2025 (2) TMI 82 - AT - Income Tax

Estimating net profit @25% of turnover and restricted the disallowance of expenses as 20% of adhoc disallowance made by AO - HELD THAT - Assessee has filed return of income declaring income on presumptive basis under provisions of section 44AD of the Act. Revenue has not disputed the fact that the assessee is an eligible assessee under provision of section 44AD. Once the return of income has been filed under the special provision of section 44AD of the Act the assessee cannot claim deduction allowable under provisions of section 28 to 43C of the Act. Assessee u/s. 44AD of the Act as against presumptive tax of 8% has offered income to tax @ 9.8%. After accepting the assessee as eligible assessee u/s. 44AD of the Act the Revenue cannot look into each and every expenditure and make ad-hoc disallowance with regard to the expenditure separately. Appeal of the assessee is allowed.

Summary

The Appellate Tribunal ITAT Delhi, presided over by Judicial Member Shri Vikas Awasthy, addressed an appeal concerning an ex-parte order by the Commissioner of Income Tax (Appeals) for the assessment year 2016-17. The appeal was initially time-barred by five days, but the Tribunal condoned the delay, deeming it unintentional and supported by a bona fide affidavit.The core issue in the appeal was the confirmation of an addition of Rs.11,25,140/- by the CIT(A) based on estimations. The assessee had filed a return of income under section 44AD of the Income Tax Act, 1961, declaring Rs.8,23,920/-. The Assessing Officer (AO) made an ad-hoc disallowance of 20% of expenses, leading to an addition of Rs.13,86,720/-. The CIT(A) partially relieved the assessee by estimating a net profit at 25% of turnover, reducing the disallowance to Rs.11,25,140/-.The Tribunal noted that the assessee filed the return under the presumptive taxation scheme of section 44AD, offering income at a rate of 9.8%, which exceeded the presumptive rate of 8%. It was emphasized that once the assessee is accepted as an "eligible assessee" under section 44AD, the Revenue cannot scrutinize each expenditure and make separate ad-hoc disallowances. Consequently, the Tribunal directed the deletion of the addition confirmed by the CIT(A), setting aside the impugned order and allowing the appeal of the assessee. The order was pronounced on January 31, 2025.