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.
