2021 (1) TMI 33 - AT - Income Tax

ITAT directs AO to allow deduction for consultancy receipts, remits various issues for reconsideration

The ITAT partially allowed the assessee's appeal, directing the AO to treat 50% of consultancy receipts as expenditure, allowing a deduction of Rs. ... Addition on basis of Form 26AS mismatch - estimation of business/professional expenditure - treatment of income between salary and profession - application of deemed/prospective section 44ADA principles - remand for de novo consideration and admission of fresh evidence - ex-parte assessment - credit for Tax Deducted at Source and self-assessment tax - deduction for interest on housing loan requiring verificationAddition on basis of Form 26AS mismatch - estimation of business/professional expenditure - treatment of income between salary and profession - application of deemed/prospective section 44ADA principles - Whether the addition made by the Assessing Officer on account of the difference between salary shown in Form 26AS and salary declared in the return should stand, and if the receipts represent consultancy income whether expenditure can be estimated. - HELD THAT: - The Tribunal found that the sum shown in Form 26AS in excess of the salary declared by the assessee represented receipts from consultancy services and not unexplained undisclosed salary. Given the assessee's inability to furnish supporting proof of expenditure, the Tribunal nevertheless held that it was appropriate to estimate deductions for expenditure incurred in earning consultancy income. Taking guidance from the principles underlying the statute later enacted as section 44ADA, the Tribunal, in the peculiar facts of the case, held that 50% of the gross consultancy receipts should be treated as expenditure for computing income under the head 'income from profession'. The balance was to be treated as salary income. The Tribunal accordingly directed the Assessing Officer to allow half of the consultancy receipts as deduction while computing professional income and to reclassify the relevant portion of receipts as salary. [Paras 5]Addition sustained only after allowing an estimated deduction of 50% of the consultancy receipts; balance to be treated as salary and computation to be revised by the Assessing Officer.Remand for de novo consideration and admission of fresh evidence - ex-parte assessment - credit for Tax Deducted at Source and self-assessment tax - classification of interest income versus consultancy income - deduction for interest on housing loan requiring verification - Whether the matters relating to rectification of Form 26AS, classification of interest income, claim of TDS and self-assessment tax credit, and deduction for interest on housing loan should be adjudicated or remitted. - HELD THAT: - The Tribunal noted that the assessment order was passed ex parte because the assessee did not appear before the Assessing Officer and that earlier opportunities to place relevant particulars on record were not availed. In light of this and the need for verification of facts (in particular the housing loan interest claim), the Tribunal concluded that the issues requiring factual determination and documentary support should be reopened for fresh consideration. The Assessing Officer was directed to admit any fresh evidence tendered by the assessee, grant an opportunity of hearing, and decide these matters afresh in accordance with law and on merits. [Paras 4]Matters remitted to the Assessing Officer for de novo consideration and to admit and decide any fresh evidence; directed to provide the assessee an opportunity of being heard.Final Conclusion: Appeal partly allowed for statistical purposes: the Tribunal directed reassessment of income by allowing an estimated deduction of 50% of the consultancy receipts and treating the balance as salary, and remitted remaining contested issues for de novo consideration by the Assessing Officer with liberty to admit fresh evidence and grant a hearing. Issues:1. Discrepancy in salary income between Form 26AS and income declared in return.2. Lack of opportunity to rectify Form 26AS for consultancy income.3. Misclassification of interest income as consultancy income.4. Disallowance of deduction for interest on housing loan.5. Non-granting of credit for Tax Deducted at Source and Self-Assessment Tax paid.Issue 1: Discrepancy in salary income:The assessee's appeal contested the addition of Rs. 40,42,376 due to the variance between salary income in Form 26AS and the return. The CIT (A) upheld the AO's decision. The assessee explained receiving salary from Google India Pvt. Ltd. and consultancy income, but lacked evidence for consultancy expenditure. The ITAT directed 50% of consultancy receipts to be treated as expenditure, allowing a deduction of Rs. 17,65,696 and treating the balance as salary income.Issue 2: Lack of opportunity for rectification:The AO did not provide the assessee a chance to rectify Form 26AS regarding consultancy income. The ITAT remitted the matter to the AO for reconsideration, granting the assessee an opportunity to present all relevant details and evidence.Issue 3: Misclassification of interest income:The AO incorrectly categorized interest income as consultancy income. The ITAT remitted this issue back to the AO for fresh consideration along with other grounds, allowing the assessee to submit additional evidence.Issue 4: Disallowance of deduction for interest on housing loan:The CIT (A) remitted this matter to the AO for verification, and the ITAT found it unnecessary to interfere with this decision. The ITAT directed the AO to reconsider this issue along with others, providing the assessee with an opportunity to present relevant information.Issue 5: Non-granting of credit for TDS and Self-Assessment Tax:The AO did not credit Tax Deducted at Source and Self-Assessment Tax paid. The ITAT remitted this issue back to the AO for fresh consideration, instructing the AO to admit any new evidence submitted by the assessee and decide in accordance with the law.In conclusion, the ITAT partially allowed the assessee's appeal, providing detailed directions for reconsideration of various issues by the AO, ensuring the assessee's right to be heard and present relevant evidence.