Production Supervisor Can Use Presumptive Taxation Scheme, Says ITAT Mumbai

Court Name : ITAT Mumbai

Parties : Mehjabeen Masood Khan Vs ITO 

Decision Date : 22 June 2023

Judgement ref : ITA No. 766/Mum/2023

Imagine you're a production supervisor. You didn't file your income tax return for a particular assessment year.

Your tax officer got information that you deposited crores of rupees in your bank account and also your 26AS disclosed TDS deductions on your receipts in lakhs.

So, tax officer sent you a notice under "Income escaping assessment" and asked you file your income tax returns under section 142(1) (of Income Tax Act, 1961) and 148 (of Income Tax Act, 1961).

You're puzzled, you don't know what to do, how to file?

You've heard about the Presumptive Taxation Scheme under Section 44AD (of Income Tax Act, 1961), and you're wondering, "Can I adopt this scheme, because you're a production supervisor who is a professional and section 44AD (of Income Tax Act, 1961) applies to the professionals?"

This was the question at the heart of a case that went before the Income Tax Appellate Tribunal (ITAT). The ITAT ruled in favor of the production supervisor, stating that a production supervisor can indeed adopt the Presumptive Taxation Scheme under Section 44AD (of Income Tax Act, 1961).

The ITAT noted that the scheme is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring, or leasing goods carriages). As a production supervisor, you fall within this category, and therefore, you can adopt the scheme.

Now there is another catch, "What about crores of deposits and lakhs of receipts in form 26AS?"

The answer is - you've broken the teeth of these deposits and receipts by filing your income tax return under the presumptive taxation scheme of section 44AD (of Income Tax Act, 1961). Meaning that section 68 (of Income Tax Act, 1961) covering unexplained cash credits doesn't apply to you.

Honorable ITAT covered it in its order.

Honorable ITAT ordered. They ruled that the addition of professional receipts as undisclosed income under section 68 (of Income Tax Act, 1961) was not tenable, considering the assessee's adoption of the provisions of section 44AD (of Income Tax Act, 1961), which permits the computation of income on a presumptive basis.

This ruling becomes significant in the context of the tax dispute, as it stands as a precedent for professionals who opt for the presumptive taxation scheme under section 44AD (of Income Tax Act, 1961). It reinforces the legality and validity of such an option and highlights the importance of detailed and thoughtful deliberation in understanding the nuances of taxation laws and their application. The verdict also emphasizes the complexities of taxation laws and the role of judicial bodies in interpreting and enforcing these rules. By allowing the appeal and directing the assessing officer to delete the addition, the ITAT has provided clarity and guidance on the application of section 44AD (of Income Tax Act, 1961), which is expected to have far-reaching implications for similar disputes in the future.

ORDER

PER PAVAN KUMAR GADALE - JM:

The appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC)/CIT(A), Delhi passed u/s 250 (of Income Tax Act, 1961).

2. At the time of hearing, the Ld.AR of the assessee submitted that there is a delay in filing the appeal before the Hon’ble Tribunal and filed an affidavit for condonation of delay. Whereas, the facts mentioned in the affidavit are reasonable and the Ld. DR has no specific objections. Accordingly, condone the delay and admit the appeal. The assessee has raised the following grounds of appeal:

1. On the facts and circumstances of the case, the learned Commissioner of Income Tax (A) erred in confirming the addition of Rs.14,73,600/- under section 68 (of Income Tax Act, 1961) without appreciating that the appellant had opted for presumptive taxation under section 44AD (of Income Tax Act, 1961) and not maintaining book of accounts, therefore the section 68 (of Income Tax Act, 1961) is not applicable.

2. On the facts and circumstances of the case, the ld. Commissioner of Income Tax (A) erred in confirming the addition under section 68 (of Income Tax Act, 1961) i.e. unexplained cash credit without appreciating that the said credits i.e. Professional Fees are duly explained and the assessee had offered said receipts under section 44AD (of Income Tax Act, 1961) and paid due taxes.

3. On the facts and circumstances of the case, the ld. Commissioner of Income Tax (A) erred in not granting the deduction of expenses incurred for earning the said receipts of Rs.14,73,600/-.

The appellant craves leaves to add, to delete or amend any of the above grounds of appeal at the time of hearing

3. The brief facts of the case that, the assessee is engaged in professional service as production supervisor and the assessee has not filed the return of income for the A.Y 2015-16.The Assessing Officer (A.O) has received information that the assessee has deposited cash of Rs.3 Crores in the bank accounts and also as per Form no 26AS the assessee is in receipt of income u/s 194J (of Income Tax Act, 1961) of Rs. 14,76,600/- The A.O. has reason to believe that the income has escaped the asseseement and issued notice u/s 148 (of Income Tax Act, 1961) and there was no compliance. Further, the A.O has issued notice u/s 142(1) (of Income Tax Act, 1961) to explain the sources of cash deposits in bank and the taxability of receipts u/s 194J (of Income Tax Act, 1961) and reasons for not filing the return of income for A.Y 2015-16. Subsequently, the A.O has issued notice u/s 133(6) (of Income Tax Act, 1961) to (i) Oriental Commerce Bank and (ii) Abu Jani Sandeep Khosla. Whereas the assessee has filed the return of income for A.Y 2015-16 on 22.12.2018 disclosing a total income of Rs.1,95,160/- and notice u/s 143(2) (of Income Tax Act, 1961) was issued. As per the return of income, the assessee was working with the fashion designer and TDS was deducted u/s 194J (of Income Tax Act, 1961) on the receipts/ income.

4. The AO found that the assessee has computed the income u/s 44AD (of Income Tax Act, 1961) @ 8% of the gross receipts. The AO has dealt on the facts with respect to TDS deduction u/s 194J (of Income Tax Act, 1961) and further the notice u/s 142(1) (of Income Tax Act, 1961) was issued to submit the documentary evidence/details.In compliance, the assessee has filed the explanations and furnished the details vide letter dated 27-12-2018 referred at Para 6 of the order. Whereas the AO was not satisfied with the submissions of the assessee and observed that the TDS was deducted u/s 194J (of Income Tax Act, 1961) and the assessee has submitted the details of professional receipts which are disclosed in Form.No.26AS and the assessee has not specified the profession but working with the renowned professional firm who are engaged in the business of fashion designing. Therefore the AO is of the opinion that the assessee has not maintained books of account and does not have professional skills. The AO found that the assessee has filed the return of income for the A.Y 2011-12 and offered the business income and for A.Y 2015-16, the assessee has adopted presumptive basis u/s 44AD (of Income Tax Act, 1961). Whereas for the A.Y 2016-17 to A.Y. 2018-19 the assessee has been employee and TDS has been deducted as per the provisions applicable to salary income. Finally, the AO was not satisfied with the explanations and offering of income u/s 44AD (of Income Tax Act, 1961) @ 8% and made addition as undisclosed income U/sec68 (of Income Tax Act, 1961) of Rs. 14,73,600/-and assessed the total income of Rs. 15,50,870/- and passed the order u/sec 143(3) (of Income Tax Act, 1961) r.w.s 147 (of Income Tax Act, 1961) dated 28.12.2018.

5. Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the AO but confirmed the addition made by the AO and dismissed the assessee appeal. Aggrieved by the order the assessee has filed an appeal before the Hon’ble Tribunal.

6. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in not considering the facts and submissions and various information filed before the A.O and in the proceedings. The contentions of the Ld. AR are that the assessee has offered income as per the provisions of Sec 44AD (of Income Tax Act, 1961) which is permissible to the assessee and whereas in subsequent years the assessee being an employee, the salary income was offered and the Ld.AR substantiated the submissions with paper book and prayed for allowing the assessee appeal. Contra, the Ld. DR relied on the order of the CIT(A).

7. Heard the rival submissions and perused the material on record. The sole matrix of the disputed issue envisaged by the Ld.AR that the CIT(A) has erred in confirming the action of the AO overlooking the various facts and information filed in the course of hearing. The Ld. AR’s contentions are that the assessee has filed ITR Form No.4S for A.Y 2015-16 adopting the provisions of Sec. 44AD (of Income Tax Act, 1961) prescribed under income tax Act. The Ld. AR has highlighted the reply filed in response to notice, placed at page 8 to 9 of the paper book where the assessee mentioned that the professional receipts are from the fashion designer and TDS was deducted u/s 194J (of Income Tax Act, 1961). Further the assessee has filed a letter dated 26.12.2018 furnishing of computation of income, ITR, bank account statement placed at page 10 of the paper book. Prima-facie the assessee has adopted the provisions of Sec. 44AD (of Income Tax Act, 1961) which mandates offering of the income on presumptive basis, the assessee has offered the income @ 8% of professional receipts for the present assesseement year and for the subsequent years from A.Y 2016-17 to A.Y.2018-19 the assessee being an employee and TDS was deducted on salary income under the provisions of section 192 (of Income Tax Act, 1961) which is not disputed. Therefore considering the facts and circumstances, that the assessee has adopted provisions of section 44AD (of Income Tax Act, 1961) which is permissible and the addition of professional receipts as undisclosed income U/sec68 (of Income Tax Act, 1961) is not tenable. Accordingly, set-aside the order of the CIT(A) and direct the assessing officer to delete the addition. And the grounds of appeal are allowed in favour of the assessee.

8. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 22.06.2023.

Sd/-

(PAVAN KUMAR GADALE)

JUDICIAL MEMBER

Mumbai, Dated 22 /06/2023

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IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 766/Mum/2023 (Assessment Year: 2015-16) MehjabeenMasoodKhan, A/503, Akansha CHS Apartment, Yari Road, Versova, Andheri (W), Mumbai-400061. बनाम/ Vs. ITO, 16(1)(3), Aayakar Bhavan, M.K.Road, Mumbai- 400020. थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AIBPK9930R (अपीलाथ /Appellant) ( थ / Respondent) अपीलाथ ओर से/ Appellant by : Mr.Sumit Mantri.AR  थ की ओर से/Respondent by : Mr.Abhishek Kumar Singh.DR सुनवाई की तारीख / Date of Hearing 21/06/2023 घोषणा की तारीख /Date of Pronouncement 22/06/2023