Ashok Kumar Vs ITO (ITAT Delhi)
Delhi ITAT: AO Cannot Force Section 44AD Presumptive Rate When Assessee Has Not Opted for Presumptive Taxation-Book Results Cannot Be Replaced Without Rejection
The Delhi ITAT deleted an addition of ₹5.08 lakh made by applying an 8% presumptive profit rate under Section 44AD, holding that where the assessee had not opted for presumptive taxation and the books of account/book results had not been rejected or disturbed by the AO, the declared profits could not simply be substituted by the presumptive rate.
The assessee was engaged in the retail trade of fruits and vegetables. Following information regarding substantial transactions despite non-filing of the original return, reassessment proceedings were initiated under Sections 148A/148. In response, the assessee filed a return declaring total income of ₹2,13,177.
The assessee disclosed a turnover of ₹90,12,856 and business income of ₹2,13,177, representing a profit rate of about 2.36%. He furnished his account books, bank statements and computation of income and explained that the cash deposits in the bank represented his business transactions.
The AO took the view that under Section 44AD the assessee was required to declare presumptive income at 8%/6% of turnover unless the books were audited under Section 44AB. Since the books were not audited, the AO applied an 8% rate, computed business income at ₹7,21,028 and consequently made an addition of ₹5,07,851. The NFAC upheld the addition.
Before the Tribunal, the assessee’s case was that he had never opted for Section 44AD. His books had been produced before the AO, the turnover declared by him had been accepted and, importantly, the AO had neither rejected nor disturbed the book results. The assessee therefore contended that there was no legal basis for compulsorily applying an 8% presumptive rate merely because the actual profit margin was 2.36%.
The Revenue pointed out that the assessee had deposited approximately ₹89.96 lakh in cash and argued that the AO had already taken a lenient approach by applying only the presumptive rate of 8%. The Tribunal, however, found that this did not answer the fundamental issue that the assessee’s book results had never been rejected and he had not opted for presumptive taxation.
The ITAT therefore held that, on the peculiar facts, the addition “cannot be sustained in the eyes of law” and deleted the entire ₹5,07,851 addition. The assessee’s appeal was allowed.
Key principle: Section 44AD cannot automatically be imposed upon an assessee merely because his eligible-business turnover falls within the prescribed limit. Where the assessee has not opted for presumptive taxation, maintains and produces books, and the AO accepts the turnover and does not reject the book results, the AO cannot simply substitute the actual disclosed profit with an arbitrary 8% presumptive profit rate.
FULL TEXT OF THE ORDER OF ITAT DELHI
The instant appeal filed by the assessee is directed against the order dated 12.01.2026 passed by the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as the Ld. CIT(A)/NFAC] under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of the Assessment Order dated 07.03.2025 passed by the Assessment Unit, Income-tax Department (hereinafter referred to as ‘the Ld. AO’) under Section 147 read with Section 144B of the Act for Assessment Year 2017-18.
2. On the basis of information received that the assessee had made substantial amount of transaction but did not file ITR, following procedure under Section 148A of the Act, the case of the assessee was reopened by issuing notice under Section 148 of the Act. In response to notice under Section 148 the assessee filed ITR declaring total income at Rs. 2,13,177/-.
3. Further that in response to statutory notices issued under section 143(2)/142(1) of the Act, the assessee responded that during the year under consideration the assessee was engaged in the business of retail trade of fruits and vegetables. With respect to the cash deposited in the bank account the assessee submitted that deposits made in the bank related to his business transactions. The assessee submitted copy of account book, bank account statement and computation of income.
4. The assessee had declared turnover of Rs. 90,12,856/- and business income of Rs. 2,13,177/-. According to the Ld. AO, presumptive taxation as per provision of Section 44AD the assessee was required to declare income @ 8% or 6% as the case may be of the turnover unless proper books of account were audited as per Section 44AB. The assessee has declared business income @ 2.36%. The assessee has not audited books of account. Income is determined @ 8% of the total turnover which comes to Rs. 7,21,028/- as against returned income of Rs. 2,13,177/- thus making an addition of Rs. 5,07,851/- to the returned income.
5. In appeal the Learned NFAC affirmed the action of the Assessing Officer and hence the instant appeal.
6. Heard the Learned Representatives of the Revenue, none for the assessee and perused the material available on record. There is no dispute that the assessee has produced copy of accounts book, bank account statement and computation of income before the Assessing Officer. The assessee’s contention is that the books results having not been rejected by the Assessing Officer and the turnover as shown having been accepted, the returned income of Rs. 2,13,177/- ought to have been accepted by the revenue authorities. The assessee did not opt for presumptive taxation. The total income did not exceed the maximum amount not chargeable to tax, and therefore, requirement for audit under Section 44AB of the Act did not apply. The assessee has provided cash book, bank account statement and computation of income to support the declared profit. Thus, no addition should be made to the returned income. The Ld. DR not been able to controvert the aforesaid contention made on behalf of the assessee. He, however, submitted that in the instant case there was cash deposit amounting to Rs. 89,95,930/- and the Assessing Officer has already adopted a lenient view by adopting presumptive taxation @ 8%. He supported the orders of authorities below.
7. We have heard rival submissions and perused the material available on record. Undisputedly in this case the book results disclosed by the assessee have not been rejected or disturbed by the department. Moreover, the assesses has not opted for presumptive taxation. Considering the peculiar facts and circumstances of the instant case in my considered view the addition made by the authorities below cannot be sustained in the eyes of law. Consequently, the impugned addition is hereby deleted.
8. In the result assessee’s appeal is allowed.
Order pronounced in the open court on 10/08/2026.
