INCOME TAX ACT, 1961

Section 44AD

Presumptive taxation under section 44AD - Applicability of provision - Estimation of profit - Deduction of interest on capital and remuneration to partners

During course of scrutiny assessment proceedings, assessee-firm was confronted with impounded documents pursuant to which the assessee filed detailed reconciliation statement. AO was not impressed with the reconciliation statement and rejected the books of account of the assessee. He further proceeded to complete the assessment by adopting 8% of gross turnover as net profit. Assessee carried the matter before CIT(A) and claimed interest on capital and remuneration paid to partners as per partnership deed. However, the said claim was denied on the ground that since profit was estimated on gross receipts after survey under section 133A, the assessee was not entitled for any further deduction. Held: On perusal of partnership deed, it was found that it contained provision for interest on capital and also provided for remuneration to whole time working partners. Further, the assessee was claiming interest on capital and remuneration to partners since assessment year 2009-10. Further, the statute itself in section 44AD provides for separate deductions towards interest on capital accounts and remuneration to partners after estimation of net profit from gross receipts. Accordingly, the AO was directed to allow interest on capital and remuneration to partners as per provisions of law.

Followed:CIT v. Vijay Constructions (2007) 213 CTR 105 (All): 2007 TaxPub(DT) 0469 (All-HC) B. Durga Reddy & Co. v. ACIT [I.T.A.Nos.713 to 715/Vizag/2013, I.T.A.Nos.721 to 723/Vizag/2013, dt. 19-4-2016]

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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