Presumptive taxation under section 44AD excludes professional coaching activity; unverifiable may be estimated reasonably.

Section 44AD presumptive taxation is confined to an eligible business and does not extend to a profession. On the stated facts, a computer coaching centre run by an assessee who also acted as faculty was treated as a professional activity, so the section 44AD claim was rejected and the requirement to maintain accounts under section 44AA supported that view. Where supporting records were said to have been lost in floods and could not be fully verified, some disallowance of expenditure was justified, but a blanket 50% estimate was considered excessive. The disallowance was therefore restricted to 20% as a reasonable approximation of unverifiable .

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Issues: (i) Whether the assessee, running a computer coaching centre, was entitled to presumptive taxation under section 44AD of the Income-tax Act, 1961. (ii) Whether the disallowance of 50% of the expenditure claimed in the profit and loss account was justified.

Issue (i): Whether the assessee, running a computer coaching centre, was entitled to presumptive taxation under section 44AD of the Income-tax Act, 1961.

Analysis: Section 44AD applies only to an eligible assessee engaged in an eligible business and expressly excludes a person carrying on a profession. The assessee's own description showed that he was running an educational coaching institute and was himself involved as a faculty member. In that setting, the activity was treated as a profession and not as an eligible business for the purpose of presumptive taxation. The obligation to maintain accounts under section 44AA also supported the conclusion that the assessee could not claim the benefit of section 44AD.

Conclusion: The claim for presumptive taxation under section 44AD was rejected and was against the assessee.

Issue (ii): Whether the disallowance of 50% of the expenditure claimed in the profit and loss account was justified.

Analysis: The assessee stated that the books and supporting records had been lost in the Chennai floods, and that explanation was not effectively rebutted. While some disallowance was warranted because the records were not available, the blanket disallowance of 50% was considered excessive on the facts. A lesser estimate was therefore adopted as a fairer approximation of unverifiable expenditure.

Conclusion: The disallowance was reduced to 20% of the expenditure claimed, which was in favour of the assessee.

Final Conclusion: The assessee failed on the claim to presumptive taxation but succeeded in securing substantial relief on the quantum of disallowance, resulting in partial relief overall.

Ratio Decidendi: Section 44AD does not apply to a person carrying on a profession, and where expenditure cannot be fully verified due to loss of records, the disallowance must be restricted to a reasonable estimate supported by the facts.

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