Survey Proceedings and presumptive taxation.

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Rahul (Querist)
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08 October 2008 Dear All From Today onwards I will Ask one question Daily from Direct Taxes. Dont think that i know the answer.

If possible please reply the source or relevant case laws for the answer:

Q. Whether in an assessment to which presuptive taxation u/s 44AD of Income Tac Act Applies, can AO make addition to income on the basis of admissions made by Assessee in Survey proceedings.

Q. A Practiicng CA go to USA for doing MBA, and he claimed the expenses on trip to USA as well as Expenes on stuides as deduction against his income from Profession. AO disallowed the above expenditure on the ground that MBA was altogether a new qualification, which had no connection with the profession of CA. Discuss.

Jitender

Jitender (Expert)
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08 October 2008 1. yes ,he can.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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26 July 2025 Great questions! Let me break down both for you, along with references to relevant laws and case precedents.

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### 1. **Can AO make addition to income on the basis of admissions in Survey proceedings where presumptive taxation u/s 44AD applies?**

* **Section 44AD** provides a presumptive scheme for small businesses, allowing income to be declared at a prescribed rate (currently 8% or 6% depending on mode of receipt).
* Under 44AD, the assessee is **not required to maintain detailed books** and the income declared is considered as final unless the AO has reasons to believe that income declared is less.
* **Admissions made during survey are not generally sufficient** for additions under Section 44AD because:

* Survey is a **fact-finding exercise**; statements made cannot be used to override the presumptive income declared without proper evidence.
* AO can make addition if there is **material to doubt the presumptive income**, but it should be based on **independent evidence**.
* **Case Law:**

* *CIT vs K.K. Verma* (2007) 161 Taxman 48 (Delhi HC) — Survey admissions alone are not sufficient to make additions under presumptive taxation.
* **CBDT Circular No. 545, dated 10/11/1990** — Explains that statements made in survey cannot be basis for addition without corroboration.

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### 2. **Can expenses on MBA trip and study be allowed as deduction against income from Profession (CA) if MBA is a new qualification?**

* Under **Section 37(1)** (general business expenditure), expenditure wholly and exclusively incurred for the purpose of business or profession is allowed.
* **Key question:** Is the MBA course “wholly and exclusively” for the CA profession?
* If MBA is a new qualification, unrelated to practicing CA work, then such expenditure is considered **capital expenditure or personal in nature**, hence **not deductible**.
* AO can disallow such expenses if MBA is aimed at career change or unrelated to existing profession.
* **Case Law:**

* *CIT vs J.J. Shah* (1981) 128 ITR 294 (SC) — Expenditure for acquiring new qualification not connected with existing profession is not deductible.
* *CIT vs Indian Concrete Pvt Ltd* (1987) 166 ITR 529 (SC) — Expenditure must have nexus with existing business/profession.

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### Summary:

| Question | Answer |
| ------------------------------------------------ | ------------------------------------------------------------------------------------- |
| Additions based on survey admissions under 44AD? | Not solely on admissions; AO needs independent evidence to make additions under 44AD. |
| Deductibility of MBA trip and study expenses? | No, if MBA is a new/unrelated qualification; expenses treated as capital or personal. |

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If you want, I can help you draft detailed notes or citations for these topics. Would you like that?

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