The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has held that merely because a professional failed to file an income-tax return, his entire gross professional receipts cannot automatically be treated as taxable net professional income.
The bench of ABY T. Varkey (Judicial Member) and Padmavathy S. (Accountant Member) directed the Assessing Officer (AO) to treat 50% of a doctor’s professional receipts as income, considering the overall facts and circumstances of the case.
The assessee, a doctor by profession, had not filed his income-tax return for AY 2018-19. The Assessing Officer received information indicating that the assessee had earned substantial professional fees and had also undertaken purchase and sale of shares.
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Since no return was filed and the assessee did not respond to notices issued during the reassessment proceedings, the AO reopened the assessment under Section 148 of the Income Tax Act. In the absence of compliance, the assessment was completed under Sections 147 read with 144 of the Act, determining the assessee’s income at ₹38,48,710.
The professional receipts reflected in Form 26AS amounted to ₹35,01,500. The AO treated the entire professional receipts as the assessee’s income.
The assessee contended that he was a doctor covered by the presumptive taxation scheme under Section 44ADA and that only 50% of the gross professional receipts should be treated as taxable professional income.
The assessee argued that Section 44ADA provides for taxation of 50% of eligible professional receipts on a presumptive basis and that the provision does not expressly mandate that a return must have been filed as a precondition for considering the reasonable income from the profession.
He further pointed out that in subsequent assessment years he had filed returns declaring 50% of his professional receipts as income under Section 44ADA. Those returns had been processed by the Revenue under Section 143(1), with the presumptive income being accepted. The assessee therefore argued that the same approach should be considered for the year under dispute as well.
The CIT(A) did not accept the assessee’s contention. According to the appellate authority, the benefit of Section 44ADA could be applied only where the assessee filed a return declaring income on a presumptive basis.
Since the assessee had neither filed the return nor cooperated with the AO during the assessment proceedings, the CIT(A) upheld the addition relating to the professional receipts. Other additions and disallowances made by the AO were also sustained.
The dispute before the ITAT therefore included whether the entire professional receipts of ₹35,01,500 could be regarded as taxable income merely because the assessee had failed to file the return and had not participated in the assessment proceedings.
The Tribunal clarified that it was not deciding whether the assessee could formally claim the statutory benefit of Section 44ADA in the absence of a return of income.
Instead, the specific question before the Bench was whether the entire gross professional receipts of ₹35,01,500 could, on the facts of the case, be treated as the assessee’s income.
This distinction formed the central basis of the Tribunal’s decision.
The ITAT observed that the assessee had himself offered 50% of the professional receipts as income before the CIT(A) and had submitted that the corresponding tax liability had been discharged.
The Tribunal held that merely because the assessee had not filed the return of income, the entire gross professional receipts could not automatically be treated as his net professional income.
The Bench therefore rejected the approach of treating the entire ₹35.01 lakh received from professional activities as taxable income without examining what would constitute a reasonable determination of professional income on the facts available.
The assessee had filed returns in later years and declared 50% of his professional receipts as income under the presumptive provisions of Section 44ADA. Those returns were accepted by the Revenue while being processed under Section 143(1).
The ITAT, however, made it clear that such acceptance in subsequent years could not by itself confer a statutory benefit under Section 44ADA for the assessment year under consideration.
Nevertheless, the Tribunal held that the subsequent treatment was a relevant circumstance in determining the reasonableness of the income offered by the assessee, particularly because the assessee continued to carry on the same profession and there was no material indicating a change in the nature of his professional activity or the manner in which the receipts were earned.
The Tribunal found it reasonable to adopt 50% of the gross professional receipts as the assessee’s professional income.
The Bench specifically considered the assessee’s profession as a doctor, his own offer before the CIT(A) to adopt 50% of the receipts as income, the payment of tax on such income, and the consistent treatment followed and accepted by the Revenue in subsequent years.
Accordingly, the AO was directed to adopt ₹17,50,750, representing 50% of the professional receipts of ₹35,01,500, as income from profession. The grounds relating to this issue were allowed.
The assessee had also challenged additions relating to share transactions. The grounds stated that purchases of equity shares amounting to ₹1,14,446 and sales of ₹1,23,975 should not both have been treated as taxable, contending that only the difference of ₹9,529 could be considered. The assessee had also challenged the treatment of the purchase cost as unexplained investment under Section 69A.
However, during the hearing before the ITAT, the assessee’s authorised representative did not advance arguments concerning these other additions. The Tribunal consequently dismissed the corresponding grounds as not pressed.
The ITAT ultimately partly allowed the appeal. While it granted relief on the determination of professional income by directing adoption of 50% of the professional receipts, the other additions challenged by the assessee were dismissed as not pressed.
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