Manoj Rajaram Sharma Vs ITO (ITAT Mumbai)
ITAT Mumbai: AO Cannot Apply 50% Presumptive Rate U/s 44ADA to Business Income Declared U/s 44AD – Addition Deleted
In this case, the assessee, a Business Correspondent (BC) of Fino Payments Bank, declared income u/s 44AD based on commission earned from customer transactions routed through a BC merchant account. The AO, despite accepting the turnover, arbitrarily applied a 50% profit rate (akin to u/s 44ADA) instead of the statutory rate under 44AD and made an addition.
The ITAT held that the activity of a BC is a business activity and not a specified profession covered u/s 44ADA. Therefore, applying a 50% presumptive rate was legally untenable. Once the assessee declared income higher than the prescribed rate under 44AD and the turnover was accepted, the AO cannot substitute the statutory rate with an arbitrary higher rate without proving ineligibility, incorrect turnover, or suppression.
The Tribunal further observed that sections 44AD & 44ADA operate in distinct fields and cannot be interchangeably applied. The AO’s action lacked legal basis and amounted to misapplication of law. Accordingly, the addition was deleted and the returned income was accepted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
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 passed by the Assessing Officer under section 147 read with sections 144 and 144B of the Act dated 20.02.2025.
