A.Mujahidur Rahman, CHENNAI V. ITO, CHENNAI

ITA 1188/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6449 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 12-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN IRS
• Assessee Lawyers: S ANANDH
• Keywords: Depreciation
• Section: 44AD; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO.1188/MDS/2017 / ASSESSMENT YEAR : 2013-2014. SHRI. A. MUJAHIDUR RAHMAN, NO.50/19, NEW TANK STREET, II FLOOR, NUNGAMBAKKAM, CHENNAI 600 034 [PAN AWOPM 0596K] VS. THE INCOME TAX OFFICER, NON CORPORATE WARD 10(3) CHENNAI. ( !' / APPELLANT) ( #$!' /RESPONDENT) / APPELLANT BY : SHRI. S. ANANDH, C.A. /RESPONDENT BY : SHRI. B. SAGADEVAN, IRS, JCIT. /DATE OF HEARING : 09-08-2017 !' /DATE OF PRONOUNCEMENT : 10-08-2017 % / O R D E R IN THIS APPEAL FILED BY THE ASSESSEE WHICH IS DIRE CTED AGAINST AN ORDER DATED 28.02.2017 OF LD. COMMISSIONER OF INCOM E TAX (APPEALS)- 12, CHENNAI, HE IS AGGRIEVED ON DENIAL OF PRESUMPTI VE TAX BENEFIT U/S. 44AD OF THE INCOME TAX ACT, 1961 (IN SHORT THE AC T), APART FROM ITA NO. 1188/MDS/2017 :- 2 -: DISALLOWANCE OF 50% OF EXPENDITURE CLAIMED IN HIS PROFIT AND LOSS ACCOUNT. 2. ASSESSEE RUNNING A COMPUTER COACHING CENTRE HAD F ILED HIS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR D ISCLOSING INCOME OF F1,95,340/-. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS BEFORE THE LD. ASSESSING OFFICER, ASSESSEE WAS REQUIRED TO PRODUCE CASH BOOK, LEDGER AND SUPPORTING RECORDS FOR EXPENDITURE CLAI MED IN PROFIT AND LOSS ACCOUNT. IN THE PROFIT AND LOSS ACCOUNT ASSESS EE HAD SHOWN GROSS RECEIPT OF F51,14,732/- AGAINST WHICH EXPENDITURE O F F48,53,818/- WAS CLAIMED, INCLUDING DEPRECIATION OF F15,830/-. HOWE VER, ASSESSEE STATED THAT THE BUSINESS WAS CLOSED DOWN AND THE B ILLS AND BOOK MISPLACED. FURTHER, AS PER ASSESSEE BOOKS WERE LOST IN THE FLOODS WHICH CAME TO CHENNAI IN DECEMBER, 2015. LD. ASSES SING OFFICER HOWEVER VERIFIED THE BANK STATEMENT OF THE ASSE SSEE AND CAME TO A CONCLUSION THAT EXPENSES CLAIMED WERE NOT MET BY BA NK WITHDRAWALS. HE MADE A DISALLOWANCE OF 50% OF THE TOTAL EXPENDIT URE OF RS.48,53,818/- CLAIMED BY THE ASSESSEE. EFFECTIVELY AN ADDITION OF RS.24,26,909/- WAS MADE. 3. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). IN SUCH APPE AL ASSESSEE MADE A FRESH CLAIM STATING THAT SEC. 44AD OF THE AC T 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 N OT BE MORE THAN RS.4,17,178/-. FURTHER, AS PER ASSESSEE DISALLOWAN CE OF 50% OF THE EXPENDITURE WAS EXCESSIVE. LD. COMMISSIONER OF INC OME TAX (APPEALS) AFTER GOING THROUGH THE SUBMISSIONS HELD THAT ASSESSEE HAD DELIBERATELY DESTROYED THE BOOKS OF ACCOUNTS. ACC ORDING TO HIM, BY VIRTUE OF SEC.44AA(2) OF THE ACT EVERY PERSON CARRY ING ON BUSINESS OR PROFESSION WAS DUTY BOUND TO MAINTAIN BOOKS OF ACCO UNTS 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 RECEI PTS OF RS.52,14,732/- IN THE PROFIT AND LOSS FILED BEFORE HIM, THOUGH IN THE PROFIT AND LOSS ACCOUNT FILED ALONGWITH THE RETUR N, GROSS RECEIPTS WAS SHOWN AS RS.51,14,732/-. WITH THESE OBSERVATIONS, HE CONFIRMED THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER. 4. NOW BEFORE ME, LD. AUTHORISED REPRESENTATIVE STRON GLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INC OME 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, TH E DISALLOWANCE OF 50% OF EXPENDITURE WAS NOT FAIR. 5. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ACCO RDING TO HIM, SECTION 44AD OF THE ACT HAD NO APPLICATION TO A P ERSON CARRYING ON A PROFESSION. 6. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. FOR A CLAIM OF THE ASSESSEE TO FALL U/SEC. 44AD OF THE ACT, IT IS NECESSARY THAT HE SHO ULD COME WITHIN THE MEANING OF ELIGIBLE ASSESSEE AND SHOULD BE CARRYI NG ON AN ELIGIBLE BUSINESS. SECTION 44AD (1), (4) TO (6) AND EXPLAN ATION WHICH ARE APPOSITE HERE ARE REPRODUCED HEREUNDER:- (1) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAI NED IN SECTIONS 28 TO 43C, IN THE CASE OF AN ELIGIBLE ASSE SSEE ENGAGED IN AN ELIGIBLE BUSINESS, A SUM EQUAL TO EIG HT PER CENT. OF THE TOTAL TURNOVER OR GROSS RECEIPTS OF TH E ASSESSEE IN THE PREVIOUS YEAR ON ACCOUNT OF SUCH BUSINESS OR, A S THE CASE MAY BE, A SUM HIGHER THAN THE AFORESAID SUM CLAIMED TO HAVE BEEN EARNED BY THE ELIGIBLE ASSESSEE, SHALL BE DEEM ED TO BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE T O TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON. (2) .......................... (3)............................. (4) THE PROVISIONS OF CHAPTER XVII-C SHALL NOT APPL Y TO AN ELIGIBLE ASSESSEE IN SO FAR AS THEY RELATE TO THE E LIGIBLE BUSINESS. (5) NOTWITHSTANDING ANYTHING CONTAINED IN THE FOREG OING PROVISIONS OF THIS SECTION, AN ELIGIBLE ASSESSEE WH O CLAIMS THAT ITA NO. 1188/MDS/2017 :- 5 -: HIS PROFITS AND GAINS FROM THE ELIGIBLE BUSINESS AR E LOWER THAN THE PROFITS AND GAINS SPECIFIED IN SUB-SECTION (1) AND WHOSE TOTAL INCOME EXCEEDS THE MAXIMUM AMOUNT WHICH IS NO T 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 REQUI RED UNDER SECTION 44AB. (6) THE PROVISIONS OF THIS SECTION, NOTWITHSTANDING ANYTHING CONTAINED IN THE FOREGOING PROVISIONS, SHALL NOT AP PLY 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 COMMI SSION 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 PART NERSHIP FIRM, WHO IS A RESIDENT, BUT NOT A LIMITED LIABILITY PART NERSHIP FIRM AS DEFINED UNDER CLAUSE (N) OF SUB-SECTION (1) OF SECT ION 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 PROVISI ONS OF CHAPTER VI-A UNDER THE HEADING C.DEDUCTIONS IN RE SPECT OF CERTAIN INCOMES IN THE RELEVANT ASSESSMENT YEAR ; (B) ELIGIBLE BUSINESS MEANS, (I) ANY BUSINESS EXCEPT THE BUSINESS OF PLYING, HIR ING 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 TH E ACT CLEARLY INDICATE THAT A PERSON CARRYING ON PROFESSION IS NOT COVERED BY THE ABOVE SAID SECTION. THE ASSESSEE WAS ADMITTEDLY R UNNING A COACHING CENTRE GIVING COMPUTER CLASSES. WHAT THE ASSESSEE S UBMITTED BEFORE THE LD. ASSESSING OFFICER WITH REGARD TO HIS PROFES SION IS REPRODUCED HEREUNDER:- I AM LIVING IN MY WIFES INHERITED RESIDENCE AT PERAMBUR. BEING GOING ABROAD, I WAS RUNNING A TYPEWRITING INS TITUTE AT THE SAID PREMISES. BESIDES, BECAUSE OF MY EXPERIENC E IN EDUCATIONAL FIELD, I WISHED TO START A COACHING CLA SS IN DIFFERENT FIELDS OF SUBJECTS, SO, I MYSELF, ALONGWI TH 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 START ING THE INSTITUTE, LEFT ONE BY ONE ON GETTING BETTER PLACEM ENTS. MY NATIVE PLACE IS PARANGIPETTAI. I HAVE AN ANCESTRAL PROPERTY THERE, BY WHICH I AM GETTING RS.8,000/- AS RENT. E XCEPTING THAT, I DO NOT HAVE ANY OTHER SOURCE OF INCOME. MO REOVER, AFTER THE FACULTIES LEFT THE INSTITUTE, I BECAME DE JECTED. SO, I HAVE NOR PRESERVED ANY OTHER RECORDS. SINCE THE INSTITUTE WAS CLOSED ONCE AND FOR ALL THE PREMISES VACATED, T HE RECORDS WERE BURIED ALONGWITH IT. HAD THE INSTITU TE BEEN IN EXISTENCE, I COULD HAVE MAINTAINED ALL THE RELEV ANT RECORDS CALLED FOR, BY YOU. IT IS CLEAR FROM THE ABOVE THAT ASSESSEE WAS CARRYI NG ON A PROFESSION IN THE FIELD OF EDUCATION BY RUNNING COACHING CENTR E 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 SC OPE 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 T HE REVENUE. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , WE ARE OF THE OPINION THAT DISALLOWANCE OF 50% OF TOTAL EXPENDITU RE 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 EXPENDIT URE CLAIMED BY THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR. ORDERED ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 10TH DAY OF AU GUST, 2017, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 10TH AUGUST, 2017 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,- / CIT(A) 5. )./ 0 / DR 2. / RESPONDENT 4. + / CIT 6. /1 / GF