2012 (7) TMI 151 - AT - Income Tax

Addition made u/s 40(a)(ia) - CIT(A) deleted the addition - assessee during the course of hearing filed a letter stating that the firm was covered by the provisions of section 44AD and maintenance of books was not mandatory - Held that - Once under the special provision of section 44AD exemption from maintenance of books of accounts have been provided and the presumptive tax at 8% of the gross receipts itself is the basis for determining the taxable income, assessee s income cannot be increased beyond this amount disclosed by it. Though from the details filed by assessee AO observed that no TDS has been recovered but as the assessee has disclosed the profits more than 8% of the gross receipts and there is no dispute in receipt of the gross receipts the addition made u/s 40(a)(ia) is not sustainable - decided in favour of assessee.

Summary

Issues:
Deletion of addition of Rs.32,62,140/- made by AO u/s 40(a)(ia) of the IT Act.

Analysis:
The Revenue raised the issue of deletion of the addition of Rs.32,62,140/- made by the Assessing Officer (AO) under section 40(a)(ia) of the Income Tax Act. The AO observed that the assessee firm was engaged in developing and promoting business but failed to produce books of accounts when requested during the assessment proceedings. The AO concluded that the firm maintained books initially but later invoked section 44AD to avoid tax deduction at source. The AO disallowed the entire amount of Rs.32,62,140/- for not deducting tax on payments made to various parties, citing non-compliance with TDS provisions.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition. The CIT(A) considered the nature of the assessee's business and the gross receipts to determine if the firm qualified under section 44AD. The CIT(A) found that the gross receipts were below Rs. 40,00,000/-, making the firm eligible under section 44AD. The CIT(A) calculated the net profit at 8% of the gross receipts, which the assessee had declared. The CIT(A) held that the assessee's profit declaration satisfied the requirements of section 44AD, preventing any further addition under section 40(a)(ia).

The Revenue appealed the CIT(A)'s decision. The Tribunal noted that under section 44AD, the assessee was not obligated to maintain books of accounts and the presumptive tax at 8% of gross receipts determined the taxable income. The Tribunal cited a precedent to support that the assessee was not required to explain individual cash deposits unless unrelated to gross receipts. As the assessee disclosed profits exceeding 8% of gross receipts, and there was no dispute over the receipts, the Tribunal ruled the addition made by the CIT(A) under section 40(a)(ia) was not sustainable. The Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal.

Regarding the Cross Objection filed by the assessee, since it supported the CIT(A)'s order, which was confirmed by the Tribunal, the Cross Objection was deemed infractuous and dismissed. Ultimately, the Tribunal dismissed both the Revenue's appeal and the Cross Objection filed by the assessee.