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2022 (3) TMI 1236 - AT - Income TaxComputation of income u/s 44AD - Special provision for computing profits and gains of business on presumptive basis - income returned may be maintained as the assessee is not a professional hence entitled to file her return u/s. 44AD - HELD THAT - At what rate of tax the clients deduct while making payments to the assessee is of absolutely no relevance to determine the character of receipt in the hands of the assessee recipient and for determining the status of the assessee as to whether he is engaged in business or profession. The assessee s plea is that he is engaged in the business of rendering Consultancy services. We find that the expression Consultancy does not form part of various professions mentioned in Section 44AA - The assessee has filed return her return of income u/s. 44AD of the act considering her receipts from business and not of profession. The assessee has declared an income of Rs 14 66, 462/- out of total receipt of 32 40, 000/- which works out to around 45% of the gross receipts which is fair enough. In this view of the matter we set aside the orders of the authorities below. The assessing officer is directed to accept the income returned at 14 66, 462/-. Appeal filed by the assessee is allowed.
Issues Involved:
1. Whether the authorities erred in not following the computation of income under section 44AD of the Income-tax Act, 1961. 2. Whether the assessee should be classified as engaged in business or profession for tax purposes. 3. Whether the adjustments made under section 143(1)(a) were valid without giving the assessee due opportunity. Issue-wise Detailed Analysis: 1. Computation of Income under Section 44AD: The assessee, a consultant without professional qualifications, filed a return declaring total income of ?13,11,310 for the assessment year 2017-18. The return was processed under section 143(1) at CPC, Bangalore, determining the total income at ?32,48,462, ignoring provisions under section 44AD. The assessee declared receipts of ?32,40,000 and offered an income of ?14,66,462 for tax. The authorities below upheld the computation by the assessing officer, which led to the appeal before the Tribunal. 2. Classification as Business or Profession: The Revenue argued that since the clients deducted tax at source under section 194J for consultancy fees, the assessee should be treated as engaged in the profession of consultancy, not business. The Tribunal clarified that the rate of tax deduction by clients is irrelevant for determining the nature of the assessee's income. The expression "Consultancy" does not fall under the professions listed in Section 44AA of the Act, which includes legal, medical, engineering, architectural professions, accountancy, technical consultancy, or interior decoration. Therefore, the Tribunal held that the assessee is engaged in the business of consultancy services and is eligible to file returns under section 44AD. 3. Validity of Adjustments under Section 143(1)(a): The Tribunal emphasized that under section 143(1)(a), the assessing officer must give intimation of adjustments to the assessee, either in writing or electronically, and consider any response within 30 days. The record did not clarify whether such intimation was given. The Tribunal referred to the legal view that the assessing officer cannot disallow claims for deductions or reliefs under section 143(1)(a) for lack of evidence without giving the assessee an opportunity to substantiate the claims. The Tribunal cited the Hon'ble Delhi High Court's decision in S.R.F. Charitable Trust v. Union of India, which held that the ITO cannot disallow claims for lack of proof without calling upon the assessee to explain or substantiate the claim. Thus, the adjustments made by the assessing officer were deemed not sustainable. Conclusion: The Tribunal found that the assessee's declared income of ?14,66,462 out of total receipts of ?32,40,000, which is approximately 45% of the gross receipts, was fair. The orders of the authorities below were set aside, and the assessing officer was directed to accept the income returned by the assessee. The appeal filed by the assessee was allowed. Order Pronounced: The order was pronounced in the open court on 14th March 2022.
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