Case: Vijay Bahadur vs. ITO (ITAT Chandigarh) Assessment Year: 2018-19
Background
In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, partly allowed an appeal filed by an assessee who had earned income by referring investors into bitcoin trading, granting him the benefit of presumptive taxation under Section 44ADA of the Income-tax Act rather than being taxed on his entire gross receipts.
The dispute arose because the assessee had not filed a return of income for AY 2018-19. The tax department later discovered that he had carried out bitcoin transactions worth approximately ₹25.07 lakh, prompting the reopening of his case under Sections 147 and 144B of the Act.
The Assessee’s Case
The assessee explained that he was not trading in bitcoins for his own account in the conventional sense, but was instead operating within a referral network connected to bitcoin investment and trading. His role was to bring in prospective investors, and in return he earned referral or introductory commissions. Notably, these commissions were paid to him in bitcoins rather than cash, which he subsequently converted and deposited into his bank account.
Because he had not maintained formal books of account to substantiate his exact income and expenses, he offered his income for tax on a presumptive basis under Section 44AD, declaring receipts of ₹30.35 lakh and paying tax on a percentage of that amount rather than the full sum.
How the Tax Authorities Responded
The Assessing Officer (AO) did not accept this presumptive computation. Since the assessee could not produce documentary evidence to support his claim of earning referral commission rather than trading profits, the AO chose instead to add the entire receipts to his taxable income — a far more onerous outcome than presumptive taxation would have produced.
When the matter reached the Commissioner of Income Tax (Appeals) [CIT(A)] at the National Faceless Appeal Centre, the assessee did not appear or file submissions in his defense. In the absence of any representation, the CIT(A) upheld the AO’s assessment in full.
The Tribunal’s Findings
On further appeal, the ITAT took a more sympathetic view of the underlying facts. It accepted the characterization of the assessee’s activity as one of providing business support services — essentially, connecting or referring investors to bitcoin trading opportunities — for which he was compensated through commission-like payments, albeit denominated and received in bitcoin.
The Tribunal reasoned that since this was fundamentally service income, and given that the assessee had not maintained regular books of account, it would be appropriate to compute his income on a presumptive basis. However, rather than applying Section 44AD (used generally for eligible businesses, with an 8% or lower presumptive rate), the Tribunal held that Section 44ADA — the provision meant for professionals and specified service providers, carrying a 50% presumptive rate — was the more accurate fit given the service-oriented nature of the income.
Accordingly, the ITAT directed the AO to recompute the assessee’s total income by treating 50% of his gross receipts as taxable income, rather than the full receipts as originally assessed.
On the separate legal question of whether the reassessment itself was validly initiated, the Tribunal found no defect in the AO’s action in reopening the case under Sections 147/144B, and upheld that part of the proceedings.
The appeal was accordingly partly allowed — the assessee lost on the validity of reopening but succeeded in securing presumptive taxation treatment, and at a lower net tax incidence than a full addition of receipts would have produced.
Key Takeaways
- Nature of income matters more than the underlying asset. Even though bitcoins were involved, the Tribunal looked past the cryptocurrency angle and characterized the income by what the assessee actually did to earn it — providing referral or support services — rather than treating it automatically as trading income.
- Presumptive taxation remains available even without formal books. The ruling reinforces that taxpayers who haven’t maintained regular accounting records can still seek presumptive assessment, provided the nature of their income fits within the relevant presumptive provision.
- Choosing the right presumptive section matters. The case illustrates that Section 44AD (for general business) and Section 44ADA (for specified professional/service income, at a higher 50% rate) are not interchangeable — the correct provision depends on the true character of the income earned.
- Non-representation can be costly. The assessee’s failure to appear before the CIT(A) resulted in an unfavorable order at that stage; it was only at the Tribunal level, with proper representation, that relief was obtained.
- Reassessment validity is a separate question from the quantum of tax. Even though the assessee succeeded on the taxation methodology, the Tribunal still upheld the AO’s jurisdiction to reopen the assessment in the first place.
This summary is for general informational purposes and does not constitute legal or tax advice. Readers dealing with similar facts should consult a qualified tax professional, taking into account the specific facts of their case and any binding precedents in their jurisdiction.
FCA, CWM (AAFM-US), CBV, CIFRS, R-ID, B.COM (H), RV* (IBBI)
Managing Partner at Ankit Gulgulia & Associates, Chartered Accountants. The Firm was setup in 2011 and has offices in Delhi NCR. AGA provides professional services to a large number of Clients both in India and Internationally.
AGA is supported by a well experienced team which include Chartered Accountants, Management Graduates, Company Secretaries, Cost Accountants, Valuers etc.