Mrs Archana Manoj Mane, Pune V. Deputy Commissioner of Income-Tax, Central Circle -1, Aurangabad

ITSSA 106/PUN/2022

AI Insights

The case involves appeals by two different assessees, Mrs. Archana Manoj Mane and Mrs. Kshitija Santosh Mane, against the orders of the Commissioner of Income Tax (Appeals) for the assessment years 2015-16 and 2016-17. The appeals were consolidated due to identical facts and common issues. The primary contention was regarding the disallowance of expenditure by the Assessing Officer following a search and seizure operation under section 132 of the Income Tax Act, 1961, which led to a reassessment under section 153C. The Tribunal found that the assessees had declared their income on a presumptive basis under section 44AD, which should have exempted them from explaining the source of expenditure. The Tribunal criticized the lower authorities for not substantiating their disallowance of expenditure and for drawing adverse inferences from unsigned agreements and invoices found during the search.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137114 (ITAT-PUNE)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 30-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-01-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 12-10-2022
• Other Referred Cases: CIT vs. Surinder Pal Anand, Manohar Ram Chandra Patil vs. Union of India
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Search and seizure; TDS
• Section: 132; 44AD; 143(1); 264; 192; 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / IT(SS)A Nos.106 & 107/PUN/2022 िनधाᭅरण वषᭅ / Assessment Years : 2015-16 & 2016-17 Mrs. Archana Manoj Mane, Shop No.09, Bhosale Shinde Arcade, J. M. Road, Deccan Gymkhana, Pune- 411004. PAN : AHDPC4522B Vs. DCIT, Central Circle-1, Aurangabad. Appellant Respondent आयकर अपील सं. / IT(SS)A Nos.108 & 109/PUN/2022 िनधाᭅरण वषᭅ / Assessment Years : 2015-16 & 2016-17 Mrs. Kshitija Santosh Mane, Flat No.301, Boston Apartment, Near Royalty Party, Prabhat Road, Gymkhana, Pune- 411004. PAN : AVLPM2883M Vs. DCIT, Central Circle-1, Aurangabad. Appellant Respondent आदेश / ORDER PER BENCH : These are the appeals filed by two different assessees directed against the separate orders of ld. Commissioner of Income Tax Assessee by : Shri Gaurav Bansal & Shri Vishnu Kumar Agarwal Revenue by : Shri Keyur Patel Date of hearing : 12.01.2023 Date of pronouncement : 31.01.2023 IT(SS)A Nos.106 & 107/PUN/2022 IT(SS)A Nos.108 & 109/PUN/2022 2 (Appeals)-12, Pune [‘the CIT(A)’] dated 30.09.2022 for the assessment years 2015-16 and 2016-17 respectively. 2. Since the identical facts and common issues are involved in all the above four appeals of two different assessees, we proceed to dispose of the same by this common order. 3. For the sake of convenience and clarity, the facts relevant to the appeal of the assessee in IT(SS)A No.108/PUN/2022 for the assessment year 2015-16 are stated herein. IT(SS)A No.108/PUN/2022, A.Y. 2015-16 : 4. Briefly, the facts of the case are that the appellant is an individual engaged in the business of execution of civil contracts. Originally, the Return of Income for the assessment year 2015-16 was filed on 24.08.2015 declaring total income of Rs.7,52,850/-. The said return of income was accepted u/s 143(1) of the Income Tax Act, 1961 (‘the Act’) on 04.12.2015. Subsequently, the search and seizure operations were conducted on 21.08.2018 u/s 132 on the business and well as residential premises of one company, namely, Manisha Construction Company and their family members. The appellant was also covered by such search action u/s 132 of the Act. Subsequently, the Assessing Officer issued a notice u/s 153C calling upon the appellant to file the return of income. In response IT(SS)A Nos.106 & 107/PUN/2022 IT(SS)A Nos.108 & 109/PUN/2022 3 to the notice u/s 153C, the appellant filed a return of income on 30.11.2020 declaring total income of Rs.17,94,980/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Central Circle-1, Aurangabad (‘the Assessing Officer’) vide order dated 25.06.2021 passed u/s 153C at a total income of Rs.94,11,421/- after making addition of Rs.75,28,480/- by disallowing the expenditure claimed by the appellant at the rate of 80% of the gross receipts of Rs.94,10,600/- received from Manisha Construction Company towards execution of contracts on which TDS of Rs.94,106/- was also made by holding that the appellant had not incurred expenditure towards execution of works in respect of which income was offered to tax under the provisions of section 44AD by the appellant company. 5. Being aggrieved by the above assessment order, an appeal was filed before the ld. CIT(A) contending that the assessment order passed u/s 153C is bad in law in the absence of any incriminating material pertaining to the appellant. Without prejudice to the above, it is submitted that when the income from the execution of sub- contracts was offered to tax on presumptive basis under the provisions of section 44AD, the question of disallowance of IT(SS)A Nos.106 & 107/PUN/2022 IT(SS)A Nos.108 & 109/PUN/2022 4 expenditure does not arise. However, the ld. CIT(A) while confirming the validity of the assessment also confirmed the disallowance of expenditure of Rs.75,28,480/- made by the Assessing Officer on the ground that there was no evidence of incurring the expenditure for execution of this sub-contract work. During the course of search and seizure operations in the case of Manisha Construction Company seized these copies of sub-contract agreements between the Manisha Construction Company and the appellant and the corresponding invoices which were unsigned. 6. Being aggrieved, the appellant is in appeal before us in the present appeal. 7. It is contended that the order of assessment passed by the Assessing Officer as confirmed by the ld. CIT(A) u/s 153C is bad in law, inasmuch as, there is no incriminating material found during the course of search and seizure actions in the premises of Manisha Construction Company pertaining to the appellant. It is further submitted that when an assessee had offered income from the business of execution of civil contract on presumptive basis under the provisions of section 44AD, all the deduction of expenditure under sections 30 to 38 shall be deemed to have already been allowed and no further disallowance can be made by the Assessing IT(SS)A Nos.106 & 107/PUN/2022 IT(SS)A Nos.108 & 109/PUN/2022 5 Officer. The Assessing Officer should not be made addition by disallowing the expenditure. 8. On the other hand, ld. CIT-DR submits that during the course of search and seizure operations in the case of Manisha Construction Company unsigned sub-contract agreements and invoices were found which indicated the fact that there was no sub- contracts were given to the appellant. He further submits that the entire money received from Manisha Construction Company was utilized for the personal needs and there were no source of money were shown for incurring the expenditure for execution the sub- contract work. In the circumstances, it can be safely presumed that the substance of transaction between the Manisha Construction Company and the appellant is not in relationship of sub-contractor and original contractor. Therefore, the Assessing Officer was justified in disallowing the entire expenditure claimed by the appellant. 9. We heard the rival submissions and perused the material on record. In the present case, the appellant had received Rs.94,10,600/- from Manisha Construction Company towards sub- contract receipts. The said company also deducted TDS of Rs.94,106/- at the rate of 1%. The appellant had offered the income IT(SS)A Nos.106 & 107/PUN/2022 IT(SS)A Nos.108 & 109/PUN/2022 6 earned on the execution of sub-contract on presumptive basis under the provisions of section 44AD of the Act. On mere reading of the provisions of section 44AD, it would be clear that once an assessee has opted a presumptive tax rate as provided u/s 44AD, the exemption from maintenance of books of account has been provided. The presumptive tax the rate at 8% of gross receipt itself is the basis for determining the taxable income. The assessee is not under obligation to explain the source of expenditure in order to prove the genuineness of the expenditure incurred as it is deemed that all the deductions from sections 30 to 38 including depreciation, will be deemed to have been already allowed. The scope of the provisions of section 44AD inserted by the Finance Act, 1994 w.e.f. 01.04.1994, wherein, para 31.3 mentioned as under :- “31.3 The rate of 8 per cent is comprehensive. All deductions under sections 30 to 38 including depreciation, will be deemed to have been already allowed and no further deduction will be allowed under these sections. The written down value will be calculated, where necessary, as if depreciation as applicable has been allowed. In the case of firms, the normal deductions to the extent allowed under clause (b) of section 40 will be allowed.” 10. Even the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Surinder Pal Anand, 192 Taxman 264 (P&H) has clearly held that once the option under the provisions of section 44AD is IT(SS)A Nos.106 & 107/PUN/2022 IT(SS)A Nos.108 & 109/PUN/2022 7 exercised by an assessee, the exemption from maintenance of books of account has been provided and presumptive tax at the rate of 8% of gross receipts itself the basis for determining the taxable income, the assessee is not under obligation to explain each individual entry in the cash deposits in the bank. Similarly, a sub-contractor would also come within the purview of provisions of section 44AD as held by the Hon’ble Orissa High Court in the case of Manohar Ram Chandra Patil vs. Union of India, 260 ITR 87 (Orissa). The Assessing Officer had doubted the existence of sub-contracts as unsigned agreements of contracts and the invoices are found in the business premises of Manisha Construction Company during the course of search proceedings. In our considered opinion, merely because the Department had found unsigned agreements and invoices, cannot lead to the inference that the money was not paid by the Manisha Construction Company to the appellant towards sub-contract work awarded by it. It was further corroborated that the Manisha Construction Company also deducted the TDS at applicable rate of TDS in respect of sub-contract works. The lower authorities also drawn the advance inference since the assessee had not incurred any expenditure towards execution of work, all the money received by the appellant was spent towards its personal IT(SS)A Nos.106 & 107/PUN/2022 IT(SS)A Nos.108 & 109/PUN/2022 8 needs. In our considered opinion, the Assessing Officer as well as the ld. CIT(A) is not justified in drawing such inference, inasmuch as, the appellant is not under obligation to explain the source of expenditure incurred for execution of sub-contracts once the assessee has opted from the presumptive tax under the provisions of section 44AD of the Act. Thus, we are of the considered opinion that both the Assessing Officer as well as the ld. CIT(A) had grossly erred in making the disallowance. Therefore, we are of the considered opinion that the addition made by the Assessing Officer as confirmed by the ld. CIT(A) cannot be sustained in the eyes of law. 11. In the result, the appeal filed by the assessee in IT(SS)A No.108/PUN/2022 for A.Y. 2015-16 stands allowed. IT(SS)A Nos.106, 107 & 109/PUN/2022, A.Ys. 2015-16 & 2016-17: 12. Since the facts and issues involved in remaining three appeals of the assessee are identical, therefore, our decision in IT(SS)A No.108/PUN/2022 for A.Y. 2015-16 shall apply mutatis mutandis to the remaining three appeals of the assessee in IT(SS)A Nos.106, 107 & 109/PUN/2022 for A.Ys. 2015-16 & 2016-17 respectively. Accordingly, the remaining three appeals of the assessee in IT(SS)A IT(SS)A Nos.106 & 107/PUN/2022 IT(SS)A Nos.108 & 109/PUN/2022 9 Nos.106, 107 & 109/PUN/2022 for A.Ys. 2015-16 & 2016-17 stands allowed. 13. To sum up, all the above four appeals of two different assessees stands allowed. Order pronounced on this 31 st day of January, 2023. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 31 st January, 2023. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-12, Pune. 4. The Pr. CIT Central, Nagpur. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “A” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.