2016 (1) TMI 1201 - AT - Income Tax

Eligibility to claim benefit u/s 44AD - turnover limit exceeded - Held that - The assessee has submitted its total turnover for AY 2010-11 is ₹ 46,88,000/-, which was confirmed before the CIT(A) and estimated the gross profit at 5% on the turnover. We find that the eligibility of computation of income, for the AY 2010-11 on the presumptive basis u/s 44AD, the turnover limit was ₹ 40 lakhs, whereas, in the present case, the assessee crossed the limit of ₹ 40 lakhs, hence, the assessee is not eligible to compute his income as per section 44AD to claim benefit in that section. Moreover, the rate applicable on the presumptive basis is 8% whereas the assessee has declared the profit at 5% of turnover. Assessee has claimed that he has taken ₹ 5 lakhs loan from his late brother s family and he has not substantiated the above claim by way of any documentary evidence as he has not disclosed even in the receipts and payments account submitted before the AO. Since the assessee has crossed the turnover of ₹ 40 lakhs, he is not eligible to claim benefit u/s 44AD as per the provisions of this section. As the assessee has not substantiated the loans and advances received from his customers and his late brother s family and also he is not eligible to claim the benefit u/s 44AD, in our considered view, respectfully following the decision of the coordinate bench in case of Suresh Kumar Biyani (2015 (9) TMI 1501 - ITAT HYDERABAD), we direct the AO to calculate the gross income of the assessee at 20% of the total turnover as accepted by the assessee before the CIT(A). - Decided partly in favour of revenue

Summary

Issues:
1. Unexplained cash deposits in the bank account.
2. Treatment of advances received from customers.
3. Claim of advance received from late brother.
4. Eligibility to compute income under section 44AD.

Unexplained Cash Deposits:
The appeal was filed by the Revenue against the CIT(A)'s order for the AY 2010-11. The AO completed the assessment ex-parte u/s 144 as the assessee failed to explain cash deposits of &8377; 46,42,700. The CIT(A) accepted &8377; 35.91 lakhs as advances received from customers but confirmed the addition of &8377; 8,16,800 as unexplained receipt. The turnover was admitted at &8377; 46,88,000, and the CIT(A) rejected the claim of &8377; 5 lakhs received from the late brother due to lack of detailed information or confirmations.

Treatment of Advances Received:
The Revenue raised grounds of appeal questioning the genuineness of the advances received and the CIT(A)'s acceptance without proper verification. The Revenue argued that the CIT(A) erred in holding the advances as explained without sufficient proof. The Revenue contended that the CIT(A) failed to direct the AO to examine the genuineness of the advances, leading to a contradictory stand in the judgment.

Claim of Advance from Late Brother:
The assessee claimed &8377; 5 lakhs as a loan from the late brother's family, but failed to provide documentary evidence or disclose it in the receipts and payments account. The assessee, having crossed the turnover limit for section 44AD, was deemed ineligible for the benefits under that section. As the claim was unsubstantiated, the AO was directed to calculate the gross income at 20% of the total turnover.

Eligibility under Section 44AD:
The assessee's turnover exceeded the limit for section 44AD, making him ineligible for the benefits under that section. The assessee's profit declaration at 5% of turnover was lower than the prescribed rate of 8%. The AO was directed to calculate the gross income at 20% of the total turnover, following the decision of a coordinate bench.

In conclusion, the Revenue's appeal was partly allowed, emphasizing the need for proper substantiation of claims and compliance with relevant tax provisions for income computation.