AO Cannot Estimate Expenses Once Income Above 8% Is Declared Under Presumptive Taxation u/s 44AD: ITAT [Read Order]
Once the case falls within Section 44AD and the assessee has disclosed income exceeding 8% of gross receipts, estimation of expenses and recomputation of income by the AO falls outside the permissible scope of assessment.
![AO Cannot Estimate Expenses Once Income Above 8% Is Declared Under Presumptive Taxation u/s 44AD: ITAT [Read Order]](https://images.taxscan.in/h-upload/2026/05/09/2136175-ao-cannot-estimate-expenses-once-income-above-8-is-declared-under-presumptive-taxation-u-s-44ad-site-image-2jpg.webp "AO Cannot Estimate Expenses Once Income Above 8% Is Declared Under Presumptive Taxation u/s 44AD: ITAT [Read Order]")
The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that once an assessee declares income above the prescribed 8% threshold under Section 44AD of Income Tax Act 1961, the Assessing Officer cannot proceed to estimate expenses or demand detailed proof of expenditure for computing additional income. The fact is that the income tax department conducted a search and...
The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that once an assessee declares income above the prescribed 8% threshold under Section 44AD of Income Tax Act 1961, the Assessing Officer cannot proceed to estimate expenses or demand detailed proof of expenditure for computing additional income.
The fact is that the income tax department conducted a search and seizure operation in “Sukhija Group” in October 2016. During proceedings, the AO examined income declared by the assessee from paying guest accommodation business activities.
The AO viewed that the assessee had failed to produce documentary evidence supporting various business expenditures and therefore denied the claim of actual expenses. Instead, the AO allowed only 30% of gross receipts as expenditure on an estimated basis and treated the balance amount of ₹18.15 lakh as undisclosed income.
The assessee challenged the addition before the Commissioner of Income Tax (Appeals) [CIT(A)], who deleted the addition.
The Revenue thereafter challenged the matter before the appellate tribunal.
The bench of Manish Agarwal (Accountant member) and Sudhir Kumar (judicial member) observed that under Section 44AD, where income is declared at or above the prescribed presumptive rate, the assessee is not required to maintain detailed books of account or supporting documents for individual expenses.
The tribunal specifically held that once the case falls within Section 44AD and the assessee has disclosed income exceeding 8% of gross receipts, estimation of expenses and recomputation of income by the AO falls outside the permissible scope of assessment.
Therefore, the AO cannot selectively reject expenditure claims and substitute them with his own estimated figures. Accordingly, the appellate tribunal concluded that the addition of ₹18.15 lakh made merely on estimated disallowance of expenses was unsustainable in law.
The order of the CIT(A) deleting the addition was upheld, and the Revenue’s grounds on this issue were dismissed.
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