No further disallowance can be made when income is computed u/s 44AD – ITAT

No further disallowance when income is computed u/s 44AD. ITAT directs AO to make assessment u/s 44AD as desired by assessee who earlier declared lower net profits

ABCAUS Case Law Citation:
ABCAUS 2989 (2019) (06) ITAT

The only issue in this appeal filed by the assessee was against the order of CIT(A) confirming the action of the Assessing Officer (AO) in further disallowance of expenses on adhoc basis after computing the income under presumptive basis under section 44AD of the Income Tax Act, 1961 ( the Act).

The contention of the assessee was that once income is computed on presumptive basis, u/s 44AD of the Act, there can be no further disallowance of expenses on ad hoc basis. He submitted that ad hoc disallowance of expenses would result into a rate of return much more than the rate prescribed u/s. 44AD.

The AO required the assessee to explain the expenses claimed and as the assessee could not explain the expenses, he made an adhoc disallowance on account of purchase, wages and labour payments, labour transport charges, repair and maintenance, travelling and conveyance, Sundry expenses, Telephone Expenses, Electricity Expenses, Printing & Stationary Expenses, Staff welfare expenses and power/ fuel & Oil expenses etc.

Aggrieved, assessee preferred the appeal before CIT(A) and claimed that the AO was not justified in disallowing 20% of expenses on adhoc basis and requested the CIT(A) to treat the assessee as Civil Contractor and assess under section 44AD of the Act on presumptive basis at the rate of 8% of the gross contract receipt.

But the CIT(A) did not accepted the contention of the assessee and dismissed the appeal of assessee confirming the disallowance of expenses.

The Tribunal observed that the assessee was a civil contractor and had declared net profit at the rate of 5.82% on the gross contract receipt. But now, the assessee was asking for assessment u/s 44AD of the Act and hence, he should be assessed under these provisions.

The Tribunal directed the AO to assess the assessee under section 44AD of the Act and accordingly, compute the income and make assessment.

It was also directed that the AO will not make any further disallowance after assessing the income of the assessee under section 44AD of the Act.

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