Section 44AA

Section 44AA — the law in short

What the courts have decided on section 44AA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Nitin Soni High CourtHelps taxpayer
  I returned income for my trucks under s.44AE. The officer says my real income was higher and has taxed the difference. Can he?
  No, not on the facts of this case. The High Court held that the words 'shall be deemed' in s.44AE indicate a legislative intent that tax is chargeable on the presumptive income computed under sub-section (2). The presumptive income, which may be less or more than the truth, is what is taxable; such an assessee is not required to maintain books at all; and so even where the actual income in a given case is more than the figure computed under sub-section (2), it cannot be taxed. The addition of Rs 29,21,738 made under the head income from other sources was deleted, and the Revenue's appeal was dismissed summarily. Two limits matter. The officer had identified no other source in the assessment order, and it was not disputed that s.44AE applied. A genuinely separate source of income remains taxable in the ordinary way.
• Surajmal Parsuram Todi v CIT High CourtHelps taxpayer
  I never maintained books of account at all. Can the department penalise me under section 271B for not getting them audited?
  No. The Gauhati High Court held that where an assessee has not maintained books of account at all, penalty under section 271B for failure to get them audited cannot be imposed. Maintenance of accounts is required by section 44AA, and failure there is punished by section 271A. Once that default is complete there is nothing to audit, so no failure under section 44AB can arise and section 271B has nothing to bite on. The Tribunal had overlooked this. The question was answered in the negative and in favour of the assessee, leaving the department to act under section 271A.
• Neeraj Dewangan v ITO ITATHelps departmentValidity unconfirmed
  I offered 8% under 44AD for consultancy work. Can the AO push me into 44ADA at 50%?
  Yes, where the work is professional in character. Liaison services, coordination of statutory no-objection certificates and related facilitation were held to require specialised technical knowledge and so to amount to 'technical consultancy', a specified profession under s.44AA(1) read with s.44ADA — which made s.44AD unavailable and the 50% rate applicable.
• Dipyaman Dutt v ITO ITATHelps taxpayerValidity unconfirmed
  I declared income under 44AD. Can the AO still add my cash deposits as unexplained income?
  No. Where income has been offered on a presumptive basis under s.44AD on declared turnover, cash deposits representing that turnover cannot be added again as unexplained income — that taxes the same receipts twice, once as deemed profit and once as unexplained credits.
• Hemant Kumar Agrawal v ITO ITATHelps department
  I am a partner in a professional LLP. Can I offer my partner's remuneration under section 44ADA at 50 per cent?
  No, on this Tribunal's view. Remuneration from the firm is not the partner's own turnover or gross receipts, so section 44ADA does not apply to it. But it is still business income in the partner's hands, and expenses with a direct nexus to earning it are deductible in the ordinary way.
• Lokesh Kumar Sharma v ITO ITATHelps taxpayerValidity unconfirmed
  I never maintained books at all. Can they penalise me under 271B for not getting them audited?
  No. Section 44AB requires a person to get 'his accounts' audited, which presupposes that accounts exist. Where the default is at the earlier stage of not maintaining books under s.44AA, the audit obligation never arises, and the penalty for that default is s.271A — not s.271B.
• Arthur Bernard Sebastine Pais v DCIT (CPC) ITATHelps taxpayer
  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.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.