Case Law Details
Hotel Deepak Vs ACIT (ITAT Mumbai)
The brief facts are that the assessee firm is engaged in the restaurant business. Pursuant to the survey action u/s.133A of the Act conducted in the business premises of the assessee dated 22.01.2018, the partner of the assessee firm Shri Chandrakant Ramanna Shetty made a voluntary declaration of Rs.26,27,872/- on the total sales of Rs.1,30,15,820/-. The assessee filed its return of income dated 30.03.2018, declaring total income of Rs.19,52,370/-. Subsequent to that, the assessment order dated 29.11.2019 was passed u/s. 143(3) of the Act determining the total income of Rs.26,27,872/- by making the addition of Rs.6,75,502/-.
it is observed that the assessee firm has declared its income on a presumptive based on the provision of section 44AD of the Act. It is also observed that the assessee has declared income @ 14.99% of the turnover, which the assessee contends to be much higher than the specified percentage of 8% as per the provisions of section 44AD of the Act.
The ld. CIT(A) has held that the A.O. has got extensive power to assess the income beyond section 44AD if the A.O. can substantiate the same by sufficient documentary evidence. The ld. CIT(A) further held that the A.O. can tax the assessee at a higher rate than what is specified in section 44AD or than that declared by the assessee.
In the present case in hand, it is observed that in order to attract the provisions of section 44AD, it is essential to consider whether the assessee will be an ‘eligible assessee’ and the assessee’s business is ‘eligible business’ as per Explanation (2) to section 44AD of the Act. Upon considering as per the said Explanation (2) to section 44AD, the assessee firm will be considered as an ‘eligible business’ to come under the purview of section 44AD. The intention of the legislature in case of computing profit and gains of business on presumptive basis is to enhance the tax payers to declare income at the minimum rate prescribed u/s.44AD and also allows the assessee to offer income higher than the said prescribed rate, in case of business, whose total turnover or gross receipts in the previous year, does not exceed the amount prescribed under law. The lower authorities have not denied the fact that the assessee is an ‘eligible assessee’, carrying out ‘eligible business’ under the provisions of section 44AD of the Act. On this observation, we hold that the assessee’s declaration of income u/s. 44AD of the Act is justified and the A.O.’s contention that the assessee has not maintained its books of account in such case, is not warranted. Hence, the assessee’s declaration of income u/s. 44AD of the Act at a percentage of turnovers higher than the prescribed percentage u/s.44AD of the Act, is justified.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The captioned appeals have been filed by the assessee against the order of the
learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), passed u/s.250 of the Income Tax Act, 1961 (‘the Act’), pertaining to the Assessment Year (‘A.Y.’ for short) 2017-18.
2. As the facts are identical in both these appeals, we hereby pass a consolidated order by taking ITA No. 1887/Mum/2022 as a lead case.
3. The grounds of appeal raised by the assessee are as follows:
1. “On the facts and in the circumstances of the case and in the law, the Ld. CIT(A), Pune 11 erred in confirming the addition of Rs.6,75,502/- made by the Ld. AO without appreciating the fact that the appellant declared the income u/s 44AD of The Income Tax Act at a percentage of turnover which is higher than the percentage prescribed u/s 44AD of The Income Tax Act.”
2. “On the facts and in the circumstances of the case and in the law, the Ld.CIT(A), Pune 11 erred in confirming the impugned addition of Rs.6,75,502/-made by the Ld. AO only on the basis of statement recorded u/s 133A of The Income Tax Act and without bringing on record any corroborative evidence.”
3. “On the facts and in the circumstances of the case and in the law, the Ld.CIT(A), Pune 11 erred in confirming the view taken by the Ld. AO that an amount of Rs.6,75,502/- paid towards Maharashtra Value Added Tax (Sales Tax) does not represent the allowable expenses incurred by the appellant.”
4. The adjournment request raised by the assessee was rejected by the Bench, as the issue involved could be decided by hearing the ld. Departmental Representative (ld. DR for short) and on perusal of the materials available on record. We hereby proceed to decide these appeals on the basis of the available materials on record.
5. The brief facts are that the assessee firm is engaged in the restaurant business. Pursuant to the survey action u/s.133A of the Act conducted in the business premises of the assessee dated 22.01.2018, the partner of the assessee firm Shri Chandrakant Ramanna Shetty made a voluntary declaration of Rs.26,27,872/- on the total sales of Rs.1,30,15,820/-. The assessee filed its return of income dated 30.03.2018, declaring total income of Rs.19,52,370/-. Subsequent to that, the assessment order dated 29.11.2019 was passed u/s. 143(3) of the Act determining the total income of Rs.26,27,872/- by making the addition of Rs.6,75,502/-.
6. The assessee preferred an appeal as against the assessment order before the ld. CIT(A) who confirmed the said addition made by the A.O.
7. Further aggrieved, the assessee is in appeal before us.
8. The ld. DR for the assessee contended that the addition was made on the basis of the statement of Shri Chandrakant Ramanna Shetty, partner of the assessee firm who had made voluntary declaration of income of the impugned income. The ld. DR further contended that the diary found during survey operation contended the total expenses which amount to Rs.1,03,87,948/-, and that the impugned expenses pertaining to VAT payment amounting to Rs.6,14,820/- was not found in the said diary. The ld. DR further stated that the alleged VAT payment was made by the customers which was included in the sales bill and that the assessee has no records to prove that the same was paid by the assessee firm. The ld. DR relied on the orders of the lower authorities.
9. Having heard the ld. DR and perused the materials on record, it is observed that the assessee firm has declared its income on a presumptive based on the provision of section 44AD of the Act. It is also observed that the assessee has declared income @ 14.99% of the turnover, which the assessee contends to be much higher than the specified percentage of 8% as per the provisions of section 44AD of the Act. The assessee in its submission has also specified that the statement recorded u/s.133A of the Act from the partner of the firm was the sole basis of the impugned addition made by the A.O. The assessee relied on the decision of the Hon’ble Apex Court in the case of CIT vs. S. Khader Khan Son [2013] 352 ITR 480 (SC) which held that the statement recorded u/s. 133A has no evidentiary value and that the same cannot be the only basis for making the addition. The assessee has also specified that the difference in the amount declared by the partner of the assessee firm and that of return income was due to the expenses of the VAT payments which was from the coffers of the assessee and has not been collected separately in the bill, cash memo or invoice issued to the customers. The assessee contends that the said expenditure was incurred wholly and exclusively for carrying out the business of the assessee and was inadvertently not taken into account in computing the total expenses of Rs.1,03,87,948/- during the survey operation. The ld. CIT(A) on the other hand, relied on the decision of M/s. Pebble Investment and Finance Ltd. vs. ITO (2017- TIOL-238-SC-IT), wherein the Hon’ble Bombay High Court has upheld the evidentiary value of the statement recorded u/s. 133A of the Act. The ld. CIT(A) also relied on the decision of the Hon’ble Delhi High Court in the case of `+
373 ITR 9 (Del-HC) for the same proposition. The ld. CIT(A) further held that the addition made by the A.O. was not merely based upon the statement of the partner but also was corroborated from the seized diary found during the survey operation which contained the details pertaining to sale and expenses incurred by the assessee firm.
10. From the above observation, we are of the considered view that ground no. 2 raised by the assessee challenging the impugned addition as only on the basis of the statement recorded u/s.133A of the Act does not hold good in our opinion. It is pertinent to point out that the A.O. has considered the statement made by the partner of the assessee firm which was further corroborated by the diary found at the premises of the assessee during the survey operation, is justifiable to hold that the impugned addition was not merely based upon the statement recorded u/s. 133(6) of the Act but was also corroborated with material evidences. On this note, we find no merit in allowing ground no. 2 raised by the assessee. Hence, ground no. 2 is dismissed.
11. Ground no.1 pertains to the income declared u/s. 44AD of the Act at a percentage of turnover which is higher than the percentage prescribed u/s. 44AD of the Act. It is observed that the contention of the assessee is that it had declared higher profit than the percentage specified u/s. 44AD of the Act which is 8%, whereas the assessee has declared an income @ 14.99% of the turnover made during the impugned year. The ld. CIT(A) has held that the A.O. has got extensive power to assess the income beyond section 44AD if the A.O. can substantiate the same by sufficient documentary evidence. The ld. CIT(A) further held that the A.O. can tax the assessee at a higher rate than what is specified in section 44AD or than that declared by the assessee. It is pertinent to examine the provision of section 44AD which is reproduced hereunder for ease of reference:
Special provision for computing profits and gains of business on presumptive basis.
44AD. (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” :
[Provided that this sub-section shall have effect as if for the words “eight per cent”, the words “six per cent” had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.]
12. In the present case in hand, it is observed that in order to attract the provisions of section 44AD, it is essential to consider whether the assessee will be an ‘eligible assessee’ and the assessee’s business is ‘eligible business’ as per Explanation (2) to section 44AD of the Act. Upon considering as per the said Explanation (2) to section 44AD, the assessee firm will be considered as an ‘eligible business’ to come under the purview of section 44AD. The intention of the legislature in case of computing profit and gains of business on presumptive basis is to enhance the tax payers to declare income at the minimum rate prescribed u/s.44AD and also allows the assessee to offer income higher than the said prescribed rate, in case of business, whose total turnover or gross receipts in the previous year, does not exceed the amount prescribed under law. The lower authorities have not denied the fact that the assessee is an ‘eligible assessee’, carrying out ‘eligible business’ under the provisions of section 44AD of the Act. On this observation, we hold that the assessee’s declaration of income u/s. 44AD of the Act is justified and the A.O.’s contention that the assessee has not maintained its books of account in such case, is not warranted. Hence, the assessee’s declaration of income u/s. 44AD of the Act at a percentage of turnovers higher than the prescribed percentage u/s.44AD of the Act, is justified.
13. Ground no. 3 pertaining to the expenses amounting to Rs.6,75,502/- paid towards Maharashtra Value Added Tax (Sales Tax) disallowed by the lower authorities on the ground that the impugned amount was paid by the customers along with the bill issued to the customers. It is observed that the assessee has failed to furnish documentary evidence to substantiate the fact that the impugned amount was not paid by the customers and was paid from the coffers of the assessee, was not supported by documentary evidence neither before the lower authorities nor before us. In order to deduct the said expenses as wholly incurred for the purpose of assessee’s business from the income of the assessee, the assessee is given one more opportunity to produce documents in support of its claim before the A.O. For this limited purpose, this issue is remanded back to the file of the A.O. The A.O. is hereby directed to verify the documentary evidences which are to be filed by the assessee to prove the fact that the assessee has paid the VAT amount and has not collected it from the customers through bills, invoices, etc. and to decide this issue on merits.
14. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 01.12.2022
