My client asked the officer to tax his bank deposits at eight per cent under s.44AD. The deposits are more than the s.44AD limit and the whole amount has been added. What now?
Where the deposits said to be the turnover themselves exceed the s.44AD ceiling, s.44AD does not apply — the ceiling is part of the definition of 'eligible business' in the Explanation, not a rate condition. But that does not entitle the Assessing Officer to add the entire deposits: even in a best judgment assessment he must estimate the income, and the Tribunal set aside the CIT(A)'s order for a fresh estimate after the assessee produced the evidence he had withheld below.
Decided by the ITAT (Shri Sanjay Garg, Judicial Member and Shri Rakesh Mishra, Accountant Member (Income Tax Appellate Tribunal, Patna Bench, virtual hearing at Kolkata)) on 2024-07-22, reported as ITA No. 29/Pat/2023, Assessment Year 2013-14. It bears on section 44AD, section 69A, section 144, section 147, section 148, section 142(1), section 250 of the Income Tax Act 1961, in Presumptive Taxation & Audit, Assessment & Scrutiny and Cash Credits & Unexplained Money matters.
Two separate propositions come out of this order and practitioners tend to run them together. The first is the ceiling: the Bench recorded that the total turnover limit for the year before it was Rs 1 crore, modified to Rs 2 crore with effect from 1 April 2017, and that because the deposits claimed as turnover exceeded the limit, s.44AD did not apply at all. An assessee who invites the officer to apply eight per cent to a figure above the ceiling is making an argument the section cannot support. The second, which is where the money is, is that a best judgment assessment is still an assessment of income: the Assessing Officer 'ought to have estimated the income of the assessee instead of adding the entire deposits'. That is the answer to the standard demonetisation-era or non-filer assessment in which the gross credits are added without any allowance for cost. Note the price the assessee paid for his conduct: the Bench relied on Kachwala Gems for the proposition that a degree of guess work is inherent in best judgment and that it is the assessee himself who is to blame if he did not submit proper accounts, and the matter went back to the CIT(A) rather than being decided, with a direction to file the licence, agreement, purchase and sale bills and TDS details.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The Assessing Officer received information that the assessee had deposited cash during the financial year 2012-13 in a savings bank account with UCO Bank. He recorded reasons, obtained approval and issued a notice under s.148 which was delivered by e-mail; the assessee did not comply, and did not reply to a notice under s.142(1) either. The assessment was completed under s.147 read with s.144 and s.144B on 4 March 2022 adding Rs 1,06,23,768. The CIT(A), NFAC, sustained the order on 26 November 2022, no written submission having been filed, although the statement of facts filed with the memorandum of appeal had asked that the income be treated on a presumptive basis under s.44AD. Before the Tribunal the assessee filed a written submission and a statement of deposits and withdrawals, explaining that during AY 2013-14 he had sold foreign liquor purchased in the name of one Om Prakash Bhagat, in whose name the licence stood and who had permitted him to trade in specified areas, supported by an affidavit. The bank statement, which had been before the Assessing Officer, showed frequent cash deposits and withdrawals, and the Assessing Officer had added the entire deposits without taking the withdrawals into account. The turnover claimed exceeded the s.44AD ceiling of Rs 1 crore applicable to that year.
The appeal was allowed for statistical purposes. Because the entire deposits claimed to be the turnover from the liquor business exceeded the total turnover limit of Rs 1 crore, s.44AD did not apply. But even in a best judgment assessment the Assessing Officer ought to have estimated the income of the assessee instead of adding the entire deposits, and since the documents produced before the Tribunal were additional evidence not filed before the CIT(A) and proper representation could not be made there, the CIT(A)'s order was set aside to be made afresh, with the assessee directed to file the agreement, purchase and sale bills and TDS details and the CIT(A) directed to pass an order under s.250(6) after making a reasonable estimate of income (paragraphs 8 and 11).
At paragraph 7 the Bench set out s.44AD as applicable to the year. At paragraph 8 it recorded that the limit of total turnover applicable for AY 2013-14 was Rs 1 crore, modified to Rs 2 crore with effect from 1 April 2017, and held that since the entire deposits claimed to be the turnover from the liquor business exceeded that limit, the provisions of s.44AD were not applicable. It went on to note that no evidence of purchases, sale bills, TDS or TCS, licence or agreement had been filed, but that the deposits and matching withdrawals appeared regular so that the claim of a business could not be totally ruled out; and because the documents before it were additional evidence and proper representation could not be made before the CIT(A), fairness to both sides required the first appellate order to be set aside for fresh consideration. The Bench then set out the best judgment line — Kachwala Gems on the inevitability of some guess work and the assessee's own responsibility for not submitting proper accounts, Brij Bhushan Lal Parduman Kumar and C. Velukutty on the requirement of an honest and fair estimate with a reasonable nexus to the available material, and Tara Singh on the absence of bias or caprice — and concluded at paragraph 11 that even in a best judgment assessment the Assessing Officer ought to have estimated the income instead of adding the entire deposits.
Thus, even in a best judgment assessment, the Assessing Officer ought to have estimated the income of the assessee instead of adding the entire deposits.
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Handle my notice → Ask a CA on WhatsAppWhere the deposits said to be the turnover themselves exceed the s.44AD ceiling, s.44AD does not apply — the ceiling is part of the definition of 'eligible business' in the Explanation, not a rate condition. But that does not entitle the Assessing Officer to add the entire deposits: even in a best judgment assessment he must estimate the income, and the Tribunal set aside the CIT(A)'s order for a fresh estimate after the assessee produced the evidence he had withheld below. This was decided by the ITAT (Shri Sanjay Garg, Judicial Member and Shri Rakesh Mishra, Accountant Member (Income Tax Appellate Tribunal, Patna Bench, virtual hearing at Kolkata)) and bears on section 44AD, section 69A, section 144, section 147, section 148, section 142(1), section 250 of the Income Tax Act 1961. It is reported as ITA No. 29/Pat/2023, Assessment Year 2013-14. Two separate propositions come out of this order and practitioners tend to run them together. The first is the ceiling: the Bench recorded that the total turnover limit for the year before it was Rs 1 crore, modified to Rs 2 crore with effect from 1 April 2017, and that because the deposits claimed as turnover exceeded the limit, s.44AD did not apply at all. An assessee who invites the officer to apply eight per cent to a figure above the ceiling is making an argument the section cannot support. The second, which is where the money is, is that a best judgment assessment is still an assessment of income: the Assessing Officer 'ought to have estimated the income of the assessee instead of adding the entire deposits'. That is the answer to the standard demonetisation-era or non-filer assessment in which the gross credits are added without any allowance for cost. Note the price the assessee paid for his conduct: the Bench relied on Kachwala Gems for the proposition that a degree of guess work is inherent in best judgment and that it is the assessee himself who is to blame if he did not submit proper accounts, and the matter went back to the CIT(A) rather than being decided, with a direction to file the licence, agreement, purchase and sale bills and TDS details. If it applies to you, the first step is this: Compute the claimed turnover against the s.44AD ceiling for the correct assessment year before asking for eight per cent — Rs 1 crore up to AY 2016-17, Rs 2 crore from AY 2017-18, and Rs 3 crore from AY 2024-25 only if the five per cent cash test is met.
The Assessing Officer received information that the assessee had deposited cash during the financial year 2012-13 in a savings bank account with UCO Bank. He recorded reasons, obtained approval and issued a notice under s.148 which was delivered by e-mail; the assessee did not comply, and did not reply to a notice under s.142(1) either. The assessment was completed under s.147 read with s.144 and s.144B on 4 March 2022 adding Rs 1,06,23,768. The CIT(A), NFAC, sustained the order on 26 November 2022, no written submission having been filed, although the statement of facts filed with the memorandum of appeal had asked that the income be treated on a presumptive basis under s.44AD. Before the Tribunal the assessee filed a written submission and a statement of deposits and withdrawals, explaining that during AY 2013-14 he had sold foreign liquor purchased in the name of one Om Prakash Bhagat, in whose name the licence stood and who had permitted him to trade in specified areas, supported by an affidavit. The bank statement, which had been before the Assessing Officer, showed frequent cash deposits and withdrawals, and the Assessing Officer had added the entire deposits without taking the withdrawals into account. The turnover claimed exceeded the s.44AD ceiling of Rs 1 crore applicable to that year. The matter was decided on 2024-07-22 by the ITAT (Shri Sanjay Garg, Judicial Member and Shri Rakesh Mishra, Accountant Member (Income Tax Appellate Tribunal, Patna Bench, virtual hearing at Kolkata)). On those facts the ITAT held as follows. The appeal was allowed for statistical purposes. Because the entire deposits claimed to be the turnover from the liquor business exceeded the total turnover limit of Rs 1 crore, s.44AD did not apply. But even in a best judgment assessment the Assessing Officer ought to have estimated the income of the assessee instead of adding the entire deposits, and since the documents produced before the Tribunal were additional evidence not filed before the CIT(A) and proper representation could not be made there, the CIT(A)'s order was set aside to be made afresh, with the assessee directed to file the agreement, purchase and sale bills and TDS details and the CIT(A) directed to pass an order under s.250(6) after making a reasonable estimate of income (paragraphs 8 and 11).
At paragraph 7 the Bench set out s.44AD as applicable to the year. At paragraph 8 it recorded that the limit of total turnover applicable for AY 2013-14 was Rs 1 crore, modified to Rs 2 crore with effect from 1 April 2017, and held that since the entire deposits claimed to be the turnover from the liquor business exceeded that limit, the provisions of s.44AD were not applicable. It went on to note that no evidence of purchases, sale bills, TDS or TCS, licence or agreement had been filed, but that the deposits and matching withdrawals appeared regular so that the claim of a business could not be totally ruled out; and because the documents before it were additional evidence and proper representation could not be made before the CIT(A), fairness to both sides required the first appellate order to be set aside for fresh consideration. The Bench then set out the best judgment line — Kachwala Gems on the inevitability of some guess work and the assessee's own responsibility for not submitting proper accounts, Brij Bhushan Lal Parduman Kumar and C. Velukutty on the requirement of an honest and fair estimate with a reasonable nexus to the available material, and Tara Singh on the absence of bias or caprice — and concluded at paragraph 11 that even in a best judgment assessment the Assessing Officer ought to have estimated the income instead of adding the entire deposits. In the words reproduced by the source cited on this page: "Thus, even in a best judgment assessment, the Assessing Officer ought to have estimated the income of the assessee instead of adding the entire deposits." The decision followed or applied Kachwala Gems v. Joint Commissioner of Income-tax, Jaipur [2007] 158 Taxman 71 (SC) — relied upon; Brij Bhushan Lal Parduman Kumar v. Commissioner of Income-tax [1978] 115 ITR 524 (SC) — relied upon; State of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC) — relied upon; Tara Singh v. Income-tax Officer, Ward III Khanna [2017] 81 taxmann.com 293 (Punjab & Haryana) — relied upon.
It was decided by the ITAT on 2024-07-22 and is reported as ITA No. 29/Pat/2023, Assessment Year 2013-14. 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 69A, section 144, section 147, section 148, section 142(1), section 250, 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 allowed for statistical purposes. Because the entire deposits claimed to be the turnover from the liquor business exceeded the total turnover limit of Rs 1 crore, s.44AD did not apply. But even in a best judgment assessment the Assessing Officer ought to have estimated the income of the assessee instead of adding the entire deposits, and since the documents produced before the Tribunal were additional evidence not filed before the CIT(A) and proper representation could not be made there, the CIT(A)'s order was set aside to be made afresh, with the assessee directed to file the agreement, purchase and sale bills and TDS details and the CIT(A) directed to pass an order under s.250(6) after making a reasonable estimate of income (paragraphs 8 and 11). It arises in Presumptive Taxation & Audit, Assessment & Scrutiny and Cash Credits & Unexplained Money matters, on section 44AD, section 69A, section 144, section 147, section 148, section 142(1), section 250 of the Income Tax Act 1961, and was decided by Shri Sanjay Garg, Judicial Member and Shri Rakesh Mishra, Accountant Member (Income Tax Appellate Tribunal, Patna Bench, virtual hearing 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 turnover is above the ceiling, drop the s.44AD argument and argue estimation instead: the ground is that gross credits are not income and a net rate must be applied. File the primary business evidence at the first appellate stage, not at the Tribunal — here the documents were additional evidence never put before the CIT(A), which is why the matter was remitted rather than decided. Where the business is run under someone else's licence, put on record the licence, the permission and the affidavit of the licence holder, and link the bank withdrawals to purchases to show the deposits are business receipts. Cite the best-judgment line — an honest and fair estimate with a reasonable nexus to the available material — but expect the Bench also to cite Kachwala Gems against the assessee who filed no accounts.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator returns nothing. A name search returns 16 documents, of which only this order is an income-tax matter; the rest are Patna and Jharkhand High Court criminal and civil proceedings involving other people of the same name. Nothing was found applying or doubting the holding that section 44AD is unavailable once the claimed turnover crosses the statutory ceiling, and no appeal against this order. 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 twelve numbered paragraphs and ends with the disposal, so the reading reached the end. A caution on the paragraph numbering: much of paragraph 8 after its opening sentences, and the whole of paragraphs 9 and 10, consist of passages taken from Kachwala Gems, Brij Bhushan Lal Parduman Kumar, State of Kerala v. C. Velukutty and Tara Singh, so those are not the Tribunal's own words. The Tribunal speaks for itself at the start of paragraph 8 and at paragraphs 11 and 12, and the quote used here is from paragraph 11. The opening sentences of paragraph 8 were re-read on a second route through the indiankanoon docfragment endpoint and came back in identical words. Paragraph 7 reproduces s.44AD as it stood for AY 2013-14 with a one crore ceiling and with the omitted proviso to sub-section (2) shown as a row of asterisks; the same paragraph nevertheless prints sub-sections (4), (5) and (6) in their post-2017 form, which is a mismatch in the report rather than a finding, and it should not be read as applying the substituted sub-sections to AY 2013-14. The first pass at retrieving this order returned a bracketed placeholder in place of the text; the order had to be pulled paragraph by paragraph through the print endpoint before a genuine transcript was obtained. 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 for statistical purposes. Because the entire deposits claimed to be the turnover from the liquor business exceeded the total turnover limit of Rs 1 crore, s.44AD did not apply. But even in a best judgment assessment the Assessing Officer ought to have estimated the income of the assessee instead of adding the entire deposits, and since the documents produced before the Tribunal were additional evidence not filed before the CIT(A) and proper representation could not be made there, the CIT(A)'s order was set aside to be made afresh, with the assessee directed to file the agreement, purchase and sale bills and TDS details and the CIT(A) directed to pass an order under s.250(6) after making a reasonable estimate of income (paragraphs 8 and 11).
TaxSphere, “Masudan Tanti v ITO — s.44AD is unavailable once the claimed turnover crosses the ceiling, but the deposits still cannot be added whole”, https://taxnotice.vittsphere.com/caselaw/case/masudan-tanti-v-ito-44ad-is-unavailable-once-the-claimed-turnover-crosses-the-ceiling/ (validity last checked 2026-09-08)
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