Sec 44AA(1) of the Act to the following professionals:
“Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.
Proposal of CPC:
The CPC proposed to make the addition in the show cause notice by relying on the provisions of Sec.143(1)(a) (vi) of the Act which provides for addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return
Reply to CPC:
the Assessee submitted he was not covered by Sec.44AA(1) of the Act and therefore income was offered u/s.44AD of the Act. This plea was rejected by the CPC and the CPC in the intimation u/s.143(1)(a) of the Act raised a demand for taxes payable on Rs.7,50,000.
Appeal to CIT(A):
the Assessee submitted that the Central Processing Centre (CPC) has erred in processing the return of income on the assumption that income appearing in Form 26AS has not been included in computing the total income in the return as per section 143(1)(a)(vi). It was submitted that the Assessee had offered the gross receipts as reflecting in its 26AS in serial no.E1 of its return of income under section 44AD. Hence there was no mis match in income offered in the return of income of the Assessee vis-à-vis 26AS. Attention was drawn to the Instruction No.10/2017 [F.No.225/333/2017- ITA.111], dated 15-11-2017 issued by CBDT. Para 3.2 of the said Instruction clearly states that “Further in ITR-4, wherever in the return form, presumptive income under both sections 44AD and 44AE is disclosed, it will be difficult to correlate the receipts in the return with the information in the three forms. Hence, any likely difference in the receipts under these items in the return with receipts in three Forms under this scenario would be excluded from the purview of section 143(1)(a)(vi).”
The CIT(A) did not agree with the Assessee that the Assessee falls within the ambit of Sec.44AD of the Act because Sec.44AA(1) of the Act is not applicable to the Assessee. The CIT(A) was of the view that the addition made in the intimation u/s.143(1)(a) was justified but held that the addition shall be only of the difference between 50% of Rs.15 lacs that ought to have been offered to tax by the Assessee u/s.44ADA of the Act and 8% of Rs.15 lacs that was offered to tax by the Assessee u/s.44AD of the Act.
Appeal before ITAT and ITAT Order:
The disputed adjustment to the total income declared by the Assessee has been done by the CPC in exercise of powers under section 143(1)(a)(vi) of the Act.
It is not in dispute before us that the income of Rs.15,00,000/- was offered to tax in the return of income. In the show cause notice issued by the CPC before making the adjustment, the CPC has proceeded on the basis that the sum of Rs.15,00,000/- offered under section 44AD of the Act ought to have been offered to tax under section 44ADA of the Act. Accordingly, the sum offered to tax under section 44ADA of the Act was taxed under section 44ADA of the Act.
As we have already seen the presumptive income under section 44AD is only 8% of the gross receipts, whereas under section 44ADA, 50% of the gross receipts is the presumptive income. It is thus clear from the show cause notice that the AO has not found income appearing in Form 26AS not having been included in computing the total income declared in the return of income field by the Assessee.
The adjustment under section 143(1)(a)(vi) of the Act can be resorted to only when the sum of Rs.15,00,000/- is not included in computing the total income declared in the return of income. The CBDT’s instruction No.10/2017 dated 15.11.2017 has clearly laid down that only when receipts are completely omitted to be declared in the return of income can there be an addition for invoking 143(1)(a)(vi) of the Act.
The addition that the income appearing in Form 26AS not having been included in the return of income filed is sine qua non for invoking the provisions of section 143(1)(a)(vi) since the same is absent in the present case. CPC ought not to have made the impugned adjustment. The addition made is liable to be deleted on this basis alone.
The issue whether income earned by the Assessee has to be taxed u/s.44AD or Sec.44ADA of the Act cannot be ITAT has not gone to the question whether the income of the Assessee is assessable under section 44ADA or 44AD of the Act. The issue is left open without any decision.
Crux of the Above Matter:
Two Issues were Involved in the above case law-
Three Presumptive Receipts u/s 44AD, 44ADA, 44AE
Whether during CPC processing, can there be addition u/s 143(1)(a)(vi) when the income disclosed in the ITR matches with the Receipts disclosed under Form 26AS.
Held NO, when the receipts disclosed in ITR matches with the receipts disclosed in Form 26AS, it is outside the purview of CPC processing as per CBDT instruction no 10/2017 dated 15.11.2017.
The receipts cannot be distinguished between 44AD, 44ADA, 44AE while processing by CPC and if the total receipts match with total receipts shown under Form 26AS, then no addition is allowed.
This would provide a great sigh of relief and assistance in case any situation falls as per above scenario.
Whether the income disclosed is taxable under Section 44AD or 44ADA
Held, the issue is left open for discussion.