Orbit 9 Electronics , Hyderabad V. Income Tax Officer, Ward-6(2) , Hyderabad

ITA 16/Hyd/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9782 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB-A
• Assessment Year: 2017-2018
• Appeal Filed On: 02-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T. SUNIL GOUTAM
• Assessee Lawyers: SWAPNIL DESHMUKH
• Keywords: Presumptive income; Business income; TDS
• Section: 44AD; 44BB; 44AB; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”, HYDERABAD BEFORE SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA No. 16/Hyd/2020 (Assessment Year: 2017-18) M/s.Orbit 9 Electronics, Hyderabad [PAN No. AABFO6265A] Vs. The Income Tax Officer, Ward-6(2), Hyderabad Appellant Respondent Assessee by: Shri Swapnil Deshmukh, AR Revenue by: Shri T.Sunil Goutam, DR Date of hearing: 25-05-2022 Pronouncement on: 07-06-2022 ORDER PER K. NARASIMHA CHARY, JM: Aggrieved by the order dated 20-11-2019, passed by the Learned Commissioner of Income Tax (Appeals)-6, Hyderabad (“Ld. CIT(A)”) in the case of M/s.Orbit 9 Electronics (“the assessee”) for the AY.2017-18, assessee preferred this appeal. 2. Relevant facts are that the assessee is a partnership firm, engaged in the business of retail sale of software, providing AMC of software and other technical services. They have filed a return of income for the ITA No. 16/Hyd/2020 Page 2 of 8 AY.2017-18 on 31-10-2017, declaring an income of Rs.12,60,722/-. According to the assessee, their turnover or gross receipts do not exceed Rs.2 Crores in the previous year relevant to the AY.2017-18 and, therefore, u/s.44AD of the Income tax Act, 1961 (“the Act”) a sum equal to 6% of the total turnover or gross receipts shall be deemed to be the profits and gains of their business chargeable to tax. 3. Such return of income was processed u/s.143(1) of the Act determining the total income at Rs.77,14,296/- by making an addition to the extent of Rs.64,53,580/- by invoking the provisions u/s.44ADA of the Act. For reaching this conclusion, the basis that appears from the record is that the receipts to the tune of Rs.1,29,07,148/- in respect of which TDS was deduction u/s.194J of the Act was not disclosed in the return of income. Feeling aggrieved by such an action of the learned Assessing Officer, assessee filed an application u/s.154 of the Act but the same was rejected. Assessee, therefore, preferred an appeal before the Ld. CIT(A). 4. Vide impugned order, Ld. CIT(A) considered the contentions of the assessee and reached a conclusion that the case of the assessee does not fall under the provisions of Section 44ADA of the Act inasmuch as the gross business receipts of the assessee exceed the threshold limit of Rs.50 lakhs. Nextly, as a matter of fact, on verification of record, Ld. CIT(A) found that this amount of Rs.1,29,07,148/- which was received from the clients/customers and in respect of which, TDS was deducted was in fact included in the disclosed receipts of Rs.1,85,91,980/-. Ld. CIT(A), however, found that the learned Assessing Officer committed error in law in not considering the case u/s.44AD of the Act inasmuch as the detailed furnished by the assessee disclose that though the basic amount of receipt ITA No. 16/Hyd/2020 Page 3 of 8 was to the tune of Rs.1,85,91,980/-, after including the service tax and VAT/CST to the tune of Rs.11,11,652/- and Rs.3,81,561/- respectively, the turnover of the assessee will be Rs.2,00,85,193/- crossing the threshold limits of Rs.2 Crores. Ld. CIT(A) placed reliance on the decisions reported in Jonnalla Narasimharao Vs. CIT [1993] 68 Taxman 340 (SC), Addl.CIT Vs. T.Naggi Reddy [1993] 202 ITR 253 (SC), Chowringhee Sales Bureau (P) Ltd., Vs. CIT [1973] 87 ITR 542 (SC), Sinclair Murray & Co. (P) Ltd Vs. CIT [1974] 97 ITR 615 (SC), Union of India Vs. Bombay Tyre International Ltd [1983] 15 Taxman 29 (SC) and Mc Dowell & Co. Ltd., Vs. CIT [1985] 22 Taxman 11 (SC). On this premise, Ld. CIT(A) proceeded to estimate the taxable income at 25% of the total turnover/gross receipts of Rs.2,00,85,193/- and directed the learned Assessing Officer to recomputed the income under the head ‘profits and gains of business/profession’ at Rs.50,21,298/- as against the income of Rs.75,85,685/- computed u/s.154 of the Act. 5. Assessee is, therefore, before us in this appeal contending that while estimating the net profit on the turnover, the Ld. CIT(A) included the VAT/CST/Service Tax which do not have any profit element. 6. Learned AR contended that the provisions u/s.44BB of the Act are in pari materia with the provisions u/s.44AD of the Act and in DIIT Vs. Schlumberger Asia Services Ltd [2010] 186 Taxman 436 (Uttarakhand) it was held that the reimbursement of customs duty could not form part of amount taxable u/s.44BB of the Act, in the case of DIT Vs. Mitchell Drilling International (P) Ltd., [2015] 62 taxmann.com 24 (Delhi) it was held that the service tax collected by the assessee and passed on to Government does not have any element of income and, therefore, cannot form part of gross receipts for purposes of computing presumptive income of assessee ITA No. 16/Hyd/2020 Page 4 of 8 u/s.44BB of the Act. He also placed reliance on the decision reported in CIT Vs. Lakshmi Machine Works [2007] 160 Taxman 404 (SC) and CIT Vs. Sudarshan Chemical Industries [2000] 112 TAXMAN 511 (Bom) rendered u/s.80HHC of the Act, wherein it was held that sales tax and excise duties are not to be included in total turnover while working out deduction u/s.80HHC of the Act. 7. Per contra, learned DR argued that “turnover”, “gross receipts” and “sales” are the starting point of tax audit and they form the qualifying criteria to determine whether a taxpayer is liable to tax audit during a given year. He further submits that though Section 44AB of the Act lays down the threshold turnover for its non-applicability or for getting the accounts audited, it does not define the said word and, therefore, resort has to be had to Section 145A of the Act, which deals with the accounting in certain cases. He brings it into our notice that u/s.145A of the Act, while dealing with the method of accounting, it stipulates that for the purpose of determining the income chargeable under the head profits and gains of business/profession, the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation. 8. He accordingly submitted that the value of sales tax and VAT/CST is includable in the turnover of the assessee. He further submitted that even as per the “guidance note on terms used in financial statement” published by the ICAI, turnover means the aggregate amount for which sales are effected by an enterprise. He submits that under this guidance note the ITA No. 16/Hyd/2020 Page 5 of 8 word “turnover” for the purpose of Section 44AB of the Act is understood to mean the aggregate amount for which sales are effected or services rendered by an enterprise. 9. He further explained that if the assessee maintains books of account by following the inclusive method, where the sales price include the service tax, sales tax and excise duty, then, no adjustment in respect thereof need be made for considering the quantum of turnover. However, in case where the assessee maintains the books of accounts by following the practice of crediting the sale tax or/and VST/CST to the respective account and payments to the Central Government are debited in the same account, then in such case, the sales tax or/and VST/CST are not to be included while quantifying the turnover. Inasmuch as the case of the assessee for this assessment year is concerned, they did not get the accounts audited, the assessee is not entitled to claim that the sales tax or/and VST/CST is not includable while quantifying the turnover. He submitted that the purpose of allowable deductions u/s.80HHC of the Act and Section 44BB of the Act is different and it is not known what accounting method the assessee followed therein and, therefore, the assessee cannot rely upon the decisions cited by them. 10. We have gone through the record in the light of the submissions made on either side. Facts are not in dispute and on the other hand, the submissions made on behalf of the assessee are clear to the effect that the assessee got the accounts audited for the AYs.2014-15 to 2016-17 and subsequently for AY.2020-21. However, according to the assessee, for this AY.2017-18, the turnover is less than Rs.2 Crores threshold limit and, therefore, no accounts are audited nor produced before the authorities ITA No. 16/Hyd/2020 Page 6 of 8 but the assessee proceeded to opt for presumptive tax. Entire issue in this case revolves around the question whether or not the sales tax or/and VST/CST is includable while quantifying the turnover to determine the applicability of Section 44AD of the Act. According to the assessee, though the term “turnover” is not defined in Section 44AD of the Act, a clue can be taken from the decided cases referred to above wherein sales tax or/and VST/CST was held not to be included in the turnover. 11. It could be seen from the decisions in Lakshmi Machine Works (supra) and CIT Vs. Sudarshan Chemical Industries (supra), the working out of deduction u/s.80HHC of the Act was the issue and not the determination of the threshold parameter for the purpose of applicability or otherwise of a particular provision. Further, the facts in the case of Schlumberger Asia Services Ltd., (supra) and in Mitchell Drilling International (P) Ltd., (supra), clearly indicate that the sales tax component was either reimbursed or paid to the Government as could be verified from the books. This shows that the assessee in such cases, followed the practice of crediting the sales tax or/and VST/CST covered the sales and debiting the same in the same account after paying it to the Government. But here in this case, the accounts are not audited and there is nothing on record to show that the method of accounting followed by the assessee is not inclusive method. 12. Since Section 145A of the Act is clear in its import that for the purpose of determining the income chargeable under the head “profits and gains of business/profession”, the valuation of purchase and sales of goods shall be adjusted to include the tax component also and it was so understood by the ICAI the turnover shall include the tax component unless the assessee maintains a separate tax account in respect of sales ITA No. 16/Hyd/2020 Page 7 of 8 tax or/and VST/CST wherein credit is made on collection and debit is made on payment. Admittedly in this case, the assessee did not get their accounts audited for this particular assessment year though it was not so for the earlier assessment years. In these circumstances, we are of the considered opinion that for the purpose of quantifying the turnover of the assessee, the sales tax or/and VST/CST cannot be excluded. On this account, we cannot find fault with the observations of the Ld. CIT(A). 13. Now coming to the net profit relevant for taxation is concerned, Ld. CIT(A) estimated the same at 25% of the gross turnover but the figures furnished by the assessee by way of written submissions, show that the net profit was 12.82%, 12.54% and 5.52% for the AYs.2014-15, 2015-16 and 2016-17 respectively. In these circumstances, we find that estimate of the same at 25% is very high and taking a pragmatic view, we estimate the same at 12.5% of the gross receipts/turnover. Learned Assessing Officer is directed to re-compute the income under the head “profits and gains of business/profession” of the assessee at 12.5% of the gross receipts/turnover. 14. In the result, appeal of the assessee is allowed in part. Order pronounced in the open court on this the 7 th day of June, 2022 Sd/- Sd/- (RAMA KANTA PANDA) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER TNMM Hyderabad, Dated: 07-06-2022 ITA No. 16/Hyd/2020 Page 8 of 8 Copy forwarded to: 1. M/s.Orbit 9 Electronics, No.104, Swarganivas Enclave, 7-1-619/A, East Srinivas Nagar, Ameerpet, Hyderabad. 2. The Income Tax Officer, Ward-6(2), Hyderabad. 3. The CIT(Appeals)-6, Hyderabad. 4. The Pr.CIT-6, Hyderabad. 5. DR, ITAT, Hyderabad. 6. GUARD FILE TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD