Real income taxation applies where expenditure claims need verification before taxing gross receipts under processing scrutiny.

In an appeal arising from processing under section 143(1), the Tribunal reaffirmed that only real income can be brought to tax and that gross receipts cannot be taxed without allowing permissible expenditure. It also held that the assessee's use of an incorrect return form and failure to file a revised return could not be treated as inadvertent on the facts. Because the expenditure claimed had not been properly verified at the processing stage, the matter was restored to the Assessing Officer for examination of the expenditure and consequential taxation only of the embedded real profit. The claim was therefore not accepted outright, but partial relief was granted through remand.

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Issues: Whether, in an appeal arising from intimation under section 143(1), the assessee was entitled to deduction of expenditure incurred in earning receipts and consequential taxation only of the real income after verification of such expenditure.

Analysis: The appeal arose from processing under section 143(1), and the authorities below had rejected the expenditure claim, inter alia, for want of verification and supporting audit material. The Tribunal held that the absence of a revised return and the use of an incorrect return form could not be treated as inadvertent on the facts. At the same time, it reaffirmed the settled principle that only real income can be brought to tax and that gross receipts cannot be subjected to tax without considering permissible expenditure. As the expenditure had not been thoroughly examined at the processing stage, the matter required verification by the Assessing Officer.

Conclusion: The assessee's claim was not accepted outright, but the matter was restored for examination of expenditure and taxation of only the embedded real profit, resulting in relief to the assessee in part.

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