2019 (10) TMI 734 - AT - Income Tax

Assessment of income u/s 44AD or 44ADA - deduction of tax on fees paid to Assessee has been done u/s 194J as mandated by the Act - income adjustment done by the CPC in exercise of powers u/s 143(1)(a)(vi) - HELD THAT - The disputed adjustment to the total income declared by the Assessee has been done by the CPC in exercise of powers u/s 143(1)(a)(vi) of the Act. It is not in dispute before us that the income of ₹ 15,00,000/- was offered to tax in the return of income. In the show cause notice issued by the CPC before making the adjustment, the CPC has proceeded on the basis that the sum of ₹ 15,00,000/- offered under section 44AD of the Act ought to have been offered to tax under section 44ADA. Accordingly, the sum offered to tax under section 44ADA was taxed under section 44ADA of the Act. As we have already seen the presumptive income under section 44AD is only 8% of the gross receipts, whereas under section 44ADA, 50% of the gross receipts is the presumptive income. It is thus clear from the show cause notice that the AO has not found income appearing in Form 26AS not having been included in computing the total income declared in the return of income field by the Assessee. The adjustment under section 143(1)(a)(vi) of the Act can be resorted to only when the sum of ₹ 15,00,000/- is not included in computing the total income declared in the return of income. The CBDT s instruction No.10/2017 dated 15.11.2017 has clearly laid down that only when receipts are completely omitted to be declared in the return of income can there be an addition for invoking 143(1)(a)(vi) of the Act. The submissions made by the Assessee in this regard have not been considered by the CIT(A) in the impugned order. The addition that the income appearing in Form 26AS not having been included in the return of income filed is sine qua non for invoking the provisions of section 143(1)(a)(vi) since the same is absent in the present case. We are of the view that the CPC ought not to have made the impugned adjustment. The addition made is liable to be deleted on this basis alone. The issue whether income earned by the Assessee has to be taxed u/s.44AD or Sec.44ADA of the Act cannot be subject matter of decision in processing u/s.143(1) (a) In view of the above conclusions, we are not going to the question whether the income of the Assessee is assessable under section 44ADA or 44AD of the Act. The issue is left open without any decision. Appeal by the Assessee is allowed.

Summary

Issues Involved:
1. Applicability of Section 44AD vs. Section 44ADA of the Income Tax Act, 1961.
2. Validity of adjustments made under Section 143(1)(a)(vi) of the Income Tax Act, 1961.
3. Compliance with CBDT Instruction No.10/2017.

Detailed Analysis:

1. Applicability of Section 44AD vs. Section 44ADA of the Income Tax Act, 1961:
The Assessee, an individual with income from professional fees and interest income, declared income under Section 44AD, which prescribes an 8% presumptive income for eligible businesses. However, the Centralized Processing Centre (CPC) proposed to apply Section 44ADA, which prescribes a 50% presumptive income for professions specified under Section 44AA(1). The Assessee argued that Section 44ADA was inapplicable as he did not belong to any profession listed under Section 44AA(1). The CIT(A) disagreed, holding that the Assessee's income should be taxed under Section 44ADA, but directed rectification to avoid double taxation. The Tribunal noted that the issue of whether the Assessee's income falls under Section 44AD or 44ADA cannot be decided during the processing under Section 143(1)(a) and left the issue open.

2. Validity of Adjustments Made Under Section 143(1)(a)(vi) of the Income Tax Act, 1961:
The CPC made adjustments under Section 143(1)(a)(vi), which allows additions if income appearing in Form 26AS is not included in the return. The Assessee contended that his gross receipts were fully declared under Section 44AD, and there was no discrepancy between the income reported and Form 26AS. The Tribunal observed that the CPC's adjustment was based on the presumption that the income should be taxed under Section 44ADA, not on any omission in the return. Thus, the Tribunal concluded that the adjustment was invalid as the primary condition for invoking Section 143(1)(a)(vi)—income not being included in the return—was not met.

3. Compliance with CBDT Instruction No.10/2017:
The Assessee cited CBDT Instruction No.10/2017, which states that adjustments under Section 143(1)(a)(vi) should only be made if receipts are completely omitted in the return. The Tribunal noted that the CPC did not adhere to this instruction, as the Assessee had declared his gross receipts under Section 44AD. The Tribunal emphasized that the CPC's action violated the CBDT's guidelines, further invalidating the adjustment.

Conclusion:
The Tribunal allowed the Assessee's appeal, deleting the adjustment made by the CPC under Section 143(1)(a)(vi). The Tribunal did not decide on the applicability of Section 44AD vs. Section 44ADA, leaving the issue open for future determination.

Order Pronounced:
The appeal by the Assessee was allowed, and the order was pronounced in the open court on October 16, 2019.