MANOJ RAJARAM SHARMA,THANE vs. COMMISSIONER OF INCOME-TAX, MUMBAI

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.

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. 10. 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. 11. 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 8 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.” 12. 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. 13. 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. 14. 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. 15. 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 9 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. 16. 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. 17. 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. 18. The assessee has declared income at approximately 35% of gross receipts, which is substantially higher than the statutory 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. 19. 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. 20. 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. 21. 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 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. 22. 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. 23. 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.

अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT 5. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //// 1. उि/सहायक िंजीकार ( Asst.