ITAT Chandigarh Recognizes Bitcoin Referral Earnings as Professional Service Income under Section 44ADA
Background of the Dispute
The case of Vijay Bahadur Vs ITO (ITAT Chandigarh) concerns the income tax treatment of earnings arising from a bitcoin referral and investment network. The appeal relates to Assessment Year 2018-19 and challenges an assessment framed by the Assessing Officer under Section 147 read with Section 144B of the Income Tax Act 1961.
The assessee did not file a return of income for the relevant year. During information-based scrutiny, it came to light that the assessee had dealt with bitcoins amounting to ₹25.07 lakh. This triggered reopening of the assessment under the reassessment provisions.
Upon issuing notice and examining the material, the Assessing Officer concluded that the assessee was involved in activities linked to bitcoin investment and referral operations. However, due to absence of proper books of account and supporting documentation, the Assessing Officer rejected the assessee’s claim of presumptive taxation and subjected the entire receipts to tax as income.
When the matter reached the Commissioner of Income Tax (Appeals), NFAC, the assessee did not effectively participate in the appellate proceedings. The CIT(A) consequently upheld the assessment order. The assessee then filed a further appeal before the Income Tax Appellate Tribunal, Chandigarh Bench.
Facts Considered by the Tribunal
Nature of Activities and Bitcoin Transactions
As borne out from the record before the Tribunal, the following key aspects emerged:
- The assessee was involved in a referral network connected with bitcoin investment and trading.
- The primary role of the assessee was to introduce and arrange prospective investors for making investments in bitcoins.
- In return for these services, the assessee earned referral service incentives denominated in bitcoins.
- The bitcoins so received were later converted into money and the proceeds were deposited into the assessee’s bank account.
- Total transactions traced in bitcoin trading and referral activities stood at
₹25.07 lakh. - The assessee claimed that the total receipts from this line of activity amounted to
₹30.35 lakh.
Claim of Presumptive Taxation
The assessee treated this activity as an eligible business for presumptive taxation and declared income by applying presumptive profit under Section 44AD on gross receipts of ₹30.35 lakh.
However:
- The assessee did not maintain regular books of account.
- Supporting documents to correlate each bitcoin receipt, its encashment, and corresponding bank credits were either incomplete or not produced.
- The Assessing Officer did not accept the explanation or the computation under
Section 44AD.
Consequently, the Assessing Officer treated the entire gross receipts as taxable income, effectively denying the benefit of presumptive provisions.
Proceedings before Lower Authorities
Assessment under Section 147 r.w.s. 144B
The Assessing Officer initiated proceedings under Section 147 upon noticing bitcoin transactions of ₹25.07 lakh. After issuing statutory notices and providing opportunity, the final assessment order was passed under Section 147 read with Section 144B on 26.12.2023.
Key features of the assessment:
- Non-filing of return by the assessee for AY 2018-19.
- Detection of bitcoin-related transactions.
- Rejection of the assessee’s claim under
Section 44AD. - Taxation of the entire receipts related to bitcoin activities as income.