Consultancy Income shown in form 16

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  1. CA Shalini Prakash

    CA Shalini Prakash New Member

    My client is a Professor in IIT. IIT receives many consultancy projects, which are done by the faculty members. In the form 16 issued by IIT, besides Salary Income, the consultancy receipts to the faculty member is also shown in it, under the head, "Any other income reported by the Employee" (Though the amount of consultancy Income under this head is also decided by the IIT, according to the norms. )

    In the earlier years the consultancy receipts were not substantial. An ITO ( on the basis of several unreported ITAT cases in favour of IIT professors for allowing 25% deduction) had allowed an adhoc deduction of 25% on this consultancy income, shown in form 16, through a letter issued to IIT, in the year 2005.

    But since past few years the receipts have exceeded the Tax Audit limit applicable to professionals. Now the cases have been taken up for scrutiny, for the validity of this adhoc deduction of 25%. We have gone in appeal, and there they are asking for the compliance of Audit under Section 44 AB. Siince the assessee has not kept any books of accounts, hence liability for TAX Audit does not arise. All the faculty members are claiming this 25% deduction. And for this assessee also this was the first year of scrutiny, Before that for the past many years, he has been claiming, and s being allowed.

    My query is:-
    a) Is my client liable to get his accounts audited, even though the TDS is deducted on the entire receipts at the rates applicable to a salaried person?
    b) What will be the case, if the assessee has receipts above texable limit, but decided not to claim the 25% deduction, and files the return as per form 16. In this case his receipts are above the limit of Section 44 AB, but paying tax on the entire receipts.
     
  2. Prabal

    Prabal New Member

     
  3. Prabal

    Prabal New Member

    If the income is above the limits of 44AB, he has to maintain books and get them audited...do not think there is any leeway in this. The TDS for consultancy income should have been provided under Form 16A and not Form 16. He has to file his returns under business income under form ITR 4 as his file is not a normal salary file.
     
  4. CA Shalini Prakash

    CA Shalini Prakash New Member

    But, the professors are not maintaining any books of accounts. The liability of tax audit arises, only if the books of accounts are kept. What will be the case, if they do not claim any expenditure, and pay tax on the entire receipts? How will the tax audit be done, in that case?
     
  5. Prabal

    Prabal New Member

    Tax audit has nothing to do with claiming expenditure....and keeping books is mandatory beyond the limits. By the Prof's logic no one would keep books of accounts and thus avoid tax audit even if they have a revenue > the limits !
     
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