Mumbai ITAT: Income By Consultancy Services Can’t Be Subjected to Additional Taxation U/S 44ADA

No addition is to be incurred under section 44ADA of the Income Tax Act 1961 for the income made via the business of the consultancy service, The Income Tax Appellate Tribunal (ITAT) Mumbai bench ruled.

The taxpayer being assessed had only completed their 10th standard education and lacked the qualifications to work as a legal, medical, engineering, architectural, professional accountant, or technical consultant. Jitendra Singh represented the individual being assessed, while Naganath B. Pasale represented the tax revenue department.

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The taxpayer, Vishnu Dattatraya Ponkshe, reported their income under Section 44AD of the Income Tax Act, indicating an income rate of 8% on receipts totalling Rs. 8,30,800, generated from a consultancy business related to stamp duty and registration. Within this amount, there was a receipt of Rs. 4,81,280 on which TDS (Tax Deducted at Source) was deducted under Section 94J of the Income Tax Act.

During the assessment process, the Assessing Officer (AO) added 50% of the income under Section 44ADA of the Act, resulting in an additional Rs. 2,40,640. Dissatisfied with this assessment, the assessee appealed to the Commissioner of Income Tax (Appeal), who subsequently dismissed the appeal. Consequently, the taxpayer filed another appeal before the tribunal.

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During the tribunal proceedings, it was noted that Section 44ADA of the Income Tax Act pertained to individuals engaged in legal, medical, engineering, architectural, professional accountancy, technical consultancy, interior decoration, or other professions as specified by the Board in the official gazette. In this case, the assessee had only completed their 10th standard education and lacked the qualifications necessary to work in any of these specified professions.

As a result, the tribunal determined that the assessee’s case did not fall under the provisions of Section 44ADA of the Income Tax Act.

After reviewing the facts and circumstances, a two-member bench consisting of B.R. Baskaran (Accountant Member) and Narender Kumar Choudhry (Judicial Member) decided to remove the additional income imposed under Section 44ADA of the Income Tax Act. Consequently, the bench upheld the assessee’s appeal.