CPC has processed my return, decided that my receipts belong under s.44ADA at 50 per cent instead of s.44AD at 8 per cent, and raised a demand. Can that be done in a s.143(1) intimation?
No. The Tribunal held that the whole of the gross receipts had in fact been included in the return, under s.44AD, so the condition for an adjustment under s.143(1)(a)(vi) — that income appearing in Form 26AS has not been included in computing the total income — was simply absent, and the addition fell on that ground alone. It went further and said that whether the income has to be taxed under s.44AD or under s.44ADA cannot be the subject matter of a decision in processing under s.143(1)(a). Be careful what you take from this. The Tribunal expressly declined to decide whether the assessee's management consultancy receipts were assessable under s.44ADA or s.44AD, and nothing in the order holds that they were not professional receipts.
Decided by the ITAT (Income Tax Appellate Tribunal, Bengaluru, SMC-B Bench) on 2019-10-16, reported as ITA No. 1683/Bang/2019. It bears on section 143(1)(a), section 44AD, section 44ADA, section 44AA, section 194J of the Income Tax Act 1961, in Presumptive Taxation & Audit and Assessment & Scrutiny matters.
Recharacterising a s.44AD return as a s.44ADA return is one of the most common automated adjustments a small consultant meets, and it multiplies the taxable figure roughly sixfold. This order says the choice between the two sections is a substantive question that has to be decided in an assessment, with a hearing, and not in processing. It is a procedural answer rather than a substantive one, but it is the faster answer, and it puts the department to the trouble of opening a regular assessment if it wants to press the point. The order also matters for its silence: practitioners citing it for the proposition that a management consultant is outside s.44ADA are citing the assessee's argument, not the Tribunal's holding.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For assessment year 2017-18 the assessee offered gross receipts of Rs 15,00,000, as reflected in his Form 26AS, to tax under s.44AD. Tax had been deducted from those receipts under s.194J. The Central Processing Centre, noticing the deduction under s.194J and that no income had been declared under s.44ADA, proposed and then made an adjustment under s.143(1)(a)(vi), adding Rs 7,50,000, being 50 per cent of the gross receipts, as presumptive income from profession, and raised a demand on that sum. The assessee's case was that he was in the business of providing management consultancy services, that s.44ADA applies only to a profession referred to in s.44AA(1), and that the technical consultancy mentioned in s.44AA(1) refers to advice, consultancy or scientific or technical assistance rendered by a scientist or technocrat or a science or technology institution. The Commissioner (Appeals) held that on a conjoint reading of ss.44AA(1), 44ADA and 194J the case was covered by s.44ADA, found no infirmity in invoking it, and directed the Assessing Officer to take rectificatory action to tax the gross receipts under s.44ADA alone.
The appeal was allowed. The addition was liable to be deleted because the sum of Rs 15,00,000 had been included in computing the total income declared in the return, so the sine qua non for invoking s.143(1)(a)(vi) was absent. The question whether the income falls under s.44AD or s.44ADA cannot be decided in processing under s.143(1)(a), and the Tribunal expressly did not decide it: para 13 ends 'The issue is left open without any decision.'
The Tribunal set out both sections: s.44AD deems 8 per cent of turnover, or a higher sum claimed to have been earned, to be the profits of an eligible business, and s.44ADA deems 50 per cent of gross receipts, or a higher sum claimed, to be the profits of a profession referred to in s.44AA(1) where gross receipts do not exceed the prescribed limit (paras 2 and 5). An adjustment under s.143(1)(a)(vi) can be resorted to only where the amount is not included in computing the total income declared in the return; here the whole Rs 15,00,000 had been offered under s.44AD, so the pre-condition was absent and the addition fell on that basis alone (para 13). The Tribunal relied at para 13 on CBDT Instruction No. 10/2017 dated 15 November 2017, which it read as laying down that only where receipts are completely omitted to be declared in the return of income can there be an addition invoking s.143(1)(a)(vi) (para 13). The passage setting out that instruction at para 8 is part of the assessee's submission before the Commissioner (Appeals), not the Tribunal's own reliance on it. Having so concluded, it declined to go into whether the income was assessable under s.44ADA or s.44AD (para 13).
The issue whether income earned by the Assessee has to be taxed u/s.44AD or Sec.44ADA of the Act cannot be subject matter of decision in processing u/s.143(1) (a) of the Act.
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Handle my notice → Ask a CA on WhatsAppNo. The Tribunal held that the whole of the gross receipts had in fact been included in the return, under s.44AD, so the condition for an adjustment under s.143(1)(a)(vi) — that income appearing in Form 26AS has not been included in computing the total income — was simply absent, and the addition fell on that ground alone. It went further and said that whether the income has to be taxed under s.44AD or under s.44ADA cannot be the subject matter of a decision in processing under s.143(1)(a). Be careful what you take from this. The Tribunal expressly declined to decide whether the assessee's management consultancy receipts were assessable under s.44ADA or s.44AD, and nothing in the order holds that they were not professional receipts. This was decided by the ITAT (Income Tax Appellate Tribunal, Bengaluru, SMC-B Bench) and bears on section 143(1)(a), section 44AD, section 44ADA, section 44AA, section 194J of the Income Tax Act 1961. It is reported as ITA No. 1683/Bang/2019. Recharacterising a s.44AD return as a s.44ADA return is one of the most common automated adjustments a small consultant meets, and it multiplies the taxable figure roughly sixfold. This order says the choice between the two sections is a substantive question that has to be decided in an assessment, with a hearing, and not in processing. It is a procedural answer rather than a substantive one, but it is the faster answer, and it puts the department to the trouble of opening a regular assessment if it wants to press the point. The order also matters for its silence: practitioners citing it for the proposition that a management consultant is outside s.44ADA are citing the assessee's argument, not the Tribunal's holding. If it applies to you, the first step is this: Check the year. The proviso to s.143(1)(a) says no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after 1 April 2018, so for assessment year 2018-19 onwards this route is closed to the department anyway and the adjustment should be attacked on that footing.
For assessment year 2017-18 the assessee offered gross receipts of Rs 15,00,000, as reflected in his Form 26AS, to tax under s.44AD. Tax had been deducted from those receipts under s.194J. The Central Processing Centre, noticing the deduction under s.194J and that no income had been declared under s.44ADA, proposed and then made an adjustment under s.143(1)(a)(vi), adding Rs 7,50,000, being 50 per cent of the gross receipts, as presumptive income from profession, and raised a demand on that sum. The assessee's case was that he was in the business of providing management consultancy services, that s.44ADA applies only to a profession referred to in s.44AA(1), and that the technical consultancy mentioned in s.44AA(1) refers to advice, consultancy or scientific or technical assistance rendered by a scientist or technocrat or a science or technology institution. The Commissioner (Appeals) held that on a conjoint reading of ss.44AA(1), 44ADA and 194J the case was covered by s.44ADA, found no infirmity in invoking it, and directed the Assessing Officer to take rectificatory action to tax the gross receipts under s.44ADA alone. The matter was decided on 2019-10-16 by the ITAT (Income Tax Appellate Tribunal, Bengaluru, SMC-B Bench). On those facts the ITAT held as follows. The appeal was allowed. The addition was liable to be deleted because the sum of Rs 15,00,000 had been included in computing the total income declared in the return, so the sine qua non for invoking s.143(1)(a)(vi) was absent. The question whether the income falls under s.44AD or s.44ADA cannot be decided in processing under s.143(1)(a), and the Tribunal expressly did not decide it: para 13 ends 'The issue is left open without any decision.'
The Tribunal set out both sections: s.44AD deems 8 per cent of turnover, or a higher sum claimed to have been earned, to be the profits of an eligible business, and s.44ADA deems 50 per cent of gross receipts, or a higher sum claimed, to be the profits of a profession referred to in s.44AA(1) where gross receipts do not exceed the prescribed limit (paras 2 and 5). An adjustment under s.143(1)(a)(vi) can be resorted to only where the amount is not included in computing the total income declared in the return; here the whole Rs 15,00,000 had been offered under s.44AD, so the pre-condition was absent and the addition fell on that basis alone (para 13). The Tribunal relied at para 13 on CBDT Instruction No. 10/2017 dated 15 November 2017, which it read as laying down that only where receipts are completely omitted to be declared in the return of income can there be an addition invoking s.143(1)(a)(vi) (para 13). The passage setting out that instruction at para 8 is part of the assessee's submission before the Commissioner (Appeals), not the Tribunal's own reliance on it. Having so concluded, it declined to go into whether the income was assessable under s.44ADA or s.44AD (para 13). In the words reproduced by the source cited on this page: "The issue whether income earned by the Assessee has to be taxed u/s.44AD or Sec.44ADA of the Act cannot be subject matter of decision in processing u/s.143(1) (a) of the Act."
It was decided by the ITAT on 2019-10-16 and is reported as ITA No. 1683/Bang/2019. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 143(1)(a), section 44AD, section 44ADA, section 44AA, section 194J, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed. The addition was liable to be deleted because the sum of Rs 15,00,000 had been included in computing the total income declared in the return, so the sine qua non for invoking s.143(1)(a)(vi) was absent. The question whether the income falls under s.44AD or s.44ADA cannot be decided in processing under s.143(1)(a), and the Tribunal expressly did not decide it: para 13 ends 'The issue is left open without any decision.' It arises in Presumptive Taxation & Audit and Assessment & Scrutiny matters, on section 143(1)(a), section 44AD, section 44ADA, section 44AA, section 194J of the Income Tax Act 1961, and was decided by Income Tax Appellate Tribunal, Bengaluru, SMC-B Bench. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show that the receipts were in fact included in the return. If the gross receipts appear in the return under s.44AD, the pre-condition for a clause (vi) adjustment does not exist. Take the point that the choice between s.44AD and s.44ADA is a substantive question outside the scope of processing under s.143(1)(a). Do not rely on this order to establish that your work is not a profession under s.44AA(1). The Tribunal left that question open. Deduction of tax under s.194J is not by itself proof that s.44ADA applies. Section 44ADA applies only to a profession referred to in s.44AA(1), which is a narrower list than the payments s.194J covers. That is an argument to make in the assessment, not a conclusion this order supplies. Check that the intimation was preceded by the notice of proposed adjustment the first proviso to s.143(1)(a) requires.
Still good law. No decision doubting or overruling it was located. Its subject matter has largely been overtaken by statute: the proviso to s.143(1)(a) provides that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018, so the particular adjustment in issue is not available for assessment year 2018-19 onwards. The order decides nothing about who is a professional for s.44ADA; on that substantive question see Neeraj Dewangan v ITO in this library, where liaison and coordination work was held to be technical consultancy within s.44AA(1) and so within s.44ADA. The s.44ADA gross receipts ceiling and the s.44AD turnover ceiling and rates have both been amended since assessment year 2017-18. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Secondary summaries of this order state that the Tribunal held s.44ADA inapplicable to management consultancy and s.44AD applicable. That is wrong. The passages saying so are the assessee's submissions recorded at paras 9 and 10, and the Tribunal said in terms at para 13 that in view of its conclusions it was not going into the question whether the income was assessable under s.44ADA or s.44AD. The contrary CIT(A) findings quoted in the entry appear at para 11 as a block extract of the Commissioner's order and are not the Tribunal's words either. Two further points on reading the order. Paragraph 10, which is the passage most often quoted for the proposition that the services fall outside s.44AA(1), carries no attributive opener at all — it begins 'It is worthwhile to note here that' — and is identified as part of the assessee's case only by its position, between para 8, which opens 'Before CIT(A), the Assessee submitted', and para 11, which opens 'The CIT(A) did not agree with the Assessee'. A reader shown para 10 out of context can easily take it for the Tribunal's own analysis, and secondary summaries do. Paragraph 13 ends with the sentence 'The issue is left open without any decision.', which is the shortest answer to anyone citing this order as authority on the substantive question. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed. The addition was liable to be deleted because the sum of Rs 15,00,000 had been included in computing the total income declared in the return, so the sine qua non for invoking s.143(1)(a)(vi) was absent. The question whether the income falls under s.44AD or s.44ADA cannot be decided in processing under s.143(1)(a), and the Tribunal expressly did not decide it: para 13 ends 'The issue is left open without any decision.'
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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