ITAT Orders Fresh Review After Finding Income Estimation Under Section 44AD Potentially Inflated:

ITAT Orders Fresh Review After Finding Income Estimation Under Section 44AD Potentially Inflated Ms. Dhanashree Sandeep Shete works as a documentation facilitator, assisting the public with agreement drafting and online stamp duty payments. During AY 2017-18, substantial cash deposits amounting to over Rs. 2.31 crore appeared in her bank account, but she had not filed a return. The Assessing Officer reopened the assessment under section 147, treated the bank credits as unexplained receipts, and computed income at Rs. 43.87 lakh under section 147 r.w.s. 144 and 144B, relying primarily on bank entries without dissecting their nature. In appeal, the assessee explained that a large portion of the deposits represented stamp duty and registration charges collected from clients and immediately remitted to the Government of Maharashtra, making them pass-through amounts rather than her income. She produced bank statements, client-wise receipts, and government challans to show the segregated nature of funds, and also pointed out that she and her husband carried on similar work, with her husband’s scrutiny assessment accepted without additions. The CIT(A)/NFAC partially accepted the explanation and reduced income to ₹20.38 lakh by applying an 8% presumptive rate under section 44AD to total bank credits. Still aggrieved, the assessee approached the Tribunal. Central Issue: Whether income should be estimated by applying section 44AD to the assessee’s entire bank deposits despite substantial pass-through stamp-duty collections, especially when later assessments with identical patterns were accepted without adjustment. Tribunal's Ruling: The Tribunal observed that although the assessee failed to file the return and could not submit one even in response to the section 148 notice due to claimed technical issues, she did provide computation details and supporting documents. The CIT(A) accepted her fundamental claim that most of the deposits represented amounts collected from clients for stamp-duty payments but applied section 44AD to the full deposits. The Tribunal found merit in the assessee’s argument that such an approach does not align with how the Department treated her business in subsequent years, where similar transactions were accepted without dispute. The Tribunal found it appropriate to grant the assessee another opportunity. It therefore set aside the CIT(A)’s order and remanded the matter for fresh adjudication. The CIT(A) was directed to examine the evidence afresh, including subsequent years’ returns, bank statements, and supporting documents, and to provide a fair opportunity to the assessee. The assessee was also directed to cooperate and furnish all necessary material. The appeal was allowed for statistical purposes. To Read Full Judgment, Download PDF Given Below