Presumptive Taxation & Audit

Presumptive Taxation & Audit — the law in short

Every authority in this library on presumptive taxation & audit, with what each one decided.

• DIT (International Taxation) v Star Cruises (India) P Ltd Supreme CourtHelps taxpayer
  My client is the Indian agent of a foreign cruise ship that sails round trips out of Mumbai. The Assessing Officer says a cruise is entertainment and hospitality, not carriage of passengers, so s.44B does not apply and he wants the s.195 withholding worked out on 25% of the fare instead of 7.5%. Can he do that?
  It depends on the findings of fact, and on these facts he could not. The Supreme Court refused to confine 'carriage' in s.44B to movement from one port to a different port, and held that ancillary services provided on a voyage do not take the activity outside the section. The concurrent findings of the CIT(A), the Tribunal and the Bombay High Court that the non-resident ship owner was carrying passengers were left undisturbed, so the deduction under s.195 stood on the statutory presumptive rate of 7.5% of gross cruise fare receipts and not on the 25% the Assessing Officer had estimated. The Revenue's appeals were dismissed.
• Sedco Forex International Inc v CIT Supreme CourtHelps department
  We are a non-resident drilling contractor taxed under section 44BB. Is the mobilisation fee for bringing the rig to India part of the taxable receipts?
  Yes, on these contracts. The Supreme Court held that a fixed mobilisation fee paid for moving a drilling unit to the Indian location falls within clause (a) of section 44BB(2), as an amount paid on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used in, the extraction of mineral oils in India. Clause (a) applies whether the amount is paid in or outside India. By the fiction in section 44BB the amount becomes income under section 5 and is treated as arising in India for section 9. The assessees' appeals were dismissed.
• Oil & Natural Gas Corporation Ltd v CIT Supreme CourtHelps taxpayer
  The Assessing Officer says our contract with ONGC is really technical services, so 44BB is out and 44D applies. How is that decided?
  By the pith and substance of the contract, not by picking out its ancillary parts. If the dominant purpose of the agreement is prospecting for, or extraction or production of, mineral oils, the payment is assessable under s.44BB and not as fees for technical services under s.44D read with Explanation 2 to s.9(1)(vii).
• CIT v Hyundai Heavy Industries Co Ltd Supreme CourtCuts both ways
  I am a foreign company on a turnkey contract. I fabricated the platform abroad and only installed it in India. Can the Department tax the offshore fabrication profit because the contract was one indivisible whole?
  No, on these facts. The Supreme Court held that an installation permanent establishment comes into existence only at the installation stage, which is after the equipment has been sold and delivered abroad, so profits on the offshore supply are not attributable to it. Under Article 7 what is taxed is not the real profit but the hypothetical profit the permanent establishment would have made as a wholly independent enterprise, so nothing can be attributed on the supply unless the Department shows the price was not at arm's length or included an element for the establishment's services. On quantum, ten per cent of the Indian gross receipts was upheld.
• A.S. Glittre D/5 I/S Garonne v CIT Supreme CourtHelps taxpayer
  We paid tax on each voyage under section 172(4) and then elected under section 172(7) for a regular assessment, which came out much lower and produced a refund. The Department has refunded the tax but refused interest, saying what we paid was not advance tax. Is that right?
  No. Section 172(7) creates a legal fiction by which the payments already made under s.172(4) are treated as a payment in advance of the tax leviable for that assessment year, and the Supreme Court held that in construing that fiction all the consequences flowing from it must be assumed. The ad hoc assessment under s.172(4) is superseded and a regular assessment is made as per the provisions of the Act, so all the provisions of the Act relating to advance tax apply, and on excess payment the assessee is entitled to the excess and to interest on it.
• Union of India v A. Sanyasi Rao Supreme CourtCuts both ways
  Tax has been collected from me at source on my purchase price as though a fixed percentage of it were my profit. Am I stuck with that figure, or can I still be assessed on my real income?
  You can still be assessed on your real income. The Supreme Court upheld the validity of section 206C and held section 44AC a valid piece of legislation, but read it down: it is an adjunct to and explanatory of section 206C and does not dispense with a regular assessment. To the extent its non obstante clause shut out sections 28 to 43C for the specified trades, the provision was unreasonable, no basis having been shown for denying those traders the reliefs every other assessee gets. So tax is collected at the section 206C rates and a regular assessment follows, with profits computed under sections 28 to 43C.
• M/s Atlantic Shipping Pvt Ltd v ITO (International Taxation) High CourtHelps taxpayerNo later treatment found
  Our principal's freight was exempt under Article 8, but the officer says Article 24 applies because the freight went to a London account. Who wins?
  The shipowner wins on these facts. The Gujarat High Court held that the assessee is entitled to the benefit of Article 8 of the India-Singapore treaty and that Article 24, the limitation of relief clause, does not apply, quashing the Tribunal's direction to send the matter back to the Assessing Officer to verify the Singapore tax authority's certificate.
• Chavakkad Service Co-operative Bank v ITO High CourtHelps taxpayerNo later treatment found
  Our audit report was late because the statutory auditor was late. Can the officer still levy the s.271B penalty?
  No, where the delay is genuinely the auditor's and the report reaches the officer before the assessment is completed. The Kerala High Court set aside penalties of Rs 1.5 lakh, holding that s.273B is peremptory: no penalty can be imposed under s.271B if the assessee proves reasonable cause, and a co-operative society has no control over the timetable of the statutory auditor appointed under the State co-operative law.
• Mr. Anandkumar v ACIT High CourtHelps department
  I am a partner. Can I take the salary and interest my firm pays me, call it my turnover, and offer 8 per cent of it under s.44AD?
  No. The High Court held that a partner receiving remuneration and interest from his firm is not himself carrying on a business, so those receipts cannot be termed a turnover, and they do not qualify as gross receipts either. Section 44AD applies only to an eligible assessee engaged in an eligible business having a total turnover or gross receipts, and the assessee here had neither effected sales nor rendered services; the sums had already been debited in the firms' own profit and loss accounts. The appeal was dismissed and both questions of law were answered against the assessee and in favour of the Revenue. This is the answer to a scheme that is still marketed to partners, and it is a High Court answer, not a Tribunal one.
• Paradigm Geophysical Pty Ltd v CIT (International Taxation)-3 High CourtCuts both waysNo later treatment found
  For AY 2012-13 the officer moved us out of s.44BB into s.44DA. Does the Finance Act 2010 proviso really do that?
  Yes. From 1 April 2011, income falling within the scope of s.44DA(1) is excluded from s.44BB, and if a non-resident's income is royalty or fees for technical services it is taxable under s.44DA or s.115A. But the exclusion only bites if the receipt really is royalty or FTS, and services for a mining or like project are carved out of the FTS definition in Explanation 2 to s.9(1)(vii) altogether.
• DIT (International Taxation) v Schlumberger Asia Services Ltd (Full Bench) High CourtHelps taxpayer
  Our Uttarakhand assessments add back the service tax ONGC reimbursed to us. Is there a binding answer in that High Court?
  Yes, and it is against the Revenue. A Full Bench of the Uttarakhand High Court answered the reference holding that the amount reimbursed by ONGC to the service provider, representing service tax the provider had already paid to the Government, does not form part of the aggregate amount referred to in clauses (a) and (b) of s.44BB(2).
• CIT v V.S. Dempo & Co. Pvt. Ltd. (Bombay High Court, Full Bench) — section 172 is referable to section 44B, and where it applies there is no warrant for Chapter XVII or section 195 High CourtHelps taxpayer
  We are an Indian exporter. We paid demurrage to a foreign shipping company without deducting tax and the Assessing Officer has disallowed the whole payment under section 40(a)(i), saying section 172 is for non-residents and we are a resident. Does the payer have to be a non-resident before section 172 can be invoked?
  No. A Full Bench of the Bombay High Court answered the referred question and held that s.172 and s.44B are to be read together — s.44B enacting the special provisions for computing the profits and gains of a non-resident's shipping business and s.172 enacting the scheme for the levy and recovery of tax on the ship — and that where s.172 governs, there is no warrant for applying the provisions in Chapter XVII for collection and recovery of tax and its deduction at source under s.195. The Court overruled the view in CIT v. Orient (Goa) Private Limited to the extent contrary to that, and directed the appeals to be listed before an appropriate Division Bench.
• DIT v Mitchell Drilling International Pvt Ltd High CourtHelps taxpayer
  The officer has added the service tax we collected from ONGC to our s.44BB gross receipts. Is that right?
  No. Service tax collected by the assessee and passed on to the Government is not to be included in the gross receipts under s.44BB(2) read with s.44BB(1). It is not an amount paid or payable, or received or deemed to be received, for the services rendered — the assessee is only a collecting agency.
• CIT v Y. Ramachandra Reddy High CourtHelps taxpayer
  The officer made a best judgment assessment and fixed my profit at a percentage of receipts. Does that wipe out my claim to depreciation and to interest?
  No. The High Court held that depreciation and interest, which are otherwise deductible in the ordinary course of assessment, keep the same legal character even where the profit is determined on a percentage basis. There was no reason to withhold from the assessee, merely because his profit had been estimated, a facility he would have had on a regular computation. The Revenue's appeal was dismissed. Note the boundary of this: the assessee's receipts were far above the s.44AD threshold, so s.44AD did not apply to him at all. Where income is actually returned under s.44AD, s.44AD(2) provides that deductions under ss.30 to 38 are deemed to have been given full effect, and depreciation under s.32 falls inside that range.
• DIT v OHM Ltd High CourtHelps taxpayer
  I am a foreign company providing survey and data services to an offshore oil exploration block in India. Am I taxed at 10% of gross under section 44BB, or must I go under section 44DA?
  Section 44BB applies. The Delhi High Court upheld the Authority for Advance Rulings and held that where a non-resident provides services in connection with prospecting for or extraction or production of mineral oils, section 44BB governs the computation, not section 44DA. Section 44BB is the special provision and section 44DA the general one, so generalia specialibus non derogant applies. Reading section 44DA as covering everything would reduce section 44BB to a dead letter. The provisos inserted by the Finance Act 2010 in both sections are clarificatory on computation and do not change either section's sphere of operation.
• 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.
• DIT (International Taxation) v Venkatesh Karrier Ltd — Article 8 of the India-UAE treaty ousts the section 172 levy where the ship belongs to a UAE resident High CourtHelps taxpayer
  We are the Indian agent of a ship owned by a UAE company. We filed the section 172(3) return claiming nothing was payable because of the treaty, and the Assessing Officer taxed 7.5 per cent of the freight without explaining why. Does the treaty defeat the section 172 levy, and what does the Board say?
  On the India-UAE treaty, yes. The Gujarat High Court held that where the owner of the ship is admittedly a resident of the UAE, Article 8 of the India-UAE Double Taxation Avoidance Agreement leaves no scope for taxing the income of the ship at any Indian port, because the agreement between the two countries has ousted the jurisdiction of the Indian taxing officers to tax profits derived by the enterprise. The Court reached that conclusion on Article 8 read with two Board circulars which it described but which are not reproduced in the judgment and which I did not read in their own words: Circular No. 333 dated 2 February 1982, which the Court said states that the provisions made in a DTAA prevail over the general provisions of the Act, and Circular No. 732 dated 20 December 1995, which the Court said clarifies that where ships are owned by an enterprise of a country with which India has a treaty providing for taxation of shipping profits only in the country of residence, no tax is payable by such ships at Indian ports.
• CIT v Surinder Pal Anand High CourtHelps taxpayerSuperseded by amendment
  I declared income under 44AD. Must I explain every individual cash deposit in my bank account?
  No. An assessee returning income under s.44AD is not obliged to explain each entry of cash deposit, unless the particular deposit has no nexus with the gross receipts already declared. The scheme substitutes a presumption for proof, and requiring transaction-by-transaction sourcing would defeat it.
• CIT v Franco Tossi Ingegneria S.P.A. High CourtHelps taxpayerNo later treatment found
  The officer has applied s.44BBB to the whole contract value in the year the turnkey power project was completed. Can he do that?
  No. Section 44BBB is a deeming provision that charges ten per cent of the amount paid or payable to the foreign company during the year. Unless an amount is paid or payable in the previous year, there is nothing on which the ten per cent can operate, and the completion of the contract in that year does not let the officer aggregate payments received in earlier years.
• CIT v Gian Chand Labour Contractors High CourtHelps department
  The officer rejected my books and applied a flat net profit rate. Can I still claim my freight and other expenses separately?
  No. Once the books are rejected and income is estimated by applying a net profit rate, that rate is taken to have already absorbed every deduction that would otherwise be computed under sections 30 to 43A. You cannot have the estimate and the expenses too.
• Indwell Constructions v CIT High CourtHelps taxpayer
  The officer rejected my firm's books and estimated the profit. Can he then also add back the interest and remuneration the firm paid its partners?
  No. Once the books are rejected and the profit is estimated, the estimate stands in substitution for a computation under s.29, and every deduction that s.29 brings in is deemed to have been taken into account in arriving at it. The Court added that the embargo in s.40 is taken into account in the same way. To add back one specific item out of the profit and loss account is to rely on the very books that have been rejected, which the officer cannot do. The separate addition of Rs 63,859 for interest and remuneration paid to partners was held not permissible, and the reference was answered in the negative and in favour of the assessee. Read the reasoning carefully before relying on it, because it cuts both ways: the same sentence that stops the Revenue adding an item back is the sentence the Revenue uses to resist a further deduction claimed on top of an estimate.
• Dinesh Chandra Das v ITO — s.44AD(6) shuts out the agent and the s.44AA(1) professional, but the whole receipt is still not income ITATCuts both waysNo later treatment found
  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.
• Neeraj Dewangan v ITO ITATHelps departmentJudgment not reachable
  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.
• Mohamed Asmi v ITO ITATHelps departmentNo later treatment found
  I filed under s.44AD and the officer has still added my whole bank credit under s.69A. Doesn't the presumptive return protect me?
  Not by itself. The Tribunal held that s.44AD and s.69A operate in distinct fields, and that a presumptive return cannot regularise deposits whose source and genuineness the assessee cannot establish; the entire addition of Rs 7,10,37,643 was sustained.
• DCIT v Smt. Ashu Ashok ITATHelps taxpayerNo later treatment found
  I declared more than 8 per cent under s.44AD. The officer has disallowed my expenditure for want of vouchers and allowed only 30 per cent on estimate. Can he do that?
  No. Where the case falls under s.44AD and the assessee has declared income above the prescribed rate of 8 per cent of gross receipts, she is not required to maintain books or documents to justify the expenditure, and estimating expenses and recomputing income is not within the Assessing Officer's domain. The Revenue's appeal against deletion of the addition was dismissed.
• Neeraj v PCIT — a s.263 revision directing a s.68 addition against a s.44AD return quashed for want of jurisdiction ITATHelps taxpayerNo later treatment found
  The Principal Commissioner has revised my client's assessment under s.263 and directed the officer to tax his cash deposits under s.68, although he filed under s.44AD and keeps no books. Can that order stand?
  The Delhi Bench quashed it. Once an assessee has surrendered himself to a particular statute he becomes entitled to all its attending benefits; an assessee under s.44AD computes income as a percentage of turnover and is not required to maintain books of account, so the Principal Commissioner's direction to make a s.68 addition was questionable and the revision order suffered from a lack of requisite jurisdiction. The Bench recorded that it has consistently held that invocation of s.263 is not permissible in cases where the assessee files his return under s.44AD.
• Muhammed Arif Shaikh v Asst. Unit, Income Tax Department ITATHelps taxpayerNo later treatment found
  For one year the department accepted 8 per cent presumptive profit on my client's crypto sales; for the next year, on the same information, it has added the whole purchase figure under section 69C. Can it do that?
  Not on this decision. The Ahmedabad Bench held that where the same assessment unit had, for AY 2017-18, accepted a presumptive deemed profit at 8 per cent of the crypto sales, it could not for AY 2018-19 — reopened on the same common information and where the assessee had again offered 8 per cent of his crypto turnover, which the Assessing Officer accepted — go on to add the crypto purchases of Rs 17,52,838 as unexplained expenditure under s.69C. Taking inconsistent stands in the assessee's own case in two different assessment years was held not proper and against the provisions of law, and the addition was deleted.
• Dipyaman Dutt v ITO ITATHelps taxpayerNo later treatment found
  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.
• Calories Count v DCIT ITATCuts both waysNo later treatment found
  The officer has rejected my books and worked out a much higher turnover from material impounded in a survey. If he does that, does he still have to apply the presumptive rate?
  On these facts, yes. The Tribunal upheld the Assessing Officer's determination of gross sales at Rs 1.87 crore against the Rs 87.34 lakh disclosed, but directed that the business profit be computed at 8 per cent of the redetermined turnover instead of the Rs 1.45 crore the officer had assessed.
• Ranu Gupta v ACIT ITATHelps taxpayerJudgment not reachable
  I am a partner in a CA firm. Can I offer my remuneration from the firm under 44ADA?
  Yes. Remuneration received by a professional working partner from his firm is professional income eligible for s.44ADA. The section carries no condition that corresponding expenditure be proved, and none that the profession be carried on independently rather than through a firm.
• Santosh Kumar v ITO ITATHelps taxpayerNo later treatment found
  The AO has taxed my entire cash deposit as undisclosed income. Can he be made to tax only the presumptive percentage of it instead?
  Yes, where the deposits are the takings of an eligible business. The Tribunal deleted an addition of the whole Rs 25,56,700 deposited and substituted income of Rs 2,05,000, computed at 8% of those deposits under s.44AD, on the footing that the real income and not the entire receipt is what is taxable.
• Masudan Tanti v ITO — s.44AD is unavailable once the claimed turnover crosses the ceiling, but the deposits still cannot be added whole ITATCuts both waysNo later treatment found
  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.
• Bichitrananda Rout v ITO — specified bank notes added under s.69A although the rest of the turnover was taxed at eight per cent under s.44AD ITATHelps departmentNo later treatment found
  My client returned his business income at eight per cent under s.44AD and says his old-note deposits came out of his opening cash. The officer has added the specified bank notes anyway. Can that stand?
  It can, and here it did. The Assessing Officer accepted the balance of the turnover and estimated income on it at eight per cent, but treated the specified bank notes of Rs 8,35,500 as unexplained under s.69A, and the Cuttack Bench confirmed the addition and dismissed the appeal because the assessee produced a cash sales statement rather than a cash book, could not establish the actual cash in hand as on 1 November 2016, and could not explain from whom he had received demonetised notes after the appointed date.
• Haresh Ghanshyamdas Makhija v ITO ITATHelps taxpayer
  They already penalised me under 271A for keeping no books. Can they levy 271B on top?
  No. Once penalty has been levied under s.271A for non-maintenance of books, a further penalty under s.271B for failure to audit those books cannot stand — the department cannot assert a failure to audit books it has itself found not to exist. The same consolidated order deletes a separate concealment penalty under s.271(1)(c) on the footing that the officer accepted the return and assessed the identical income, so there was nothing concealed.
• Gunita Pradeep Kapur v ITO ITATHelps taxpayerNo later treatment found
  I trade in futures and options. The officer has disallowed my loss because I did not get a tax audit and has brought s.44AD into it. Does s.44AD apply to derivative trading at all?
  The Tribunal held that s.44AD cannot be a reference point where the profit or loss arises from derivatives, futures and options in shares or commodities, because the section deals with regular business in the retail of goods, and that reliance on it by the authorities below was misplaced. The loss of Rs 35,81,745 was allowed, the absence of a tax audit not being a ground to disallow the claim.
• Prakash Bhansali v ACIT — no s.271B penalty where the assessee declared under s.44AD(1) and turnover stayed under the ceiling, even though it crossed Rs 1 crore ITATHelps taxpayerNo later treatment found
  My client's turnover was Rs 1.22 crore, above the s.44AB audit limit. He declared eight per cent under s.44AD and got no audit. The officer has levied s.271B. Is he liable?
  No. For the year in issue the first proviso to s.44AB took out of that section a person who declared profits and gains for the previous year in accordance with s.44AD(1) and whose total sales, turnover or gross receipts in business did not exceed two crore rupees in that previous year. Because the assessee had declared 8.02 per cent of a turnover of about Rs 1.22 crore under s.44AD(1), no obligation to get his accounts audited was cast upon him, and the Raipur Bench vacated the penalty of Rs 61,365. Read the proviso in its current form for later years: section 15 of the Finance Act 2023 substituted it with effect from 1 April 2024, and it now disapplies s.44AB to a person who declares under s.44AD(1) or s.44ADA(1), with no monetary condition of its own.
• Lokesh Kumar Sharma v ITO ITATHelps taxpayerNo later treatment found
  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.
• Shakir Ahmad v ITO — s.44AE covers only the goods carriages the assessee owns, so expenditure on hired vehicles remains deductible ITATHelps taxpayerNo later treatment found
  My client is assessed under s.44AE on his own trucks, but he also hired trucks from the market. The officer has disallowed all the running expenses. Is that right?
  No. Section 44AE applies to an assessee who owns not more than ten goods carriages and deems the income from all the goods carriages owned by him; receipts relating to owned goods carriages are subject to the section, but vehicles taken on hire are outside it. The Delhi Bench directed the Assessing Officer to allow the deduction of expenditure relating to goods carriages not owned by the assessee but taken on hire from the open market for carrying out the transportation activities.
• Yuvraj Singh v ITO ITATHelps taxpayerNo later treatment found
  The officer treated my cash deposits as turnover, said I crossed the s.44AB limit and levied s.271B. The quantum was settled under Vivad se Vishwas. Does the penalty still stand?
  No. Where the assessee's declared turnover was below the s.44AB threshold and the officer crossed the threshold only by adding cash deposits to it, and the quantum dispute ended under the Vivad se Vishwas Scheme 2020 without any final judicial finding on the correctness of the turnover, the benefit of the doubt goes to the assessee and the s.271B penalty is reversed.
• Niranjan Lal Gupta v ITO ITATCuts both waysNo later treatment found
  Neither your original nor your revised return carried the self-assessment tax. The officer ignored that and assessed you on the original return. Is the assessment good?
  No. The Tribunal held that both returns were defective under s.139(9) because the self-assessment tax had not been paid, that the Assessing Officer should have directed the assessee to rectify the defect and had issued no defect notice at all, and that the assessment could not simply be built on the original return. The entire assessment was set aside and the officer directed to pass a fresh order under s.144.
• Rashmi Subhash Jha v ITO — 'consultancy' is not 'technical consultancy', and deduction under s.194J does not make the receipt professional ITATHelps taxpayerNo later treatment found
  The CPC has re-cast my client's s.44AD return as a s.44ADA return under s.143(1)(a) because her clients deducted tax under s.194J. Is a consultant a professional for this purpose?
  No, on this order. The word 'consultancy' does not appear in s.44AA(1), which speaks of 'technical consultancy', and technical consultancy means the rendering of technical services; a consultant is therefore carrying on a business and may return income under s.44AD. The rate at which a client deducts tax while paying the assessee is of absolutely no relevance to the character of the receipt in the recipient's hands, and the adjustment made by the Assessing Officer and the CPC under s.143(1)(a) was held bad in law.
• Kokkarne Prabhakar v ITO ITATHelps taxpayer
  My return was under s.44AD. The officer has added the whole gap between my Form 26AS turnover and my declared turnover, and has also added my bank deposits under s.68. Can he do either?
  Not in that form, but read the second half of this order narrowly. On the turnover gap the Tribunal held, in its own words at para 7, that the difference between the declared turnover and the Form 26AS turnover 'is to be part of the business turnover of the assessee', that it 'should be included in the total turnover of the assessee and income of 8% is to be estimated on it', and that 'the entire undisclosed turnover of Rs.5,05,050/- cannot be considered as income of the assessee'; the Assessing Officer was directed to consider 8 per cent of that sum. On the deposits the Tribunal deleted the addition of Rs 3,00,000, saying that once the assessment of the assessee was completed under s.44AD there cannot be any application of s.68 or s.69A. The appeal was partly allowed. What the order decides on that second ground is narrower than the sentence in which it is expressed: a deposit addition of Rs 3,00,000 could not stand alongside a completed s.44AD assessment on a declared turnover of Rs 41,41,302. The sentence itself is wider than the High Court authority under it, because CIT v. Surinder Pal Anand relieves the assessee of explaining individual cash deposits only where the deposit has a nexus with the gross receipts already declared, and it is the order of a single Accountant Member. Do not take it as a general immunity from s.68 and s.69A on a presumptive return.
• 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.
• Somnath Ghosh v ITO ITATHelps taxpayerNo later treatment found
  I kept no books at all. Can they penalise me under 271B for not getting the accounts audited?
  No. Where no books of account exist there is nothing capable of being audited, so s.271B is not attracted, and the penalty was cancelled. The further proposition - that the default, if any, is non-maintenance of books, which is dealt with by s.271A - was the assessee's argument, and the Tribunal did not state a separate holding on it.
• National Transport Company v ITO — the s.44AE presumptive rates used as the yardstick for an estimate after books were rejected ITATHelps departmentNo later treatment found
  My client's books have been rejected and the officer has estimated a per-vehicle profit. How does the Tribunal test whether that estimate is reasonable?
  By comparing it with the presumptive figures Parliament itself has fixed. The Delhi Bench upheld an estimate of Rs 50,000 per tanker per annum, about Rs 4,000 a month, on the footing that under the presumptive scheme in s.44AE the monthly income for a heavy vehicle was Rs 5,000 and for other goods carriages Rs 4,500, so the estimate was not based on irrational parameters, and it dismissed the appeal.
• ADIT (International Taxation) v Shandong Tiejun Electric Power Engineering Co. Ltd — where s.44BBB(2) is complied with, the officer cannot reject the books under s.145(3) and fall back on the 10 per cent ITATHelps taxpayerNo later treatment found
  We are a foreign company on an approved turnkey power project. We keep books, they are audited, and we recognise revenue on percentage of completion under AS-7. The Assessing Officer has rejected the books under section 145(3) and taxed 10 per cent of our billings under section 44BBB(1). Can he do that?
  The Ahmedabad Bench of the Tribunal held he could not, on these facts, and dismissed the Revenue's appeal. Section 44BBB(2) gives the assessee an option to be assessed on lower profits on two conditions only — that it keeps and maintains books and other documents as required under s.44AA(2) and that it gets its accounts audited and furnishes the s.44AB report — and where those are satisfied and a recognised method of accounting under AS-7 has been regularly followed and disclosed, the officer's action in rejecting the books under s.145(3) and assessing under s.44BBB(1) on a presumptive basis is not justified.
• Nand Lal Popli v DCIT ITATCuts both ways
  I return income under 44AD. Can the AO treat the balance of my receipts as expenditure actually incurred?
  No. Once income is estimated at a percentage of gross receipts, the residual percentage is a notional figure, not a finding that expenditure of that amount was in fact incurred. With the declared turnover undisturbed, an addition built on that assumption has no foundation.
• Banwari Sitaram Pasari HUF v ACIT ITATHelps taxpayerSuperseded by amendment
  The officer has added up my whole commodity contract value as turnover and penalised me under s.271B. Is contract value turnover?
  No. Where the assessee buys and sells commodities on a commodity exchange without delivery being taken or given, the total value of the transactions booked with the exchange cannot be treated as turnover for deciding whether accounts had to be audited under s.44AB. The transactions were speculative, no delivery took place, and the s.271B penalty was deleted.
• DDIT (International Taxation) v Safmarine Container Lines NV — inland haulage charges fall within Article 8 of the India-Belgium treaty, and the domestic charge then becomes academic ITATHelps taxpayer
  Our Belgian shipping client bills its exporters a single freight covering carriage from an inland container depot to the Indian port and then to the foreign destination. The Assessing Officer has taxed the inland leg separately as business profits. Does the shipping Article cover the inland haulage?
  Under the India-Belgium treaty, on these facts, yes. The Mumbai Bench of the Tribunal dismissed the Revenue's appeal, holding that the issue was covered by a coordinate bench decision in the assessee's own case for assessment year 2001-02, reported at 120 ITD 71, which had held that inland transportation coupled with the further shipping of the cargo by the assessee from the Indian port to the foreign country is an "activity directly connected with such transportation" falling within Article 8(2)(b)(ii) of the India-Belgium agreement, and expressed its considered and respectful agreement with that view. Because the treaty allots the income exclusively to the residence State, the Tribunal held the question whether the income was chargeable under the domestic Act at all was wholly academic.
• C. Eswara Reddy & Co v ACIT ITATCuts both waysSuperseded by amendment
  The officer rejected my firm's books and estimated the profit at a percentage of receipts. Can the firm still deduct salary and interest paid to its partners from that estimated figure?
  For the years this order governs, yes. The Tribunal held that s.44AD(2) deems only the deductions under ss.30 to 38 to have been given full effect; s.40 is not deemed to have been allowed, and the proviso to s.44AD(2) as it then stood said in terms that salary and interest paid to a partner shall be deducted from the income computed under s.44AD(1), subject to the ceiling in s.40(b). Taking a clue from that scheme, the Tribunal directed the officer to allow partner salary and interest from the estimated income. On depreciation it went the other way: because depreciation is allowable under s.32, which falls inside ss.30 to 38, no separate deduction for depreciation was permitted from the estimate. The order concerns assessment years 2003-04 and 2004-05 and rests squarely on a proviso Parliament has since deleted.
• Caribjet Inc v DCIT ITATHelps departmentNo later treatment found
  We wet-lease aircraft with crew to an Indian airline. Can we be assessed at five per cent under s.44BBA?
  On these facts, no. Section 44BBA requires the non-resident to be engaged in the business of operation of aircraft, and the Tribunal held that a wet lease — even one under which the lessor provides crew, maintenance, navigation and insurance — remains a lease and does not make the lessor the operator of the aircraft.
• Statutory position — s.44AD(1) and (2): the eight and six per cent rates, the Rs 2 crore / Rs 3 crore ceiling, and the partner's-salary proviso that was omitted CBDT Circulars & InstructionsCuts both ways
  My client wants to file under s.44AD. What turnover can he have, what rate must he declare, and can the firm still deduct partners' salary and interest from the presumptive figure?
  Eight per cent of turnover, or six per cent of so much of the turnover as is received by account payee cheque, account payee bank draft, electronic clearing system or other prescribed electronic mode during the previous year or before the s.139(1) due date. The eligible-business ceiling is two crore rupees, replaced by three crore rupees where cash receipts do not exceed five per cent of turnover (Finance Act 2023, from AY 2024-25) — and the proviso that once let a firm deduct partners' salary and interest from the s.44AD figure was omitted by the Finance Act 2016 with effect from 1 April 2017, so it is not available for AY 2017-18 or any later year.
• Statutory position — s.44ADA: fifty per cent, the Rs 50 lakh / Rs 75 lakh ceiling, and the audit condition in s.44ADA(4) CBDT Circulars & InstructionsCuts both ways
  My client is a professional with gross receipts of about Rs 62 lakh, nearly all banked. Can he still use s.44ADA, and if he wants to declare less than fifty per cent, must he be audited?
  Section 44ADA deems fifty per cent of the total gross receipts of a resident individual or partnership firm (not an LLP) engaged in a profession referred to in s.44AA(1) to be the profits of that profession, where gross receipts do not exceed fifty lakh rupees — raised to seventy-five lakh rupees where cash receipts do not exceed five per cent of gross receipts. By s.44ADA(4), a professional who claims profits LOWER than the deemed fifty per cent must keep books under s.44AA(1) and get them audited under s.44AB only if his total income exceeds the maximum amount which is not chargeable to income-tax.
• CBDT Clarification 14.08.2019 on s.44AE CBDT Circulars & InstructionsHelps departmentJudgment not reachable
  For 44AE, do I compute on gross vehicle weight or on unladen weight for a heavy goods vehicle?
  Gross vehicle weight. For a heavy goods vehicle — gross vehicle weight exceeding 12,000 kg — presumptive income is Rs. 1,000 per ton of gross vehicle weight as defined in the Motor Vehicles Act, 1988, for every month or part of a month. Unladen weight is the measure only for a tractor or a road-roller; other goods carriages remain at Rs. 7,500 per month or part of a month.
• Statutory position — s.44AE: Rs 1,000 per tonne for a heavy goods vehicle from AY 2019-20, Rs 7,500 for every other goods carriage CBDT Circulars & InstructionsCuts both ways
  My client runs six trucks, two of them well over twelve tonnes. What does he declare under s.44AE, and from which year did the per-tonne rate start?
  For a heavy goods vehicle the deemed profit is one thousand rupees per tonne of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month of ownership, or the amount claimed to have been actually earned from that vehicle, whichever is higher; for every other goods carriage it is seven thousand five hundred rupees a month on the same 'whichever is higher' basis. That differentiated structure, and the definition of a heavy goods vehicle as a goods carriage whose gross vehicle weight exceeds 12,000 kilograms, were substituted into s.44AE by section 16 of the Finance Act 2018 with effect from 1 April 2019 — that is, from AY 2019-20.
• Statutory position — s.44AA(2): who must keep books of account, and the thresholds CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client runs a small business, not a notified profession. At what point is he obliged to keep books at all, and what are the current figures?
  For a business or a non-specified profession, books must be kept if income from the business or profession exceeds Rs 1,20,000 OR total sales, turnover or gross receipts exceed Rs 10,00,000 in any one of the three years immediately preceding the previous year. For an individual or a Hindu undivided family two provisos raise those figures to Rs 2,50,000 and Rs 25,00,000 respectively.
• Statutory position — s.211: the four advance tax instalments, and the single 15 March instalment for a s.44AD or s.44ADA presumptive assessee CBDT Circulars & InstructionsCuts both ways
  My client returns income under s.44AD. The CPC has charged s.234C interest on four instalments. Is a presumptive assessee not entitled to pay the whole advance tax by 15 March?
  He is. Section 211(1) now splits assessees into two classes: clause (a) covers 'all the assessees, other than the assessee referred to in clause (b)', who pay in four instalments — fifteen per cent by 15 June, forty-five per cent by 15 September, seventy-five per cent by 15 December and the whole by 15 March, each cumulative and reduced by earlier instalments; clause (b) covers 'an assessee who declares profits and gains in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA', who pays 'to the extent of the whole amount of such advance tax during each financial year on or before the 15th March'. Section 234C(1)(b) mirrors this exactly, charging a presumptive assessee interest only on the shortfall from the tax due on the returned income as at 15 March.
• Statutory position — s.44AD(4) and s.44AD(5): the five-year lock-out, and why the books-and-audit duty bites only if total income exceeds the exemption limit CBDT Circulars & InstructionsCuts both ways
  My client filed under s.44AD for two years and then declared below eight per cent in the third. What happens to him for the next five years, and does he now have to get audited?
  By s.44AD(4), an eligible assessee who has declared profit in accordance with s.44AD and who, in any of the five assessment years relevant to the succeeding previous years, declares profit NOT in accordance with s.44AD(1), is shut out of s.44AD for the five assessment years subsequent to the assessment year in which he broke ranks. By s.44AD(5), that assessee must keep books under s.44AA(2) and get them audited and reported under s.44AB only if his total income exceeds the maximum amount which is not chargeable to income-tax — a condition that both the department and the assessee routinely read out of the sub-section.
• Statutory position — section 44DA: royalty and fees for technical services effectively connected with a permanent establishment, and the second proviso that shuts section 44BB out from 1 April 2011 CBDT Circulars & InstructionsCuts both ways
  Our foreign company earns fees for technical services from an Indian oil company and we have a permanent establishment here. We have always returned the income at 10 per cent under section 44BB. The Assessing Officer says section 44DA applies instead. When did that change, and what does section 44DA require us to do?
  It changed with the Finance Act 2010, with effect from 1 April 2011, which inserted a second proviso to s.44DA(1) reading "Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section." Section 44DA(1) applies where royalty or fees for technical services are received from Government or an Indian concern under an agreement made after 31 March 2003, the non-resident or foreign company carries on business in India through a permanent establishment or performs professional services from a fixed place of profession, and the right, property or contract in respect of which the royalty or fees are paid is effectively connected with that permanent establishment or fixed place; the income is then computed under "Profits and gains of business or profession" in accordance with the provisions of the Act — that is, on a net basis — and s.44DA(2) requires books under s.44AA, an audit by an accountant within the meaning of the Explanation below s.288(2), and the audit report furnished along with the return.
• Statutory position — section 172: the 7.5 per cent freight levy on a non-resident's ship, the master's return, the nine-month limit in s.172(4A), and the owner's election under s.172(7) CBDT Circulars & InstructionsCuts both ways
  A foreign ship loaded our cargo at an Indian port and the Assessing Officer is demanding tax from the master before port clearance. What is the levy, what return has to be filed, is there any time limit on the officer, and can the owner ask instead to be assessed on his year's income?
  Section 172 is a self-contained levy that operates voyage by voyage: where a ship belonging to or chartered by a non-resident carries passengers, livestock, mail or goods shipped at a port in India, s.172(2) deems 7.5 per cent of the amount paid or payable for that carriage — whether paid in or out of India — to be income accruing in India, and s.172(4) makes the tax payable by the master of the ship at the rate applicable to a company that has not made the arrangements referred to in s.194. The master must furnish a return under s.172(3) before the ship's departure, though the officer may accept a return filed within thirty days of departure by an authorised person where satisfactory arrangements have been made; s.172(6) withholds port clearance until the tax is paid or arrangements made; s.172(4A) bars any assessment order under s.172(4) after nine months from the end of the financial year in which the s.172(3) return is furnished; and s.172(7) lets the owner or charterer claim, before the expiry of the assessment year relevant to the previous year in which the date of departure falls, that an assessment be made of his total income under the other provisions of the Act, in which case the s.172 payments are treated as a payment in advance of the tax.
• Statutory position — section 44BBB: the 10 per cent turnkey power presumption, the international-aid condition dropped in 2003, and the lower-profit claim in sub-section (2) CBDT Circulars & InstructionsCuts both ways
  We are a foreign company erecting plant for a power project in India. The Assessing Officer wants to tax 10 per cent of our billings under section 44BBB although our audited books show much less. Can we claim the lower figure, and does it matter that our project is not funded by any aid programme?
  You can claim the lower figure, and the aid-funding point no longer matters. Section 44BBB(2), inserted by the Finance Act 2003 with effect from 1 April 2004, provides that notwithstanding sub-section (1) an assessee may claim lower profits and gains than the 10 per cent, if he keeps and maintains books of account and other documents as required under s.44AA(2) and gets his accounts audited and furnishes the audit report as required under s.44AB — whereupon the Assessing Officer must proceed to make an assessment of the total income or loss under s.143(3). The same Finance Act 2003 omitted, with effect from the same date, the words "and financed under any international aid programme" which until then had confined the section to aid-funded turnkey power projects; what remains is the requirement that the turnkey power project be approved by the Central Government in that behalf.
• CBDT Circular No. 9/2001 dated 9 July 2001 — on a regular assessment under section 172(7) the non-resident is liable to interest under sections 234B and 234C and entitled to interest under section 244A; Circular No. 730 withdrawn CBDT Circulars & InstructionsCuts both ways
  Our foreign shipping client elected under section 172(7) for a regular assessment and is now getting a refund. The Department says no interest is payable on it because of an old Board circular. Is that circular still good?
  It is not. Circular No. 9/2001 dated 9 July 2001 withdrew Circular No. 730 dated 14 December 1995 as "no longer legally tenable" in the light of the Supreme Court's decision in A.S. Glittre D/5 I/S Garonne v. CIT, and clarified that on a regular assessment under s.172(7) the non-resident assessee is liable to pay interest under sections 234B and 234C and is also entitled to receive interest under s.244A, as the case may be. Circular No. 730 had said the opposite: that an assessee exercising the s.172(7) option was neither liable to interest under ss.234B and 234C nor entitled to interest under s.244A.
• CBDT Circular No. 723 dated 19 September 1995 — where section 172 applies, sections 194C and 195 do not, and the shipping agent steps into the shoes of his non-resident principal CBDT Circulars & InstructionsHelps taxpayer
  We pay ocean freight and demurrage to a foreign shipping line, usually through its Indian agent, and we do not deduct tax. The Assessing Officer is disallowing the whole payment under section 40(a)(i). Is there anything from the Board on this?
  Yes, and it is directly in point. Circular No. 723 dated 19 September 1995 states that s.172 is a self-contained code for the levy and recovery of tax, ship-wise and journey-wise, that its provisions apply notwithstanding anything contained in other provisions of the Act, and that "Therefore, in such cases, the provisions of sections 194C and 195 relating to tax deduction at source are not applicable." Paragraph 5 extends that to payments routed through agents: since the agent acts on behalf of the non-resident owner or charterer, he steps into the shoes of the principal, and accordingly s.172 applies and ss.194C and 195 do not.
• Statutory position — section 44BBA: the 5 per cent presumption for a non-resident operating aircraft, and the lower-profit option it does not contain CBDT Circulars & InstructionsCuts both ways
  Our foreign airline made a loss on its India operations and our books are audited. The Assessing Officer says 5 per cent of our gross collections is taxable under section 44BBA regardless. Is there any provision letting us claim the lower figure?
  Not in section 44BBA itself. Section 44BBA(1) deems 5 per cent of the aggregate of the sub-section (2) amounts to be the profits of a non-resident engaged in the business of operation of aircraft, notwithstanding sections 28 to 43A, and the section as printed contains only two sub-sections: there is no counterpart to s.44BB(3) or s.44BBB(2), which is what lets a mineral-oil contractor or a turnkey power contractor claim lower profits on audited books. Sub-section (2) takes in (a) the amount paid or payable, whether in or out of India, on account of carriage of passengers, livestock, mail or goods FROM any place in India, and (b) the amount received or deemed to be received in India on account of such carriage FROM any place outside India.
• Statutory position — section 44B: the 7.5 per cent shipping presumption, and why clause (i) and clause (ii) of sub-section (2) are not symmetrical CBDT Circulars & InstructionsCuts both ways
  We are a foreign shipping line assessed under section 44B. The Assessing Officer has included freight we collected abroad and also our demurrage. What actually goes into the "aggregate of the amounts" under section 44B(2), and does it matter where the money was received?
  It matters, but only for cargo shipped at a port OUTSIDE India. Section 44B(2) has two clauses and they are deliberately different: clause (i) takes in the amount paid or payable "whether in or out of India" on account of carriage of passengers, livestock, mail or goods shipped at any port IN India, so where the freight was collected is irrelevant for an Indian loading; clause (ii) takes in only the amount "received or deemed to be received in India" on account of carriage of goods shipped at any port OUTSIDE India, so for a foreign loading receipt in India is the condition of charge. The Explanation to sub-section (2) then provides that the amount referred to in either clause shall include amounts by way of demurrage charges or handling charges or any other amount of similar nature.
• Income Tax Dept presumptive taxation tutorial CBDT Circulars & InstructionsCuts both ways
  What are the current 44AD, 44ADA and 44AB limits, and what does the 5% cash test mean?
  For AY 2024-25 onwards: s.44AD applies up to Rs. 2 crore turnover, or Rs. 3 crore where cash receipts are within 5%, at 8% (6% for receipts by account payee cheque or draft or electronic mode); s.44ADA up to Rs. 50 lakh, or Rs. 75 lakh on the same condition, at 50%. Audit under s.44AB is triggered at Rs. 1 crore turnover for business, Rs. 10 crore where cash receipts and cash payments are each within 5%, and Rs. 50 lakh gross receipts for a profession. The 5% cash cap is the same thing as routing more than 95% of transactions through banking channels.

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.