SAMJITH DIVIJ ADON,KOTAGIRI vs. INCOME TAX OFFICER WARD 1, OOTY, OOTY, UDHAGAMANDALAM

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ITA 4036/CHNY/2026Status: DisposedITAT Chennai03 November 202612 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal acknowledged that the assessee had offered income under Section 44AD. The core issue was whether the denial of this benefit was correct, particularly concerning the AO's computation of gross receipts based on total bank credits and the condition of cash receipts not exceeding 5% of total receipts. The Tribunal noted the assessee's contention that certain bank credits did not represent business receipts and thus should be excluded for computing business turnover for Section 44AD eligibility. The Tribunal found that this claim required verification of the nature of credits in the bank accounts. Therefore, to meet the interest of justice, the Tribunal decided to restore the matter to the file of the Assessing Officer to examine the assessee's contention that not all bank credits represent business receipts. The grounds of appeal were partly allowed for statistical purposes. The stay application was dismissed as infructuous.

What were the facts?

The assessee, Samjith Divij Adon, an individual running a proprietary concern M/s. J.D. Education and Training, filed a Return of Income for Assessment Year 2024-25, disclosing a total income of Rs. 28,46,850/-. The assessee claimed the benefit of the presumptive tax regime under Section 44AD of the Income Tax Act, 1961, reporting gross receipts of Rs. 2,14,13,145/-. The Assessing Officer (AO), through the Assessment Unit, completed the assessment under Section 143(3) read with Section 144B, making an addition of Rs. 35,59,810/-. The AO denied the benefit of Section 44AD, citing that cash receipts exceeded 5% of total receipts, and estimated income based on total credits in bank accounts, which amounted to Rs. 47,490,501/-. The Commissioner of Income Tax (Appeals) [NFAC] upheld the AO's order. The assessee appealed to the ITAT.

What were the issues?

1. Whether the denial of the benefit of the presumptive tax regime under Section 44AD of the Income Tax Act, 1961, by the Assessing Officer and upheld by the CIT(A) is legally sustainable? Assessee's Contention: The assessee argued that the AO erred in treating the total credits in the bank account as the appellant's gross turnover. The actual gross turnover from the business was Rs. 21,459,294/-. The bank credits included Rs. 1,44,50,000/- received from the appellant's father and Rs. 73,52,671/- received on behalf of MEL, which should not be considered part of the business turnover. The assessee sought remittance back to the AO to consider actual business receipts for Section 44AD eligibility. The assessee also raised grounds regarding violation of principles of natural justice due to insufficient time to respond to the SCN and the appellate authority not conducting a proper hearing. Revenue's Contention: The revenue, through the Senior DR, submitted that the AO rightly denied the benefit of Section 44AD as cash receipts were more than 5% of the turnover, warranting no interference by the Tribunal.

Which sections of the Income-tax Act were involved?

Section 44AD,Section 250,Section 143(3),Section 144B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CHENNAI BENCHES,

Before: SHRI GEORGE GEORGE K, VICE- & SHRI INTURI RAMA RAO

Pronounced: 03.11.2026

आदेश / ORDER PER INTURI RAMA RAO, ACCOUNTANT MEMBER : This is an appeal filed by the Assessee as well as stay application are directed against the common order passed by learned Commissioner of Income Tax(Appeal)[NFAC], dated 20.05.2026 passed u/s.250 of the Income Tax Act, 1961 for the Assessment Year 2024-25.

ITA No.4036/CHNY/2026 : 2. The Assessee raised these following grounds of appeal : “1: Impugned assessment order for AY 2024.25 rejecting RoI filed u/s 44AD and estimation of income with addition of Rs. Rs. 3559,810/= to the returned income as well as the appellate order upholding the same are both wrong, contrary to law, facts and circumstances of the case.

2.1: The assessment order is liable to be set aside for the reason that while the RoI was taken up for scrutiny alleging that there was difference in the Data available in Form 26AS and that disclosed by the RoI, assessment was completed based solely on "total credits in bank accounts": As specifically pointed out, the difference of Rs. 46,149/ between the receipts as per Form 26AS and that disclosed in Rol represented commission from Gajju Technologies Private Ltd which has been indicated in the assessment order itself which was "auto-filled" under "other sources" in the ITR and was therefore not declared as part of gross turnover:

2.2: The impugned assessment order is liable to be set aside on grounds of violation of principles of natural justice when SCN containing the proposals granted uploaded on the Portal with no "instant alert" gave hardly two days to file response which was totally insufficient for filing proper response:

2.3: The Appellate Order is liable to be set aside for the reason that the appeal was NEVER POSTED FOR HEARING but appellant was only directed to upload "submissions" on or before 28.03.2026 which does not amount to holding "hearing" on the appeal. In fact, u/s 250[1] of the Act, the appellate authority was required to "fix a date and place of the hearing of the appeal and give notice of the same to the appellant".

National Faceless Appeal Centre was notwithstanding the formation of Faceless Appeal Centre required to offer a personal hearing through video- conference which also has not been done.

3.1: Assessing Authority erred in finding that appellant's gross turnover was Rs.47490,501/= being the total credits in his bank account and hence the appellant was not entitled to go under Sec.44AD: The appellate authority erred in upholding the said finding:

As specifically pointed out during the assessment proceedings and in the Notes of Arguments filed in connection with the appeal, gross turnover of the appellant was Rs.21459,294/02 as indicated hereunder:

Gross Receipts from Institutions : [as extracted in Assessment Order] A: Hindustan Educational and : Rs.10126,158.00 Charitable Trust B: KGISL Trust : Rs. 1698,508.00 C: KG College of Arts and Science : Rs. 242,925.00 D: SNR Sons Charitable Trust : Rs. 1992,883.00 E: Gajju Technologies Private Ltd. : Rs. 46,149.00 [wrongly returned as income from “other sources”] F: MEL Training & Assessments Ltd. : Rs. 7352,671.02 Rs. 21459,294.02

3.2: Assessment Unit erred in holding that gross turnover was Rs.474890,501/ - being the "total credits" in bank accounts. As a matter of fact, credits took in amounts received on behalf of MEL [Rs.14450,000/=] and transferred to MEL on which commission of Rs.7352,671/= was received and also Rs.14450,000/= received from Appellant's father Sri Samjith Dhanarajan - an assessee under the Act - through bank transfers.

Verification of Bank Accounts would have confirmed receipt from institutions of "course fee" of MEL and transfer to MEL by Appellant and further confirm that Rs.14450,000/= represented receipts from from Sri Samjith Dhanarajan which by no stretch could have been considered as part of "gross turnover":

4.1: Assessment Unit erred in finding that the appellant was not entitled to go under Sec. 44AD for the reason that the gross receipts was in excess of Rs.300 lakhs based on credits in the bank accounts. The books of accounts would show that the total business receipts covered only Rs.21413,145/= while the credits in the bank account took in personal receipts from father as well as other amounts received which has nothing to do with the business activities of the appellant.

4.2: The Assessment Unit should NOT have adopted total credits in bank account as "gross turnover" for finding that appellant is not entitled to the benefit of Sec. 44AD: Instead, the books of accounts should have been verified and the actual turnover ascertained:

4.3: The Assessment Unit ought to have further noted that the bank statements would themselves show that the total gross receipts by "Ms. JD Education and Training" only covered Rs.21459,294/= as noticed by Form 26AS as extracted in the SCN as well as assessment order.

and transferred to MEL on which commission of Rs.7352,671/= was received and also Rs.14450,000/= received from Appellant's father Sri Samjith Dhanarajan - an assessee under the Act - through bank transfers.

Verification of Bank Accounts would have confirmed receipt from institutions of "course fee" of MEL and transfer to MEL by Appellant and further confirm that Rs.14450,000/= represented receipts from from Sri Samjith Dhanarajan which by no stretch could have been considered as part of "gross turnover":

4.1: Assessment Unit erred in finding that the appellant was not entitled to go under Sec. 44AD for the reason that the gross receipts was in excess of Rs.300 lakhs based on credits in the bank accounts. The books of accounts would show that the total business receipts covered only Rs.21413,145/= while the credits in the bank account took in personal receipts from father as well as other amounts received which has nothing to do with the business activities of the appellant.

4.2: The Assessment Unit should NOT have adopted total credits in bank account as "gross turnover" for finding that appellant is not entitled to the benefit of Sec. 44AD: Instead, the books of accounts should have been verified and the actual turnover ascertained:

4.3: The Assessment Unit ought to have further noted that the bank statements would themselves show that the total gross receipts by "Ms. JD Education and Training" only covered Rs.21459,294/= as noticed by Form 26AS as extracted in the SCN as well as assessment order.”

3.

Briefly, the facts of the case are that the appellant is an Individual running a proprietary concern M/s.J.D.Education and Training, it offers various courses in Graphics, Animation and Cinematics against issue of Certificates by MEL at various institutions. The Return of Income for the Assessment Year 2024-25 was filed on 30.12.2024 disclosing the total income of Rs.28,46,850/-. The appellant had gross receipts of Rs.2,14,13,145/- and offered the income to tax under presumptive tax regime u/s.44AD of the Income Tax Act, 1961. Against the said Return of Income, assessment was completed by the Assessment Unit of the Department(hereinafter called ‘AO’) vide order dated 02.03.2026 passed u/s.143(3) read with section 144B of the Income Tax Act, 1961. While doing so, the Assessing Officer made addition of Rs.35,59,810/- under the head ‘Business Income’ denying the benefit of presumptive tax regime u/s.44AD of the Income Tax Act, 1961 on the ground that extended the turnover limit of Rs.10 crores was available to the assessee, only if the cash receipts were less than 5% of the total receipts of the cash payments were less than 5% of total payments. The Assessing Officer(AO) recorded finding that the cash receipts were more than 5% of the total receipts by considering entries in the cash amount of Rs.39,06,348/-. Accordingly, the Assessing Officer estimated the profit @12.95% on gross receipts other than cash receipts of Rs.4,35,84,153/- and estimated the income at 12.84% in respect of receipts in cash of Rs.39,06,348/-.

4.

Being aggrieved by the above order, appellant filed appeal before the Learned CIT(A), who vide impugned order confirmed the action of the Assessing Officer by holding that the appellant was not eligible for the benefit of provisions of section 44AD of the Income Tax Act, 1961. The rate of profit adopted by the Assessing Officer is not arbitrary and reasonable.

5.

Being aggrieved by the order of ld.CIT(A), the appellant is in appeal before us in the present appeal. The Learned Counsel submits that the Learned CIT(A) ought not have confirmed denial of benefit of presumptive tax regime u/s.44AD of the Act by taking entire credits in the bank account as turnover of the appellant, he submits that the gross turnover from the business of the appellant was only Rs.214,59,294/-. The details of which were furnished in the statement of facts filed before us. He further submits that the Assessing Officer had taken entire credits in the bank account as business turnover, whereas, the amount of Rs.1,44,50,000/- was received from the appellant’s father and an amount of Rs.73,52,671/- was received on behalf of the MEL. Thus, he submits that the matter may be remitted back to the file of Assessing Officer to consider the actual business receipts for the purpose of computing the turnover to be eligible for the benefit of provisions of section 44AD of the Act.

6.

On the other hand, the Learned Sr.DR submits that the Assessing Officer had rightly denied the benefit of presumptive tax regime u/s.44AD of the Act, as the cash receipts are more than 5% of the turnover and therefore no interference is warranted by this Tribunal.

7.

We heard rival submissions and perused the material available on record. The issue that arises for our consideration is whether the Learned CIT(A) was correct in law in upholding the denial of benefit of presumptive tax regime u/s.44AD of the Act. Admittedly, the appellant offered the income under the provisions of section 44AD of the Income Tax Act, 1961. However, the Assessing Officer of the opinion that the benefit of presumptive tax regime u/s.44AD of the Act, cannot be extended to the appellant as the gross receipts in cash were more than 5% of the total receipts. The Assessing Officer computed the gross receipts as turnover by taking into consideration the entire credits in the bank account, it is the contention of the appellant that certain credits in the bank account does not represent business receipts of the appellant, therefore has to be excluded for the purpose of computing business turnover for availing the benefit u/s.44AD of the Act. There can be no two opinions on the proposition advanced by the Learned Counsel but it requires verification of nature of credits in the bank accounts, whether the credits represent the business receipts or not!. Therefore, we are of the considered opinion that the interest of justice would be met, if the matter is restored to the file of Assessing Officer to examine the contention of the appellant that the entire credits in the bank account does not represent the business receipts. Accordingly, grounds of appeal raised by the assessee are partly allowed for statistical purposes.

8.

In the result, appeal filed by the assessee in ITA No.4036/CHNY/2026 stands partly allowed for statistical purposes.

STAY APPLICATION No.154/CHNY/2026 9. Since we have disposed the quantum appeal in ITA No.4036/CHNY/2026 above, the stay petition appeal filed by the assessee becomes infructuous, hence, dismissed as infructuous.

10.

In the result, stay petition filed by the assessee stands dismissed. Order pronounced in the open Court on 3rd November, 2026.

Sd/- Sd/- (GEORGE GEORGE K) (INTURI RAMA RAO) VICE PRESIDENT ACCOUNTANT MEMBER Chennai; िदनांक / Dated : 3rd Nov, 2026 SGR, Sr.PS आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT Chennai/Madurai/Coimbatore/Salem. 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “बी” ब�च, चे�नई / DR, ITAT Chennai. गाड� फ़ाइल / Guard File. 5. GANGADHARA Digitally signed by GANGADHARA RAO SALEELA RAO SALEELA Date: 2026.11.10 18:48:09 +05'30'

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