Wrong Assessment U/s 44ADA By AO Attracts Revisionary Interference: Punjab & Haryana HC Upholds Revision By PCIT U/s 263

The power under section 263 of the Income tax Act can be exercised where the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue.

Whereas, Section 44ADA of the Income Tax Act provides presumptive taxation for certain professionals and allows eligible individuals to pay 50% of their gross income tax.

The Division Bench of Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth observed that “the assessee had neither got his accounts audited from the accountant nor furnished report of such audit as per provisions of section 44AB. The assessee's case, prima facie was covered u/s 44ADA but the return of Income filed was not in accordance with the provisions of section 44ADA”. (Para 4)

Facts of the case:

The assessee, an individual filed his return. Upon search operation, the assessee surrendered an additional income of Rs.15,11,555/- on account of excess stock, construction of residential house and renovation of business premises. The AO further finding the said aspect, assessed the income from professional usage before depreciation and interest apart from income u/s 44AD and reached to the conclusion of overall income to be Rs.39,15,840/- for assessment year 2018-19. The PCIT exercising his revisionary jurisdiction, interfered with the order passed by the AO u/s 263, finding the order of the AO as erroneous and prejudicial to the interest of Revenue.

Observations of the High Court:

The Bench found that AO has given the benefit to the assessee considering the income in terms of Section 44AD.

However, the Bench noted that the assessment had to be done under the head 'income from other sources' u/s 115 BBE.

The Bench observed that the assessment in accordance with provisions of Section 44 ADA has to be @ 50 % and thus, the AO has erred in making its assessments.

Therefore, finding that the order of the AO is prejudicial to the interest of the revenue, the High Court confirmed the order passed u/s 263 and dismissed Assessee's appeal.

Counsel for Appellant/ Assessee: Aakriti

Counsel for Respondent/ Respondent: NA

Case Title: Harjot Singh verses Principal Commissioner Income Tax-Central, Ludhiana

Case Number ITA-58-2024(O&M)

Citation: 2024 LiveLaw (PH) 179

Click here to read/ download the order