2023 (4) TMI 814 - AT - Income Tax

Appellate tribunal directs assessing officer to tax professional income at 8% for 2010-11, considering TDS and deductions.

Suajkishan Deokishan Thanvi Versus Income Tax Officer Ward-2, Silvassa

The appellate tribunal allowed the appeal in favor of the assessee, directing the assessing officer to tax the income at 8% of the professional receipts ... Addition of entire professional receipts as 100% business profit of the appellant - Denial of benefit of Life Insurance Premium, housing loan interest and repayment of housing loan - HELD THAT:- We note that assessee has filed his return of income in compliance to notice u/s 148 and subsequently claimed the TDS deducted on his professional receipts and other TDS deducted on the interest income etc. NFAC/Ld. CIT(A) did not consider assessee’s case in accordance with law and confirmed the action of Assessing Officer blindly. Assessee is a small professional and his gross receipts are to the tune of Rs.6,34,765/- only. Therefore, we are of the view that it is justifiable to tax income at the rate of 8% of professional receipts. Therefore, we direct the Assessing Officer to consider the income of the assessee to the tune of Rs.50,781/- on account of professional receipts for the assessment year 2010-11 and frame de novo assessment after giving TDS benefit and deduction under Chapter-VIA of the Act. Appeal of the assessee is allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessing officer's addition of entire unexplained professional receipts as unaccounted income in assessment completed under section 144 read with section 147/148 is sustainable where the assessee files a return after the assessment but had submitted documentary material and explanations at the appellate stage. 2. Whether the assessee is entitled to credit for Tax Deducted at Source (TDS) and to claim deductions under Chapter VI-A where the return was filed belatedly after completion of assessment proceedings under section 147/148. 3. Whether, on facts of a small-scale professional practice with only bank-reported receipts, it is appropriate for the Tribunal to direct taxation on a deemed percentage (8%) of gross professional receipts instead of upholding a full-addition as unexplained income. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of full addition of professional receipts in ex parte assessment under section 144 read with section 147/148 Legal framework: The assessing officer may initiate reassessment under section 147 after issue of notice under section 148 where income has escaped assessment; section 144 permits assessment to be completed ex parte if assessee does not appear; however natural justice and the requirement to consider material placed by assessee on appeal remain relevant in appellate review. Precedent treatment: No specific precedent was invoked or relied upon in the text; the Tribunal proceeded on statutory principles and record facts. Interpretation and reasoning: The Tribunal accepted that the assessee could not appear before the AO due to ill-health leading to an ex parte order. On appeal the assessee produced written submissions and documentary evidence (including return and TDS particulars) which the appellate authority (NFAC/CIT(A)) failed to consider. The Tribunal found the appellate authority's confirmation of the AO's addition to be mechanistic and not in accordance with law because relevant material was placed on record at the appellate stage and was not examined. Ratio vs. Obiter: Ratio - An ex parte assessment under section 144/147 cannot be blindly upheld by an appellate authority where the assessee files relevant documentary evidence at the appellate stage; the appellate authority must consider those materials on merits. Obiter - Observations about the assessee's ill-health explaining non-appearance are factual and contextual. Conclusion: The AO's blanket addition of the full professional receipts was not upheld; the appellate authority erred in failing to consider the material filed at appeal, warranting reassessment on corrected principles and consideration of TDS/deductions. Issue 2 - Entitlement to TDS credit and Chapter VI-A deductions where return is filed after completion of assessment proceedings Legal framework: Credit for TDS and deductions under Chapter VI-A are available to an assessee who discharges burden of proof and furnishes requisite particulars in a return or before the assessing authority/appellate authority; however, returns filed after completion of assessment (post order under section 147/148) may be invalid for procedural purposes but relevant evidentiary material may still be considered by an appellate or revisional forum depending on facts and law. Precedent treatment: No specific authority cited; the Tribunal applied principles of fairness and evidentiary consideration rather than strict exclusion based on timing of return. Interpretation and reasoning: Although the assessees' return was filed after the AO's order and thus could not be treated as a valid return for procedural compliance (non-est), the Tribunal noted that documentation demonstrating TDS and Chapter VI-A claims was placed before the appellate authority. Because NFAC/CIT(A) did not consider these documents, the Tribunal directed reassessment de novo with specific instruction that TDS credit and Chapter VI-A deductions be given effect while framing assessment. Ratio vs. Obiter: Ratio - Where an assessee produces credible documentary evidence of TDS and entitlement to Chapter VI-A deductions at the appellate stage, those matters must be considered and, if proved, allowed in assessment even if a return was filed after an ex parte order; appellate authorities cannot ignore such material. Obiter - The characterization of the return as 'non-est and invalid' by the Ld. CIT(A) is a procedural observation but does not preclude consideration of documentary proof at the appellate stage. Conclusion: The Tribunal directed that the AO, while framing assessment afresh, must give the assessee credit for TDS and allow eligible Chapter VI-A deductions upon verification of the submitted documents. Issue 3 - Appropriate basis for taxing small-scale professional receipts (application of deemed percentage)** Legal framework: Income from profession is ordinarily determined under normal computation rules; in absence of reliable books or explanations, tribunals have discretion to estimate income reasonably, including applying a percentage of gross receipts where justified by facts and the conducing of a fair assessment. Precedent treatment: No specific precedent was cited in the text; the Tribunal relied on fact-based estimation powers to avoid harshness of complete addition where the assessee is a small professional and documented bank-reported receipts exist. Interpretation and reasoning: Given the modest scale of receipts (Rs.6,34,765) and that TDS had been deducted and bank entries existed, the Tribunal found it just and reasonable to estimate taxable professional income at 8% of gross receipts (resulting in Rs.50,781) rather than uphold a 100% addition as unexplained income. This approach balanced the need to tax undisclosed income with fairness to a small professional who had documentary indicia of legitimate receipts and who had submitted evidence at the appellate stage albeit belatedly. Ratio vs. Obiter: Ratio - In circumstances where an assessee is a small professional, receipts are evidenced by bank records and TDS has been deducted, the Tribunal may apply a reasonable deemed-percentage (8% in the facts of this case) to determine taxable professional income instead of treating entire receipts as unexplained income. Obiter - The specific choice of 8% is fact-driven and may not be a universal standard; it is an equitable determination for the particular facts. Conclusion: The Tribunal directed taxation of professional receipts at 8% (Rs.50,781) and remitted the matter to the AO to frame de novo assessment giving effect to this determination and to allow TDS credit and Chapter VI-A deductions after verification. Cross-references and procedural direction The Tribunal's conclusions on Issues 1-3 are interlinked: because the appellate authority failed to consider the documentary evidence produced at appeal, the Tribunal remitted the matter for fresh assessment. The fresh assessment is to proceed on two concomitant lines - (a) apply the Tribunal's deemed percentage finding for professional receipts and (b) accord TDS credit and Chapter VI-A deductions on verification. The order constitutes the operative ratio directing de novo assessment on these parameters.