2022 (9) TMI 1249 - AT - Income Tax

Unaccounted professional income - Income estimation - Reliance on statements recorded during the survey - applicability of provisions of section 44ADA - AO allowed the deduction of 25% towards the expenses out of the total undisclosed professional income disclosed by the assessee and concluded the assessment - HELD THAT - Inspite of repeated requests, the statement recorded during the course of survey from the assessee was not placed on record either by the learned AR or by the learned DR. The solitary issue for our adjudication is whether the declaration made by the assessee is entitled to deduction of 50% towards expenditure against a sum declared during the course of survey. The assessee is an Advocate aged 65. The amounts disclosed as unaccounted professional income is admittedly gross receipt and not net. A.O. himself has allowed 25% towards expenditure out of amount disclosed as unaccounted professional receipts. The fact the assessee had declared only gross undeclared professional receipts is also evident from the A.O. s and CIT(A) s order. Assessee had disclosed gross undeclared professional income and A.O. estimated 25% of the expenditure incurred for earning the same. Section 44ADA permits a professional like the assessee to compute his total income on presumptive basis wherein 50% of the expenditure is allowed as deduction towards the gross receipts (provided the gross receipts does not exceed during the relevant assessment year more than Rs.50 lakh). In the instant case, admittedly, the gross professional receipts of the assessee during the relevant year exceeded Rs.50 lakh. Therefore, the assessee would not be governed by the provisions of section 44ADA of the I.T.Act. However, we can take a clue from the above said section, which permits a deduction of 50% gross receipts as expenditure. In the instant case, admittedly, since the AO and the CIT(A) had also taken the assessee s declaration as gross receipts from professional income, the figures arrived for arriving at the total income is only an estimation. The assessee , out of the undisclosed professional income would have certainly incurred expenses such as filing fees, clerkage charges, etc. On the facts of the instant case, we are of the view that the grant of 25% of the gross receipts towards expenses is very much on the lower side. In the interest of justice and equity, we are of the view that the expenditure of 40% towards the gross receipts should be allowed as deduction. Appeal filed by the assessee is partly allowed

Summary

Issues:
1. Appeal against CIT(A)'s order dated 23.05.2022 for the assessment year 2017-2018.
2. Validity of the statements recorded during the survey.
3. Admissibility of figures noted in the diary for making additions.
4. Allowance of expenditure as claimed by the appellant.
5. Adequacy of expenditure allowed at 25% of receipts.
6. Applicability of section 44ADA of the Income Tax Act.

Analysis:
1. The appeal was filed against the CIT(A)'s order for the assessment year 2017-2018. The appellant contended that the statements recorded during the survey were under duress and lacked evidentiary value. Additionally, the figures noted in the diary were challenged as baseless. The appellant sought allowance of claimed expenditure and argued for a higher percentage of expenditure deduction. The appellant also raised concerns regarding the adequacy of the expenditure allowed at 25% of receipts.

2. The assessee, a professional advocate, had undisclosed professional income during the relevant year under consideration. The survey revealed certain amounts written in a diary against the names of the assessee's clients. The assessee voluntarily disclosed additional income over and above the regular income, leading to a revised return. The AO rejected the contentions and allowed a deduction of 25% towards expenses from the total undisclosed professional income.

3. The CIT(A) upheld the AO's decision, emphasizing the lack of evidence supporting the figures declared by the assessee. The Tribunal analyzed the case, noting that the gross receipts exceeded the threshold for the applicability of section 44ADA of the Income Tax Act. However, considering the nature of the undisclosed professional income, the Tribunal found the 25% expenditure allowance to be insufficient and increased it to 40% in the interest of justice and equity.

4. The Tribunal's decision was based on the premise that the assessee's declaration represented gross receipts, not net income. While the provisions of section 44ADA were not directly applicable due to the gross receipts exceeding the threshold, the Tribunal allowed a higher deduction percentage for expenditure considering the estimated nature of the income declaration. The Tribunal's ruling aimed to balance the allowance for expenses with the undisclosed professional income declared by the assessee.

5. The Tribunal's decision partially allowed the appeal, concluding that a 40% deduction towards gross receipts should be permitted as expenditure, deviating from the initial 25% allowed by the AO. This adjustment aimed to provide a fair and just treatment considering the circumstances of the case and the nature of the undisclosed professional income declared by the appellant.

In conclusion, the Tribunal's decision addressed the issues raised by the appellant regarding the adequacy of expenditure allowance and the nature of the undisclosed professional income. By increasing the expenditure deduction percentage to 40%, the Tribunal aimed to ensure a more equitable outcome for the appellant in light of the circumstances surrounding the case.