50 percent expenditure allowed from Consultancy services without proof of expenses

50 percent expenditure allowed from Consultancy services without proof of expenses in view of the provisions of section 44ADA

ABACUS Case Law Citation
ABCAUS 3350 (2020) (07) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the order of the AO making addition to income due to difference of income stated in Form 26AS and return of income.

The assessee was an individual earning income from salary, consultancy services and interest.

The case was taken up for scrutiny and the assessment was completed by the Assessing Officer (AO) by passing an ex-parte order u/s 144 of the Income Tax Act, 1961 (the Act) due to non-appearance, wherein he made various additions including addition due to difference of income stated in Form 26AS and return of income.

During the course of the scrutiny assessment proceedings  the AO observed that in the Form 26AS salary income earned by the assessee was   much more than the one disclosed by the assessee in his return.

Therefore, the AO added the difference of the income income disclosed in his return and form 26AS as the undisclosed income of the assessee.

Before the CIT (A) the assessee clarified that he had received salary and the difference was received from his profession as consultancy services provider as he had quit the job.

The assessee also furnished the details of the expenditure incurred for earning consultancy income.  However, since the assessee could not furnish supporting evidence for the expenditure incurred, the CIT(A) confirmed the order of the AO.

Before the Tribunal the assessee prayed that the claim of expenditure made by the assessee may be considered  and appropriate  relief  may  be  granted  because  though  he had not maintained the proof of expenditure incurred  the expenditure was actually incurred by him.

The Tribunal observed that it was not in dispute that the difference amount was received by the assessee from consultancy services. 

The Tribunal opined that for rendering such services, it was obvious that the assessee would have definitely incurred expenditure. Therefore it would be appropriate and just to estimate the expenditure and thereafter   determine the taxable income of the assessee.

The Tribunal, taking cue from the provisions presumptive taxation of section 44ADA of the Act (though it was inserted by finance Act 2016 w.e.f. 1/4/2017), opined that in the case of the   assessee 50% of the gross consultancy receipts should be treated as the expenditure incurred by the assessee    for earning income from consultancy services.

Accordingly,  the Tribunal directed the AO to grant  50 per cent deduction towards the expenditure incurred by the  assessee towards earning income from providing consultancy  services  while  computing  the  income  of    the assessee under the head “income from profession”.

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