2022 (4) TMI 851 - AT - Income Tax

Computation of income in a presumptive basis u/s.44AD - addition of trade creditors - Whether no addition u/s.28 to 43C can be made when the Assessee has filed return of income u/s.44AD? - HELD THAT - Admittedly, the Assessee s trading turnover is to the extent of ₹ 60,87,980/-. Assessee has declared profit on the same at ₹ 4,98,560/-, i.e. net profit and had paid taxes on the same. Assessee has fulfilled all the conditions provided u/s.44AD as the Assessee has got his accounts audited and that the Assessee is in retail trade. Further, the Assessee has not claimed any deduction. Assessee, being an individual, is eligible for claim on presumptive taxation u/s.44AD of the Act. Assessing Officer has gone into the sundry creditors which are appearing in his accounts but there is no such condition provided in the provisions of Section 44AD of the Act and the CIT(A) has rightly held that, even the provisions of Section 41(1) of the Act does not apply, as there is no cessation of liability. In view of the above, we confirm the order of the CIT(A) on this issue. Assessee has also interest income received from fixed deposits made in the Bank for ₹ 2,09,084/- and this cannot be covered under presumptive taxation. Revenue has pointed out from the Assessee s accounts that it has made fixed deposits at Electricity Department, Bank of Baroda, Federal Bank, Syndicate Bank, Rent deposit and Sales Tax Deposits. According to the Revenue, this interest income is earned by the Assessee on fixed deposits made with the Banks. According to us, this is income from other sources and it has to be assessed separately. Hence, we direct the Assessing Officer to add this income apart from the income declared by the Assessee u/s.44AD of the Act and re-compute the income accordingly. This appeal of the Revenue is partly allowed

Summary

Issues:
1. Whether additions can be made to the income of an Assessee assessed under section 44AD of the Income Tax Act, 1961.
2. Treatment of sundry creditors and interest income in the assessment.

Analysis:
1. The primary issue in this case revolves around the addition to the income of an Assessee assessed under section 44AD of the Income Tax Act, 1961. The Revenue challenged the order of the CIT(A) which held that no addition can be made once the Assessee is assessed under section 44AD and fulfills the conditions. The Revenue contended that the Assessee's return of income did not qualify under section 44AD due to discrepancies in the declared business income. The Tribunal noted that the Assessee fulfilled all conditions under section 44AD, had his accounts audited, and was engaged in retail trade. The Tribunal upheld the CIT(A)'s decision, stating that the provisions of section 44AD did not mandate scrutiny of sundry creditors, and there was no cessation of liability under section 41(1) of the Act. Therefore, the Tribunal confirmed the CIT(A)'s order on this issue.

2. The second issue pertains to the treatment of sundry creditors and interest income in the assessment. The Assessing Officer added the amount of sundry creditors to the Assessee's returned income, alleging that the creditors were untraceable. However, the CIT(A) deleted this addition, emphasizing that no transactions occurred with the said parties during the year, and there was no cessation of liability. The Tribunal concurred with the CIT(A)'s decision, stating that the Assessing Officer wrongly invoked section 41(1) of the Act. Additionally, the Tribunal addressed the interest income received by the Assessee from fixed deposits, which was not covered under presumptive taxation. The Tribunal directed the Assessing Officer to assess this interest income separately from the income declared under section 44AD. Consequently, the Revenue's appeal was partly allowed on this ground.

In conclusion, the Tribunal upheld the CIT(A)'s decision regarding the applicability of section 44AD to the Assessee's income and the treatment of sundry creditors. The Tribunal also directed the separate assessment of interest income received from fixed deposits. The appeal by the Revenue was partly allowed, and the order was pronounced on 11th April 2022 in Chennai.