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2022 (4) TMI 851 - AT - Income Tax


Issues:
1. Whether additions can be made to the income of an Assessee assessed under section 44AD of the Income Tax Act, 1961.
2. Treatment of sundry creditors and interest income in the assessment.

Analysis:
1. The primary issue in this case revolves around the addition to the income of an Assessee assessed under section 44AD of the Income Tax Act, 1961. The Revenue challenged the order of the CIT(A) which held that no addition can be made once the Assessee is assessed under section 44AD and fulfills the conditions. The Revenue contended that the Assessee's return of income did not qualify under section 44AD due to discrepancies in the declared business income. The Tribunal noted that the Assessee fulfilled all conditions under section 44AD, had his accounts audited, and was engaged in retail trade. The Tribunal upheld the CIT(A)'s decision, stating that the provisions of section 44AD did not mandate scrutiny of sundry creditors, and there was no cessation of liability under section 41(1) of the Act. Therefore, the Tribunal confirmed the CIT(A)'s order on this issue.

2. The second issue pertains to the treatment of sundry creditors and interest income in the assessment. The Assessing Officer added the amount of sundry creditors to the Assessee's returned income, alleging that the creditors were untraceable. However, the CIT(A) deleted this addition, emphasizing that no transactions occurred with the said parties during the year, and there was no cessation of liability. The Tribunal concurred with the CIT(A)'s decision, stating that the Assessing Officer wrongly invoked section 41(1) of the Act. Additionally, the Tribunal addressed the interest income received by the Assessee from fixed deposits, which was not covered under presumptive taxation. The Tribunal directed the Assessing Officer to assess this interest income separately from the income declared under section 44AD. Consequently, the Revenue's appeal was partly allowed on this ground.

In conclusion, the Tribunal upheld the CIT(A)'s decision regarding the applicability of section 44AD to the Assessee's income and the treatment of sundry creditors. The Tribunal also directed the separate assessment of interest income received from fixed deposits. The appeal by the Revenue was partly allowed, and the order was pronounced on 11th April 2022 in Chennai.

 

 

 

 

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