Friday, July 22, 2016

No Sec. 69C additions when assessee is covered by presumptive taxation Scheme of Sec. 44AD

Facts:
a) The assessee, being a civil contractor, had declared its profits under section 44AD. The Assessing O􀁹icer made additions under Section 69C for unexplained expenditure.
b) The assessee was of the view that the AO could not disturb the profits declared as per the scheme of presumptive taxation. The CIT(Appeals) dismissed this ground of appeal and upheld the additions made by AO.
c) The aggrieved-assessee filed the instant appeal.
The ITAT held as under:
1) The provisions of the section 44AD are quite unambiguous to the effect that in case of an eligible business based on the gross receipts/total turnover, the income under the head 'profits & gains of business' shall be deemed to be @ 8% or any higher amount. It is undisputed that 'deemed' means presuming the existence of something which actually is not.


2) Thus, it could be easily inferred that the same was also true for the expenditure of the assessee. If 8% of gross receipts would be 'deemed' income of the assessee, the remaining 92% would also be 'deemed' expenditure of the assessee, meaning thereby that actual expendituremight not be 92% of gross receipts, only for the purposes of taxation, it was considered to be so.
3) The AO had started with the presumption that an amount to the extent of 92% of the gross receipts was the expenditure incurred by the assessee, which was a totally wrong premise. If the income component was estimated, how the expenditure component on the basis of said income could be considered to have been 'actually' incurred.
4) The assessee had not incurred the expenses to the extent of 92 % of the gross receipts. Therefore, in the present case, the provisions of section 69C of the Act could not be applied. Asking the assessee to prove to the satisfaction of the Assessing Officer, the expenditure to the extent of 92% of gross receipts, would also defeat the purpose of presumptive taxation as provided under section 44AD of the Act or other such provision. - Nand Lal Popli v. DY CIT - [2016] 71 taxmann.com 246 (Chandigarh - Trib.)
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