Shagun Singhal Vs PCIT (Central) (ITAT Chandigarh)
From Employee to Consultant: A Different View on Section 44ADA Cannot Justify Revision
Assessment Restored; Section 263 Order Set Aside
The Chandigarh Bench of the Income Tax Appellate Tribunal quashed a revisionary order under section 263 concerning consultancy receipts offered to tax under section 44ADA.
The Principal Commissioner considered the assessee ineligible for presumptive taxation because she had previously received salary from the same company and her management and marketing strategy services allegedly fell outside the professions specified in section 44AA(1).
The Tribunal found that the Assessing Officer had examined the consultancy arrangement and relevant documents during scrutiny. The PCIT had neither established a continuing employer–employee relationship nor demonstrated that the Assessing Officer’s view was unsustainable in law.
A different opinion could not, by itself, justify revision of an assessment completed after enquiry.
Consultancy Receipts Offered Under Section 44ADA
The assessee disclosed gross professional receipts of ₹29,76,250 from M/s Manikaran Power Ltd. and declared income of ₹15 lakh under section 44ADA.
The assessment was completed under section 143(3) on 27 March 2024, accepting the returned income.
Subsequently, the PCIT examined the assessment records and questioned the eligibility of those receipts for presumptive taxation.
He noted that the assessee had received salary from the same company in earlier years. He also considered that management and marketing strategy consultancy did not fall within the specified professions under section 44AA(1).
Taking the view that the Assessing Officer had accepted the claim without proper examination, the PCIT passed the revisionary order on 25 February 2026.
The Scrutiny Record Demonstrated Enquiry
Before the Tribunal, the assessee referred to the Assessing Officer’s notice under section 142(1), dated 25 January 2024, and the replies furnished in response.
She had submitted returns for the relevant and preceding years, computations of income, reconciliation of receipts with Form 26AS, a consultancy agreement, GST registration and GSTR-1 and GSTR-3B returns.
She had specifically explained that the company’s payments represented consultancy charges rather than salary.
The assessee maintained that she worked as an independent consultant providing management and marketing strategy advice. The payments were subjected to TDS under section 194J, and GST was charged and disclosed in the GST returns.
She contended that her services constituted technical consultancy covered by section 44AA(1).
A Brief Assessment Order Does Not Establish Absence of Enquiry
The Tribunal identified the limited question as whether the assessment was erroneous and prejudicial to the interests of the Revenue, warranting revision under section 263.
It emphasised that both conditions must coexist and distinguished between absence of enquiry and an enquiry considered inadequate by the revisional authority.
The assessment record showed that details concerning the nature and source of income had been called for and furnished. The consultancy arrangement and the assessee’s relationship with the company were placed before the Assessing Officer during scrutiny.
Consequently, this was not a case of acceptance without any enquiry.
The absence of an elaborate discussion in the assessment order did not, by itself, prove absence of application of mind.
Earlier Employment Did Not Determine Current Receipts
The Tribunal rejected the proposition that salary received from the company in earlier years necessarily determined the character of receipts in the relevant year.
Each assessment year was a separate unit. The relationship had to be examined through the terms of engagement and surrounding facts applicable to that year.
The PCIT had not produced material demonstrating that an employer–employee relationship continued despite the consultancy agreement.
Accordingly, past employment alone was insufficient to classify the current consultancy receipts as salary.
This finding required examination of the actual arrangement; it did not suggest that merely describing a payment as consultancy changes its character.
Declaring More Than 50% Does Not Establish Eligibility
The Tribunal expressly cautioned that declaring income at 50% or more of gross receipts does not independently establish eligibility under section 44ADA.
The requirement of carrying on a profession covered by section 44AA(1) must also be satisfied.
However, the Assessing Officer had examined the relevant details and accepted the return. The PCIT could not substitute his view without showing that the assessment view was legally unsustainable.
The Tribunal found that the statutory conditions for revision had not been established. It set aside the section 263 order and restored the original assessment. The appeal was allowed.
Author’s Comments
The decision’s principal significance concerns the limits of revisionary jurisdiction, rather than a blanket approval of section 44ADA for every management or marketing consultant.
The Tribunal preserved an assessment made after enquiry because the PCIT did not establish an unsustainable view. It did not lay down that all such advisory services automatically constitute technical consultancy.
Likewise, TDS under section 194J and GST compliance support the factual explanation but should not be treated as conclusive proof of eligibility under section 44ADA.
For practitioners, the essential safeguard is a complete scrutiny record: the engagement agreement, explanation of services, invoices and replies should establish what was examined.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT CHANDIGARH
1. This appeal by the assessee is directed against the revisionary order dated 25.02.2026 passed by the learned Principal Commissioner of Income-tax (Pr. CIT) u/s 263 of the Income-tax Act, 1961 proposing revisions of an assessment order as framed by Ld. AO u/s 143(3) on 27.03.2024.
2. The brief facts of the case are that the assessee filed her return of income declaring income from profession on presumptive basis u/s 44ADA of the Act. The assessee reflected gross professional receipts of Rs.29,76,250/- from a company namely M/s Manikaran Power Ltd. and declared net income of Rs.15,00,000/- there from. The assessment was completed u/s 143(3) on 27.03.2024 accepting the returned income of the assessee.
3. Subsequently, Ld. Pr. CIT examined the assessment records and was of the view that the assessee was not eligible to offer the aforesaid receipts u/s 44ADA. According to Ld. Pr. CIT, the assessee had received salary from the same company in earlier years and the services rendered by the assessee, namely management and marketing strategy consultancy, did not fall within the professions specified u/s 44AA(1) of the Act. The Ld. Pr. CIT further observed that the Assessing Officer had accepted the claim without proper examination and verification. He, therefore, invoked the provisions of section 263 of the Act.
4. Before us, the learned AR submitted that the issue had already been examined by the Assessing Officer during the course of scrutiny assessment. Our attention was invited to the notice issued under section 142(1) on 25.01.2024 and the replies and documents furnished by the assessee in response thereto. It was submitted that the assessee had furnished copies of the returns of income for the relevant and preceding assessment years, computation of income, reconciliation of receipts with Form 26AS, consultancy agreement, GST registration and GSTR-1 and GSTR-3B returns. The assessee had also explained that the amount received from the company represented consultancy charges and not salary.
5. The learned AR further submitted that the assessee was working as an independent consultant and was providing management and marketing strategy advisory services to the payer-company. The receipts were subjected to tax deduction at source u/s 194J and the receipts were subjected to GST which was duly disclosed in respective GST returns. According to the assessee, the services rendered were in the nature of technical consultancy falling within Section 44AA(1) and consequently, the assessee was eligible to declare income under section 44ADA of the Act which was also accepted by Ld. AO.
6. The Ld. CIT-DR, on the other hand, supported the order passed by the learned Pr. CIT and submitted that the Assessing Officer had failed to properly examine the eligibility of the assessee for the benefit of section 44ADA.
7. We have carefully heard the rival submissions and perused the material available on record. The limited question before us is whether the assessment order passed u/s 143(3) could be regarded as erroneous in so far as it is prejudicial to the interests of the Revenue so as to justify exercise of revisional jurisdiction u/s 263 of the Act. It is well settled that for invoking section 263, both the conditions, namely, that the order of the Assessing Officer is erroneous and that it is prejudicial to the interests of the Revenue, must co-exist. It is equally settled that there is a distinction between a case where no enquiry has been made by the Assessing Officer and a case where an enquiry has been made but the revisional authority considers such enquiry to be inadequate.
8. In the present case, the assessment record shows that the Assessing Officer had issued notice u/s 142(1) and called for details relating to the nature and source of the assessee’s income. In response thereto, the assessee furnished the relevant details, reconciliation of professional receipts with Form 26AS, GST registration and GST returns, computation of income and the explanation regarding the nature of services rendered to the company. The assessee had specifically explained that the receipts were towards consultancy services and were not in the nature of salary. Thus, it is not a case where the Assessing Officer accepted the returned income without making any enquiry whatsoever. The material relating to the nature of the receipts and the relationship of the assessee with the company was placed before the Assessing Officer and was examined during the course of assessment proceedings itself. Merely because the assessment order does not contain an elaborate discussion on this issue would not, by itself, establish that there was no application of mind by the Assessing Officer.
9. The learned Pr. CIT has placed considerable reliance upon the fact that in earlier years the assessee had received salary from the same company. In our view, this fact, by itself, cannot determine the character of the receipts during the year under consideration. Each assessment year is a separate unit of assessment and the nature of the relationship during the relevant previous year has to be determined from the terms of engagement and the surrounding facts applicable to that year. The learned Pr. CIT has not brought on record any material demonstrating that, notwithstanding the consultancy agreement, an employer-employee relationship continued to exist during the relevant year. The mere fact that the assessee was an employee of the same company in an earlier period, by itself, is not sufficient to characterize the consultancy receipts of the relevant year as salary.
10. We also find that against the gross receipts of Rs.29,76,250/-, the assessee declared income of Rs.15,00,000/-, which is marginally more than 50 per cent of the gross receipts. However, declaration of 50 per cent or more of the receipts does not by itself establish eligibility u/s 44ADA. The basic requirement that the assessee should be carrying on a profession covered by section 44AA(1), has to be independently satisfied. On the facts before us, it is not a case where the Assessing Officer completely failed to examine the nature of the receipts. The relevant details concerning the consultancy arrangement and the nature and source of the receipts were called for by Ld. AO and the same was duly been furnished by the assessee during the scrutiny proceedings. After considering the same, the Assessing Officer accepted the returned income. The learned Pr. CIT may hold a different view regarding the nature of the services, but Sec.263 cannot be invoked merely for substituting the revisional authority’s view for a view taken by the Assessing Officer after enquiry, unless the latter view is shown to be unsustainable in law.
11. On the given facts and circumstances, and having regard to the material examined by the Assessing Officer during the assessment proceedings, we are unable to sustain the finding of Ld. Pr. CIT that the assessment order was passed without enquiry or without due application of mind. The twin conditions required for exercise of jurisdiction under section 263 have, therefore, not been established on the facts of the present case. It is settled position of law that Section 263 of the Act confers power to examine an assessment order so as to ascertain whether it is erroneous and prejudicial to the interest of the revenue but does not confer jurisdiction upon the CIT to substitute his opinion for the opinion of the Assessing Officer. The words prejudicial and erroneous have to be read in conjunction and therefore, it is not each and every error in an assessment that invites exercise of powers under Section 263 of the Act, but only orders that are erroneous and prejudicial to the interest of the revenue. An order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Once Ld. AO has taken a plausible view in the facts and circumstances of the case, revision could not be justified. Further, Ld. Pr. CIT has not brought on record any material, by making enquiries or verifications, to substantiate his inferences. It has also not been shown that the view taken by Ld. AO was not sustainable in law. Accordingly, the impugned revisionary order passed by Ld. Pr. CIT u/s 263 is set aside and the assessment order dated 27.03.2024 passed by Ld. AO u/s 143(3) of the Act is restored.
12. In the result, the appeal of the assessee is allowed.
Order pronounced on 01.10.2026.
