Section 44ADA Not Applicable to Partner's Remuneration, But Actual Expenses Deductible: ITAT Mumbai Rules in Hemant Kumar Agrawal vs ITO

Overview of the Dispute

A practicing Chartered Accountant serving as an associate full-time partner in a Limited Liability Partnership received remuneration of ₹18,00,000 during Assessment Year 2018-19. He disclosed this amount as gross receipts from his profession and opted for presumptive taxation under Section 44ADA of the Income Tax Act, 1961, thereby offering ₹9,00,000 — representing 50% of the receipts — as his taxable professional income.

The case, Hemant Kumar Agrawal Vs ITO (ITAT Mumbai), raised a significant and unresolved question of law: whether remuneration paid by an LLP to one of its practicing Chartered Accountant partners can be characterised as "gross receipts" under Section 44ADA, thereby entitling the partner to avail the benefit of presumptive taxation at 50%.

The Income Tax Appellate Tribunal, Mumbai Bench, ultimately ruled against the assessee on the primary issue of Section 44ADA applicability, while simultaneously providing partial relief by affirming that actual expenses incurred for earning such remuneration remain deductible under the ordinary provisions of the Act.

Background: What the Assessee Did and Why the AO Objected

The assessee was a partner with M/s Jayesh Sanghrajka & Co. LLP, a Chartered Accountancy firm. He held a valid Certificate of Practice and performed statutory audits and attest functions on behalf of the LLP.

In his Income Tax Return for AY 2018-19, he reported:

  • Remuneration received from LLP: ₹18,00,000
  • **Presumptive income declared under Section 44ADA😗* ₹9,00,000 (i.e., 50% of gross receipts)

The Assessing Officer (AO), operating through the National E-Assessment Centre, Delhi, under Section 143(3) of the Income Tax Act, 1961 via order dated 10.03.2021, rejected this treatment on two grounds:

  1. The professional practice was conducted by the LLP as an entity, not independently by the assessee.
  2. The term "gross receipts" under Section 44ADA refers to sales turnover, and remuneration paid by a firm to its partner cannot be equated with the partner's own professional turnover.

Accordingly, the AO added back ₹9,00,000 to the assessee's income, determining total income at ₹16,10,480.

First Appellate Stage: CIT(A) Confirms Addition

The assessee challenged the addition before the Commissioner of Income Tax (Appeals) / NFAC, Delhi. The CIT(A), vide order dated 15.05.2025, upheld the AO's position, relying on two High Court decisions:

  • Anandkumar v. Assistant Commissioner of Income Tax [AIRONLINE 2020 MAD 2136] (Madras High Court) — holding that remuneration and interest received from a partnership firm cannot be treated as the gross receipts of the partner.
  • Perizad Zorabian Irani v. Principal Commissioner of Income-Tax (Central)-1, Mumbai & Ors. [2022] 139 taxmann.com 164 (Bombay) — similarly addressing the relationship between partnership remuneration and the concept of turnover/gross receipts.

The CIT(A) dismissed the assessee's reliance on Sagar Dutta v. Commissioner of Income Tax-Kolkata (ITA No. 692/Kol/2012) (ITAT Kolkata) and Usha A. Narayanan v. DCIT (ITA No. 703/Kol/2012) (ITAT Kolkata), holding that those cases were factually dissimilar and that the former had actually gone against the assessee-partner.

Grounds of Appeal Before ITAT Mumbai

The assessee raised the following grounds before the Tribunal:

  1. The assessment order passed by the National Faceless Assessment Centre lacked a valid and verifiable Document Identification Number (DIN) in violation of CBDT Circular No. 19/2019 dated 14.08.2019, and was therefore liable to be quashed.
  2. The CIT(A) erred in denying the applicability of Section 44ADA on remuneration received from the firm, despite the assessee satisfying all prescribed conditions.
  3. Without prejudice, the CIT(A) erred in denying Section 44ADA benefits to a practicing Chartered Accountant holding a Certificate of Practice.

Legal Text of Section 44ADA Considered by the Tribunal

The Tribunal extracted the full text of Section 44ADA for interpretive purposes:

**Section 44ADA(1)😗* Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, who is engaged in a profession referred to in sub-section (1) of section 44AA and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to fifty per cent of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head "Profits and gains of business or profession".