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Facts
The assessee, working as a Business Correspondent (BC) with Fino Payments Bank Ltd., filed an income return declaring Rs. 4,92,220/-. The Assessing Officer (AO) initiated proceedings under Section 147, alleging unexplained income of Rs. 2,16,59,470/-. The AO estimated income at 50% of gross receipts, making an addition of Rs. 2,15,389/-, which was upheld by the CIT(A).
Held
The Tribunal held that the AO was not justified in rejecting the income declared by the assessee under Section 44AD and in estimating income at 50% by invoking Section 44ADA. The assessee's declared income, being substantially higher than the presumptive threshold, was accepted.
Key Issues
Whether the Assessing Officer was justified in rejecting the income declared under Section 44AD and applying a 50% presumptive rate akin to Section 44ADA for estimation.
Sections Cited
147, 144, 144B, 250, 139(1), 148, 142(1), 133(6), 44AD, 270A, 272A(1)(d), 44A, 44AA, 44ADA, 234A, 234B, 234D
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Income Tax Appellate Tribunal, “K(SMC
आदेश / ORDER
PER MAKARAND VASANT MAHADEOKAR, AM:
1. This appeal is filed by the assessee against the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 17.10.2025, passed under section 250 of the Income-tax Act, 1961 for the Assessment Year 2020–21, arising out of the assessment order
Manoj Rajaram Sharma passed by the Assessing Officer under section 147 read with sections 144 and 144B of the Act dated 20.02.2025. Facts of the Case 2. The assessee is an individual and resident of India. The assessee filed his return of income for A.Y. 2020–21 under section 139(1) of the Act on 17.10.2020 declaring total income of Rs. 4,92,220/-. Subsequently, based on information available with the department, it was observed that income amounting to Rs. 2,16,59,470/- had remained unexplained and had escaped assessment. Accordingly, proceedings under section 147 were initiated and notice under section 148 dated 29.03.2024 was issued to the assessee requiring him to file return of income. During the course of assessment proceedings, notices under section 142(1), show cause notice under section 144 and other communications were issued from time to time.
In response to the final show cause notice, the assessee submitted that he was working as a Business Correspondent (BC) with Fino Payments Bank Ltd. and was also proprietor of M/s Saraswati Associates. It was contended that the bank account under consideration was a “BC Merchant Account”, and the deposits reflected therein represented transactions carried out on behalf of customers and not the assessee’s own income. The assessee further submitted that he earned only commission income on such transactions and that the deposits did not belong to him. The assessee also furnished certificates and authorization letters from Fino Payments Bank and other
However, as recorded by the Assessing Officer, there was no compliance by the assessee to the statutory notices except a limited response at the final stage. The Assessing Officer obtained information under section 133(6) from State Bank of India and examined the bank account (Current Account 37303254619) of the assessee, wherein total credits of Rs. 4,63,79,981/- were found during the relevant previous year. Further, as per Form 26AS, the assessee had received brokerage income of Rs. 2,67,153/-.In absence of satisfactory explanation during the assessment stage, the Assessing Officer initially proposed to estimate income at 8% of total credits, amounting to Rs. 37,10,398/-.
However, while passing the final assessment order, the Assessing Officer noted that the assessee had declared income at approximately 35% of gross receipts under section 44AD, which was considered to be lower than what was required under the presumptive scheme and computed income under presumptive provisions and determined the taxable income at Rs. 7,07,609/- by taking 50% of gross receipts of Rs. 14,85,694/-, thereby making an addition of Rs. 2,15,389/- over the returned income. Accordingly, the assessment was completed under section 147 r.w.s. 144 and 144B of the Act on 20.02.2025 determining total income at Rs. 7,07,609/-. Penalty proceedings under section Manoj Rajaram Sharma 270A and proceedings under section 272A(1)(d) were also initiated.
Aggrieved, the assessee carried the matter in appeal before the Learned CIT(A). Before the CIT(A), the assessee reiterated that he had correctly declared income under section 44AD as commission income and that the bank account represented a BC Merchant Account used for customer transactions. It was submitted that the deposits did not belong to the assessee and that only commission income accrued to him. The assessee also relied upon bank statements, authorization letters and confirmations from Fino Payments Bank and other entities. The assessee further contended that the Assessing Officer had ignored the documentary evidence and made arbitrary addition without proper justification.
The Learned CIT(A), after considering the material available on record, observed that the assessee had failed to comply with statutory notices during assessment proceedings and furnished only limited details at the final stage. The CIT(A) noted that the bank account reflected substantial credits of Rs. 4,63,79,981/-, and the assessee failed to furnish complete and verifiable evidence such as customer-wise details, transaction-wise confirmations and independent supporting material to establish that the deposits belonged to customers. It was held that mere submission of certificates and general explanations without corroborative evidence was insufficient to discharge the burden cast upon the assessee. The CIT(A) further observed that the Manoj Rajaram Sharma assessee had declared income at a lower percentage compared to the scale and nature of activities and that the Assessing Officer was justified in estimating income on a reasonable basis. The CIT(A) also observed that the explanation furnished by the assessee was general in nature, self-serving and not supported by credible evidence. Accordingly, the CIT(A) held that the assessment order was factually justified and legally sustainable and upheld the addition of Rs. 2,15,389/-.
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal:
1. In the facts and circumstances of the case, Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) erred in passing the impugned order under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The partial dismissal of the appeal by the Ld. Commissioner is illegal, unjustified, arbitrary, and contrary to the facts and circumstances of the case. It is respectfully prayed that relief be granted by quashing the said order.
2. In the facts and circumstances of the case, Ld. Commissioner erred in passing the impugned order without properly appreciating the detailed explanations and documentary evidence furnished by the Appellant during the assessment and appellate proceedings. The Appellant had submitted complete supporting documents, including bank statements, BC Merchant Account transaction details, authorization letters from Fino Payments Bank Ltd., and confirmations clearly demonstrating that the cash deposits and transactions reflected in the bank account pertained to customers and not to the Appellant personally. Despite this substantial evidence, the Ld. Commissioner failed to examine the material in a fair and judicious manner and upheld the assessment order mechanically. The impugned order is therefore arbitrary, contrary to law, violative of principles of natural justice, and liable to be quashed.
Manoj Rajaram Sharma 3. In the facts and circumstances of the case, the Learned Assessing Officer (AO) erred in adopting an inconsistent and arbitrary approach while computing the Appellants income. The AO initially proposed, through the Final Show Cause Notice, to estimate income at 8 Percentage of bank credits of Rs. 4,63,79,981/-. However, despite the Appellants explanation and evidence showing that the said credits related to customer transactions routed through the BC Merchant Account and not the Appellants income, the AO failed to DROP the proposal. Instead, without any cogent reasoning OR fresh show-cause notice, the AO shifted the basis of computation and estimated income at 50 Percentage of the declared turnover of Rs. 14,85,694/-. Such an abrupt and unjustified change is arbitrary, contrary to law, and violative of natural justice. The impugned addition is therefore unsustainable.
4. In the facts and circumstances of the case, and in law, Ld. Commissioner erred in upholding the incorrect levy of interest under Sections 234A, 234B, and 234D of the Act, as considered by the Learned National Faceless Assessment Centre.
5. In the facts and circumstances of the case, the Ld. Commissioner of Income-tax (Appeals) failed to appreciate that the Appellant never received any notice during the appellate proceedings, as no physical notice was sent to the residential address. All communications were issued only through Email and the Income Tax Portal and went unnoticed since the Appellant maintains multiple email accounts and does not regularly check digital communication. Therefore, the Appellant had no knowledge of the proceedings, and such electronic service cannot be considered valid. This lapse denied the Appellant a reasonable opportunity of being heard, rendering the order under Section 250 invalid. Once the Appellant received the first physical notice by speed post, a prompt response was submitted. The Ld. Commissioner further erred in sustaining penalty under Section 271(1)(d), as there was no wilful non-compliance. The Appellant seeks an opportunity to submit proof of income sources and prays for waiver.
6. The Appellant craves leave to add, alter, amend, and modify the aforesaid grounds of appeal at any time before the hearing as they may be advised from time to time.
Manoj Rajaram Sharma 9. The Learned Authorised Representative (AR) of the assessee reiterated that the assessee is engaged in the activity of a Business Correspondent (BC) with Fino Payments Bank Ltd., and that the deposits appearing in the current bank account represent transactions carried out on behalf of customers and do not constitute the income of the assessee. It was submitted that the said bank account is a BC Merchant Account and the amounts deposited therein belong to various customers for whom the assessee facilitates transactions, and the assessee earns only commission income on such activities.
The Learned AR further submitted that the assessee had duly filed the return of income under the presumptive provisions of section 44AD of the Act. However, the Assessing Officer, without any cogent basis or justification, arbitrarily adopted the profit rate at 50% of the turnover, which is contrary to the provisions of the Act and settled principles governing estimation of income. It was thus contended that the action of the Assessing Officer in enhancing the profit rate is unjustified and liable to be deleted.
The Learned Departmental Representative (DR), on the other hand, relied upon the findings of the Assessing Officer and specifically drew our attention to para 3.7.3 of the assessment order, which reads as under: “3.7.3 Further, it is seen that the assessee has filed return u/s. 139(1) on 17.10.2020 under COMPUTATION OF PRESUMPTIVE INCOME FROM PROFESSIONS UNDER SECTION 44AD and declared Rs. 4,92,220/- after claiming chapter VIA deduction, as taxable income being 35% of Manoj Rajaram Sharma total receipts at Rs. 14,85,694/-. The assessee should have declared the income under the above head at 50% which works out to 7,42,847/- . Hence, the difference of Rs. 2,15,389/- is brought to tax under the head Income from business.”
Relying upon the aforesaid reasoning, the Learned DR submitted that the Assessing Officer has rightly rejected the income declared by the assessee and estimated the same at 50% of the gross receipts, and thus the addition made is justified and does not call for any interference.
We have carefully considered the rival submissions, perused the assessment order, the order of the Learned CIT(A), and the material placed on record. The issue for our consideration is whether the Assessing Officer was justified in rejecting the income declared by the assessee under section 44AD of the Act and in estimating the income by applying a rate of 50% by invoking the logic akin to section 44ADA.
At the outset, it is an undisputed fact emerging from the record that the assessee is engaged in the activity of a Business Correspondent (BC) with Fino Payments Bank Ltd. The assessee has consistently maintained that the bank account in question is a BC Merchant Account, wherein transactions are carried out on behalf of customers and only commission income accrues to the assessee.
The Assessing Officer has not brought any material on record to demonstrate that the assessee is carrying on a specified profession as contemplated under section 44ADA of Manoj Rajaram Sharma the Act. The activity of a Business Correspondent facilitating banking transactions cannot, by any stretch of interpretation, be equated with a profession such as legal, medical, engineering, architectural, accountancy, technical consultancy or other notified professions falling within the ambit of section 44AA and consequently section 44ADA.Therefore, the foundational premise adopted by the Assessing Officer for applying a higher presumptive rate of 50% is itself misplaced.
It is apposite to examine the statutory scheme of presumptive taxation. Section 44AD applies to eligible assessees engaged in eligible business, and provides for taxation of income at 8% (or 6% in specified cases) of the total turnover or gross receipts. Section 44ADA, on the other hand, applies exclusively to assessees engaged in specified professions, and prescribes a presumptive income rate of 50% of gross receipts. Thus, both provisions operate in distinct and mutually exclusive fields. The applicability of section 44ADA is contingent upon the assessee being engaged in a notified profession, which is not the case here.
The Assessing Officer, while accepting the gross receipts of the assessee, has substituted the statutory rate applicable under section 44AD with a rate of 50%, which is traceable only to section 44ADA. Such substitution is contrary to the scheme of the Act and amounts to applying a provision which is otherwise inapplicable to the facts of the case.
The assessee has declared income at approximately 35% of gross receipts, which is substantially higher than the statutory Manoj Rajaram Sharma minimum prescribed under section 44AD. Once the assessee has opted for the presumptive scheme and declared income exceeding the prescribed percentage, the Assessing Officer cannot arbitrarily enhance the same unless: i. the assessee is shown to be ineligible for section 44AD; or ii. the gross receipts declared are found to be incorrect; or iii. there is material to demonstrate suppression of receipts or inflation of expenses.
In the present case, none of the above conditions are satisfied. The Assessing Officer has accepted the gross receipts at Rs. 14,85,694/- and has not pointed out any defect therein. The sole basis for enhancement is that the assessee “should have” declared income at 50%, which has no sanction in law under section 44AD.
It is a settled principle that estimation of income cannot be made on arbitrary basis and must be in accordance with statutory provisions or supported by cogent material. The action of the Assessing Officer in adopting 50% is thus without any legal foundation.
Another important aspect is that the bank account reflected substantial credits. The assessee has explained that these represent customer transactions routed through the BC channel, and only commission income is earned. The Assessing Officer, despite proposing estimation at 8% of total credits at one stage, ultimately did not adopt that approach and instead confined Manoj Rajaram Sharma himself to the turnover declared by the assessee. This itself shows that the Assessing Officer has accepted the assessee’s version regarding the nature of receipts to the extent of recognizing only the commission-based turnover. Having accepted the turnover, the Assessing Officer could not have disregarded the statutory framework of section 44AD and substitute it with an altogether different presumptive rate.
The Learned CIT(A) has upheld the action of the Assessing Officer primarily on the ground that the assessee failed to substantiate the nature of deposits with complete documentary evidence and that the estimation made by the Assessing Officer was reasonable.
However, in our considered view, the Learned CIT(A) has failed to appreciate that: i. the dispute is not with respect to suppression of turnover, but with respect to rate of presumptive income; ii. once section 44AD is invoked, the statutory rate cannot be substituted by an arbitrary higher rate; iii. section 44ADA cannot be applied indirectly to a case falling under section 44AD. Thus, the confirmation of addition by the Learned CIT(A) is not sustainable in law.
In view of the foregoing discussion, we hold that – Manoj Rajaram Sharma i. the assessee is engaged in business activity and is eligible for the benefit of section 44AD; ii. the application of 50% rate by the Assessing Officer is erroneous and based on a misapplication of section 44ADA; iii. the income declared by the assessee at Rs. 4,92,220/-, being substantially higher than the presumptive threshold under section 44AD, is to be accepted.
Accordingly, in view of the foregoing discussion and in the facts and circumstances of the case, we hold that the income declared by the assessee under section 44AD of the Act is liable to be accepted. Consequently, the addition of Rs. 2,15,389/- made by the Assessing Officer and sustained by the Learned CIT(A) is hereby directed to be deleted, and the income returned by the assessee stands accepted.
All other grounds raised by the assessee, being not pressed and not argued before us, are dismissed as not adjudicated. The consequential grounds, if any, are directed to be dealt with in accordance with law.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 20.03.2026.