The Assessing Officer says my client, who runs a pathology sample collection centre, cannot use s.44AD at all and has added the entire understated receipt. Is that right?
On the first point the department was upheld: s.44AD(6) excludes a person carrying on a profession referred to in s.44AA(1), a person earning income in the nature of commission or brokerage, and a person carrying on any agency business, and the Tribunal agreed the assessee was a commission agent so that s.44AD did not apply. On the second point the assessee got relief: the entire differential receipt could not be treated as income because expenses had to be incurred, and the Tribunal directed a net profit rate of forty-five per cent on the gross receipts the Assessing Officer had worked out.
Decided by the ITAT (Shri Yogesh Kumar US, Judicial Member and Shri Rakesh Mishra, Accountant Member (Income Tax Appellate Tribunal, Kolkata 'SMC' Bench at Kolkata)) on 2026-08-12, reported as ITA No. 1523/KOL/2026, Assessment Year 2020-21. It bears on section 44AD, section 44AD(6), section 44ADA, section 44AA, section 44AA(1), section 147, section 144, section 144B, section 194J, section 132 of the Income Tax Act 1961, in Presumptive Taxation & Audit, Assessment & Scrutiny and Reassessment & Reopening matters.
This is the sub-section that decides whether the presumptive question ever arises, and it is the one most often skipped. Section 44AD(6) is not a proportionate exclusion or an anti-abuse rule — it is an outright bar, and it catches three quite different classes: the s.44AA(1) professional, anyone whose income is 'in the nature of commission or brokerage', and anyone carrying on 'any agency business'. A collection centre operating under a B2B agreement with a laboratory, paid net of the laboratory's charges and suffering s.194J deduction, fell into it. But the order also carries the answer to the second half of the notice, and that half matters more in rupees: once s.44AD is out, the Assessing Officer does not thereby acquire a right to tax the gross receipt. Expenses still had to be incurred, and the Tribunal set a net profit rate instead. Practitioners should read the two halves separately — resisting the s.44AD(6) point is usually hopeless where the receipt is commission or agency income, while resisting the gross-receipt addition usually is not. Note also the reopening route: the information came off the Insight Portal following a s.132 action on the payer, which is now the commonest way these cases start.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee ran a pathological sample collection centre and clinic as an authorised collection centre of Metropolis Healthcare Limited, collecting samples from patients and clinics, sending them to the laboratory for testing and delivering the reports. He filed a return for AY 2020-21 on 30 December 2020 declaring total income of Rs 6,24,450, offering the receipts from Metropolis on a presumptive basis under s.44AD. The assessment was reopened under s.147 on information from the Insight Portal following a search and seizure action under s.132 in the case of Metropolis Healthcare Limited, which showed that payments made by that company to its collection centres under B2B agreements had suffered deduction under s.194J and were professional receipts. On verification of the payer's invoices and the assessee's bank statements the Assessing Officer found gross pathology collection charges of Rs 26,77,091 against Rs 15,46,550 in the books, and charges paid to the laboratory of Rs 10,57,835 against Rs 10,82,371 claimed, an aggregate understatement of receipts and overstatement of expenses of Rs 11,55,077. He added that sum as additional business income and determined total income at Rs 17,79,527 under s.147 read with s.144 and s.144B, holding that s.44AD was unavailable by force of s.44AD(6). The CIT(A), NFAC, Delhi, by order dated 26 February 2026, agreed that the presumptive scheme did not apply to a person engaged in a profession referred to in s.44AA(1), including the medical profession, confirmed the addition and dismissed the appeal. Before the Tribunal the assessee's representative explained the sample-collection activity, and it was conveyed to him that the assessee was a commission agent and that s.44AD was not applicable; he then consented that because expenditure had been incurred and the Assessing Officer had added the entire difference in gross receipts, a reasonable income at forty-five per cent of the gross receipts might be assessed, to which the Departmental Representative had no objection.
The appeal was partly allowed for statistical purposes. Section 44AD was not applicable to the assessee, who was a commission agent. But the entire differential receipt did not constitute income, because expenses also had to be incurred, so the order of the CIT(A) was set aside, the issue restored to the Assessing Officer, and the Assessing Officer directed to apply a net profit rate of forty-five per cent to the gross receipts worked out by him and to recompute the income with consequential relief, after giving the assessee a reasonable opportunity of being heard (paragraphs 6, 7 and 8).
The Bench recorded at paragraph 5 the assessee's explanation of the activity — collecting patients' samples, getting them examined and giving the report after obtaining it from the laboratory — and set out the whole of s.44AD, including sub-section (6), which excludes a person carrying on a profession referred to in s.44AA(1), a person earning income in the nature of commission or brokerage and a person carrying on any agency business. At paragraph 6 it conveyed to the assessee's representative that the assessee was a commission agent and that s.44AD was not applicable, and recorded his consequent request that a reasonable income at forty-five per cent of gross receipts be assessed, unopposed by the Revenue. At paragraph 7 the Bench held, in the interest of justice and fair play, that the request could be accepted because the entire differential receipts did not constitute income as expenses also had to be incurred, and it therefore set aside the CIT(A)'s order and restored the issue to the Assessing Officer with a direction to apply a forty-five per cent net profit rate to the gross receipts he had worked out.
In the interest of justice and fair play it was considered that the request of the assessee may be accepted as the entire differential receipts did not constitute the income as expenses also had to be incurred.
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Handle my notice → Ask a CA on WhatsAppOn the first point the department was upheld: s.44AD(6) excludes a person carrying on a profession referred to in s.44AA(1), a person earning income in the nature of commission or brokerage, and a person carrying on any agency business, and the Tribunal agreed the assessee was a commission agent so that s.44AD did not apply. On the second point the assessee got relief: the entire differential receipt could not be treated as income because expenses had to be incurred, and the Tribunal directed a net profit rate of forty-five per cent on the gross receipts the Assessing Officer had worked out. This was decided by the ITAT (Shri Yogesh Kumar US, Judicial Member and Shri Rakesh Mishra, Accountant Member (Income Tax Appellate Tribunal, Kolkata 'SMC' Bench at Kolkata)) and bears on section 44AD, section 44AD(6), section 44ADA, section 44AA, section 44AA(1), section 147, section 144, section 144B, section 194J, section 132 of the Income Tax Act 1961. It is reported as ITA No. 1523/KOL/2026, Assessment Year 2020-21. This is the sub-section that decides whether the presumptive question ever arises, and it is the one most often skipped. Section 44AD(6) is not a proportionate exclusion or an anti-abuse rule — it is an outright bar, and it catches three quite different classes: the s.44AA(1) professional, anyone whose income is 'in the nature of commission or brokerage', and anyone carrying on 'any agency business'. A collection centre operating under a B2B agreement with a laboratory, paid net of the laboratory's charges and suffering s.194J deduction, fell into it. But the order also carries the answer to the second half of the notice, and that half matters more in rupees: once s.44AD is out, the Assessing Officer does not thereby acquire a right to tax the gross receipt. Expenses still had to be incurred, and the Tribunal set a net profit rate instead. Practitioners should read the two halves separately — resisting the s.44AD(6) point is usually hopeless where the receipt is commission or agency income, while resisting the gross-receipt addition usually is not. Note also the reopening route: the information came off the Insight Portal following a s.132 action on the payer, which is now the commonest way these cases start. If it applies to you, the first step is this: Before arguing about the eight per cent rate, test the client against all three limbs of s.44AD(6) — s.44AA(1) profession, commission or brokerage, and agency business — because if any limb bites, the rate argument is unavailable.
The assessee ran a pathological sample collection centre and clinic as an authorised collection centre of Metropolis Healthcare Limited, collecting samples from patients and clinics, sending them to the laboratory for testing and delivering the reports. He filed a return for AY 2020-21 on 30 December 2020 declaring total income of Rs 6,24,450, offering the receipts from Metropolis on a presumptive basis under s.44AD. The assessment was reopened under s.147 on information from the Insight Portal following a search and seizure action under s.132 in the case of Metropolis Healthcare Limited, which showed that payments made by that company to its collection centres under B2B agreements had suffered deduction under s.194J and were professional receipts. On verification of the payer's invoices and the assessee's bank statements the Assessing Officer found gross pathology collection charges of Rs 26,77,091 against Rs 15,46,550 in the books, and charges paid to the laboratory of Rs 10,57,835 against Rs 10,82,371 claimed, an aggregate understatement of receipts and overstatement of expenses of Rs 11,55,077. He added that sum as additional business income and determined total income at Rs 17,79,527 under s.147 read with s.144 and s.144B, holding that s.44AD was unavailable by force of s.44AD(6). The CIT(A), NFAC, Delhi, by order dated 26 February 2026, agreed that the presumptive scheme did not apply to a person engaged in a profession referred to in s.44AA(1), including the medical profession, confirmed the addition and dismissed the appeal. Before the Tribunal the assessee's representative explained the sample-collection activity, and it was conveyed to him that the assessee was a commission agent and that s.44AD was not applicable; he then consented that because expenditure had been incurred and the Assessing Officer had added the entire difference in gross receipts, a reasonable income at forty-five per cent of the gross receipts might be assessed, to which the Departmental Representative had no objection. The matter was decided on 2026-08-12 by the ITAT (Shri Yogesh Kumar US, Judicial Member and Shri Rakesh Mishra, Accountant Member (Income Tax Appellate Tribunal, Kolkata 'SMC' Bench at Kolkata)). On those facts the ITAT held as follows. The appeal was partly allowed for statistical purposes. Section 44AD was not applicable to the assessee, who was a commission agent. But the entire differential receipt did not constitute income, because expenses also had to be incurred, so the order of the CIT(A) was set aside, the issue restored to the Assessing Officer, and the Assessing Officer directed to apply a net profit rate of forty-five per cent to the gross receipts worked out by him and to recompute the income with consequential relief, after giving the assessee a reasonable opportunity of being heard (paragraphs 6, 7 and 8).
The Bench recorded at paragraph 5 the assessee's explanation of the activity — collecting patients' samples, getting them examined and giving the report after obtaining it from the laboratory — and set out the whole of s.44AD, including sub-section (6), which excludes a person carrying on a profession referred to in s.44AA(1), a person earning income in the nature of commission or brokerage and a person carrying on any agency business. At paragraph 6 it conveyed to the assessee's representative that the assessee was a commission agent and that s.44AD was not applicable, and recorded his consequent request that a reasonable income at forty-five per cent of gross receipts be assessed, unopposed by the Revenue. At paragraph 7 the Bench held, in the interest of justice and fair play, that the request could be accepted because the entire differential receipts did not constitute income as expenses also had to be incurred, and it therefore set aside the CIT(A)'s order and restored the issue to the Assessing Officer with a direction to apply a forty-five per cent net profit rate to the gross receipts he had worked out. In the words reproduced by the source cited on this page: "In the interest of justice and fair play it was considered that the request of the assessee may be accepted as the entire differential receipts did not constitute the income as expenses also had to be incurred."
It was decided by the ITAT on 2026-08-12 and is reported as ITA No. 1523/KOL/2026, Assessment Year 2020-21. 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 44AD, section 44AD(6), section 44ADA, section 44AA, section 44AA(1), section 147, section 144, section 144B, section 194J, section 132, 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 cuts both ways and is cited by both sides. The appeal was partly allowed for statistical purposes. Section 44AD was not applicable to the assessee, who was a commission agent. But the entire differential receipt did not constitute income, because expenses also had to be incurred, so the order of the CIT(A) was set aside, the issue restored to the Assessing Officer, and the Assessing Officer directed to apply a net profit rate of forty-five per cent to the gross receipts worked out by him and to recompute the income with consequential relief, after giving the assessee a reasonable opportunity of being heard (paragraphs 6, 7 and 8). It arises in Presumptive Taxation & Audit, Assessment & Scrutiny and Reassessment & Reopening matters, on section 44AD, section 44AD(6), section 44ADA, section 44AA, section 44AA(1), section 147, section 144, section 144B, section 194J, section 132 of the Income Tax Act 1961, and was decided by Shri Yogesh Kumar US, Judicial Member and Shri Rakesh Mishra, Accountant Member (Income Tax Appellate Tribunal, Kolkata 'SMC' Bench at Kolkata). 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. Where the receipt is net of the principal's charges and suffers deduction under s.194J or s.194H, expect the department to treat the activity as agency or professional; prepare the agreement, the invoicing pattern and the risk-and-reward analysis rather than relying on the label used in the return. Even where s.44AD is conceded to be unavailable, contest the quantum: press that the differential between the third-party figures and the books is a gross receipt, not a profit, and that a net profit rate must be applied. Reconcile the payer's invoices and the bank statements line by line before the Assessing Officer, because the addition here was built from third-party invoices obtained from the payer and the assessee produced nothing to displace them. If a net rate is to be negotiated, get the concession recorded — here both representatives agreed on forty-five per cent before the Bench and the order was made on that footing.
Validity check could not be completed. Validity check could not be completed. I did not check whether this order has been appealed, followed or doubted; it was pronounced on 12 August 2026, less than a month before this entry was written, so no later treatment could reasonably exist. The order is a Tribunal order and binds no other Bench. The forty-five per cent rate rests on a concession made before the Bench and is not a proposition of law. 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.
The order runs to eight numbered paragraphs and ends with the disposal, so nothing is missing from the reading. Paragraph 3 reproduces the CIT(A)'s decision at that authority's paragraphs 5 to 11, and paragraph 5 reproduces the whole of s.44AD; neither is the Tribunal speaking, and the only paragraphs in which the Bench speaks for itself are 5 (opening words), 6, 7 and 8. The quote used here is from paragraph 7, which is the Tribunal's own disposal, and it was re-read on a second route through the indiankanoon docfragment endpoint and came back in identical words. Two oddities in the report: the Bench is described in the header as the Kolkata 'SMC' Bench yet is constituted by two Members, and the CIT(A)'s reasoning as reproduced refers interchangeably to the assessee as a professional excluded by s.44AD(6)(i) and to a collection centre, while the Tribunal at paragraph 6 proceeds on the footing that he is 'a commission agent'. The forty-five per cent rate was arrived at on the assessee's own request with the Departmental Representative raising no objection; it is a figure agreed before the Bench, not a rate established as a matter of law, and it should not be cited as a benchmark. The order reproduces s.44AD in full including sub-sections (4), (5) and (6) and the two provisos to Explanation (b)(ii), which independently corroborates the statutory text used in the companion statutory entries. 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 partly allowed for statistical purposes. Section 44AD was not applicable to the assessee, who was a commission agent. But the entire differential receipt did not constitute income, because expenses also had to be incurred, so the order of the CIT(A) was set aside, the issue restored to the Assessing Officer, and the Assessing Officer directed to apply a net profit rate of forty-five per cent to the gross receipts worked out by him and to recompute the income with consequential relief, after giving the assessee a reasonable opportunity of being heard (paragraphs 6, 7 and 8).
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