Delhi ITAT Deletes 44AD Addition – Gross Receipts Already Offered to Tax Cannot Again Be Treated as Unexplained Credits u/s 68

Anshika Mishra Vs ACIT (ITAT Delhi)

Delhi ITAT Deletes 44AD Addition – Gross Receipts Already Offered to Tax Cannot Again Be Treated as Unexplained Credits u/s 68

The Delhi ITAT deleted additions made against the assessee after holding that receipts already disclosed under the presumptive taxation scheme of section 44AD cannot again be taxed as unexplained cash credits under section 68. The Tribunal strongly reiterated that the same receipts cannot be subjected to double taxation merely because the AO was dissatisfied with the supporting documentation.

The assessee, an individual, had filed return declaring income of about ₹5 lakh under section 44AD on gross receipts of ₹15.95 lakh. Pursuant to search proceedings conducted in the family group, reassessment proceedings were initiated and the AO treated the very same gross receipts declared under section 44AD as unexplained cash credits u/s 68. An additional sum of ₹1 lakh cash deposit was also treated as unexplained.

The assessee argued that once income from receipts had already been offered under presumptive taxation, the AO could not again tax the entire receipts as unexplained credits. It was further contended that section 68 itself was inapplicable because the assessee, being covered under section 44AD, was not required to maintain books of account and bank statements cannot be equated with “books” for the purpose of section 68.

The Tribunal noted an important factual aspect — arising from the same search proceedings, same appraisal report, same invoices and same transacting parties, the CIT(A) for AYs 2021-22, 2022-23 and 2023-24 had already deleted similar additions after accepting the genuineness of transactions and finding absence of any independent enquiry by the AO.

The ITAT then relied extensively on the Jaipur Tribunal ruling in Dr. Vishan Swaroop Gupta v. ITO, which in turn followed the Bombay High Court decision in CIT v. Bhaichand N. Gandhi, to reiterate that a bank passbook or bank statement is not a “book of account” maintained by the assessee. Therefore, in absence of books maintained by the assessee, section 68 could not be invoked merely on the basis of bank entries.

The Tribunal further observed that the assessee had furnished documentary evidences supporting the business receipts and the additions were made largely on assumptions without any corroborative material. The separate addition of ₹1 lakh cash deposit was also deleted after accepting the explanation that the deposit came from earlier withdrawals and personal cash availability.

Accordingly, the Delhi ITAT deleted the additions in entirety and allowed the assessee’s appeal.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi/ Commissioner of Income Tax (Appeals) [hereinafter referred to as “CIT(A)”] vide order dated 26.09.2025 pertaining to A.Y. 2020-21, arising out the assessment order dated 28-03-2025 under section 147 r.w.s. 143(3) of the Income Tax Act, 1961, (in short ‘the Act’).

2. The assessee has raised the following grounds in appeal:

1. On the facts and circumstances of the case, Ld. CIT(A) has erred both in law as well as on facts in affirming the order of the AO as the AO illegally added entire gross receipts instead of profit element, at worst, only profit can be taxed not the whole receipt as held in various judicial pronouncements.

2. On the facts and circumstances of the case, Ld. CIT(A) has erred both in law as well as on facts in affirming the order of the AO as the addition of Rs.1,00,000 as unexplained cash deposit is unjustified and ignores cash flow availability from prior savings and prior withdrawals.

3. On the facts and circumstances of the case, Ld. CIT(A) has erred both in law as well as on facts in affirming the order of the AO as longstanding acceptance of presumptive income under section 44D and 44AD was ignored, non-maintenance of books cannot be used adversely when presumptive scheme does not require maintaining books.

4. On the facts and circumstances of the case, Ld. CIT(A) has erred both in law as well as on facts in affirming the order of the AO as the AO has taxed the same receipts twice once as business receipts under section 44D profit already offered and accepted and again as unexplained credits under section 68 which is illegal and contrary to the principle that the same income cannot be taxed twice.

5. On the facts and circumstances of the case, The Ld. CIT(A) is bad both in the eyes of law as well as on facts.

6. That on the facts and circumstances of the case and in law, the order passed by Ld.CIT(A) under section 250 of the Income Tax Act, 1961 is illegal, bad in law as it was passed without providing due opportunity to the assessee thereby violating the principle of natural justice.

7. On the facts and circumstances of the case, Ld. CIT(A) has erred both in law as well as on facts in affirming the order of the AO as the AO treated Rs.15,95,540/- as unexplained credits despite the fact that such credits do not appear in bank accounts. The AO incorrectly lifted the figure from presumptive 44AD receipts and assumed they were bank credits. Since actual bank credits do not match the alleged unexplained credits, section 68 cannot be applied, as the primary condition presence of a credit entry in books and bank, is absent.

8. On the facts and circumstances of the case, Ld. CIT(A) has erred both in law as well as on facts in affirming the order of the AO as section 68 has been wrongly invoked because the assessee does not maintain any books of account, and bank statements do not constitute books within the meaning of section 68 as also held in various judicial pronouncements.

9. On the facts and circumstances of the case, Ld. CIT(A) has erred both in law as well as on facts in affirming the order of the AO as the AO erred in concluding that no business activity existed despite the presence of invoices and seized documents showing business conduct.

10. On the facts and circumstances of the case, Ld. CIT(A) has erred both in law as well as on facts in affirming the order of the AO as the explanations furnished for receipts were rejected without brining any contrary evidence, making the conclusion arbitrary and unsustainable.

11. On the facts and circumstances of the case, Ld. CIT(A) has erred both in law as well as on facts in affirming the order of the AO as identity of all persons making payments is established, and therefore section 68 cannot be applied merely because the AO was dissatisfied with documentation.

3. The brief facts of the case are that the assessee is an individual who filed her return of income for A.Y. 2020-21 on 23-09-2020 declaring total income of Rs.5,00,620/- under section 44AD of the Act. The return was processed under section 143(1) of the Act. A search and seizure operation under section 132 was conducted on 10-12-2022 in the case of the assessee her family members and Rashika Medicare Pvt. Ltd. by the Directorate of Investigation, New Delhi. The case was centralized to ACIT, Central Circle-29 New Delhi vide order dated 22-06-2023 under section 127 of the Act. A notice u/s 148 of the Act was issued on 11-01-2024 and in the compliance of the notice the assessee filed her return of income of Rs.5,00,620/-. The Assessing Officer completed the assessment u/s 147 r.w.s. 143(3) of the Act after making the following additions as under:

i. Gross receipts of Rs.15,95,540/- declared by the assessee in her computation of income u/s 44AD treated as unexplained cash credits u/s 68 of the Act Rs. 15,95,540/-

ii. Cash deposit in Bank of Baroda Account treated as unexplained cash deposit u/s 68 of the Act. Rs.1,00,000/-.

4. Aggrieved the order of the Ld. Assessing Officer the assessee preferred the appeal before the Ld. CIT(A), who vide his order dated 26-09-2025 dismissed the appeal of the assessee and confirmed the additions made by the Assessing Officer. Being aggrieved with the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal. The Ld. CIT(A) dismissed the appeal by observing as under:

8. Ground No.1 The applicant contends that the addition of Rs.15,95,540/- under section 68 of the Income Tax Act. 1961 is invalid since no books of account were maintained under presumptive taxation scheme of section 44D, rendering Section 68 inapplicable.

8.1 This argument is untenable while section 44AD allows for presumptive taxation without maintaining books of account, it does not provide blanket immunity from security under Section 68 for unexplained credits. Bank statements, which reflect credits and transactions, can be treated as equivalent to books of account for the purposes of section 68 as they form a record of financial entries maintained by the assessee. The AO has rightly relied on such statements to identify unexplained credits amounting to Rs. 16,965,540/- (including the disputed Rs.15,95,540/-) which the appellant failed to substantiate with credible evidence.

8.2 Judicial precedents support the department position. In Hemant M. Shah HUF v. ITO (ITA Mumbai ITA N> 4516/MUM/2024) the Tribunal upheld additions under section 68 even when the assessee opted for presumptive taxation under section 44AD, ruling that neither section prohibits additions for unexplained or suspicious credits. The court emphasized that presumptive taxation simplifies income estimation but does not shield unexplained entries from taxation. Similarly, the appellant’s reliance on case like Anand Ram Raitani V. CIT is misplaced, as those pertain to scenarios where bank credits are evident and unexplained.

8.3 The AO’s addition is strengthened by the fact that the appellant declared income of only Rs.5,00,620/- under Section 44AD, while bank credits far exceeded this, indicating potential escapement. The burden under Section 68 shifts to the assessee to prove the nature and source of credits, which has not been discharged beyond vague assertions. This ground is dismissed.

9. Ground No.2 The appellant alleges non-furnishing of details regarding the additions of Rs.15,95,540/- by the AO claiming reliance solely on bank statements without specifies.

9.1 This claim is contradicted by the record. The AO issued a show cause notice dated 08-03-2025, explicitly seeking details of the credits, to which the appellant responded acknowledging the query and providing incomplete explanations. The assessment order (paras 9-9.2) details the basis for the addition, including summons under Section 131(1A) to transacting parties and verification of invoices not pertaining solely to other years but linked to on going transactions. The appellant’s submission that no date-wise, amount- wise or transaction-wise details were demanded ignores the comprehensive notices under Section 142(1) and 148 as evidenced in the AO’s order. The AO’s actions are upheld, and this ground is rejected.

10. Ground No.3 The appellant argues that the details of transacting parties mentioned in para9 of the assessment order do not pertain to AY2020-21 but to FY 2018-19 and 2022-23.

10.1 This contention is without merit. The AO’s order (para 9) tabulates invoices from parties like AIWO Limited (Rs.2,36,000/-) dated 10-03-19) Utoo Cabs Ltd. (Rs.2,36,000/-) dated 10-03-19) and others.

10.2 Even if some details span adjacent years, they corroborate a pattern of unexplained receipts tied to AY2020-21. The moot point is the affirmations of HRDS India and others transacting parties. Either the claim of professionals, services by the appellant is denied or the different reasons have been given. For example, Neelam Kumar said that the amount was transferred at the instruction of his late father-in -law. None of the transacting parties confirmed that amount was paid for consultancy services whereas the appellant’s own reply admits rendering consultancy services and lists these parties. The AO cross verified with recipients (r. g. AIWO Limited, Rohit Vaid)., who confirmed the transactions, strengthening the finding of unexplained credits. The appellant’s vague denial, without alternative proofs, fails to rebut the AO’s evidence-based addition. This ground is dismissed.

11. Ground no.4 Regarding unexplained cash deposits, the appellant explains Rs. 1,00,000/- as a withdrawal from her own bank account in July 2029, verified by bank statements, and argues the rest cannot be added under Section 68.

11.1 While the Rs. 1,00,000/-explanation is noted, the AO identified frequent cash deposits totaling Rs. 3,90,000/- (beyond the explained amount) in the Baroda bank account redeposited shortly after withdrawals, (para 9.2) details summons to parties like AIWO Limited and others, who denied certain claims, further questioning the source. The appellant’s submission that these are business receipts under Section 44AD do not absolve the need to explain specific credits under Section 68. As held in Hemant M.Shah HUF v. ITO (supra) such deposits remain taxable if unexplained, even under presumptive scheme. The AO’s addition is justified as only partial explanation was provided and the ground is rejected.

12. As a result, the appeal is dismissed in its entirety.

5. The Ld. AR of the assessee submitted that the additions in A.Y. 2020-21 arises from the same search, the same Assessing Officer , the same appraisal report, the same transacting parties, the same seized invoices, declared business receipts as unexplained cash credits under section 68 and 115BBE were confirmed, while for the A.Y.2021-22, 2022-23, and A.Y.2013-24 the additions made by the Assessing officer were deleted. The Ld. CIT(A) without distinguished the reason dismissed this appeal of the assessee. He further submitted that rule of consistency should be followed although the principal of res-judicata is not applicable in the assessment proceedings. He further submitted that the assessee has filed a computation of income declaring gross receipts of Rs.15,95,540/- u/s 44AD and offered income of Rs.5,00,620/- to tax. The Assessing Officer has taxed both the gross receipts and the income earned from those receipts which amount to double taxation.

6. The Ld. AR also submitted that section 68 of the Act is not applicable in this case because the assessee covered by the scheme is not required to maintain books of accounts under section 44AA and 44AB of the Act. He further submitted that in the absence of the books of account the section 68 of the Act cannot be invoked. Reliance is placed on the following decisions”

i. Anand Ram Raitani v. CIT(1997) 223 ITR 544(Gau. HC)

ii. Dinesh Kumar Verma v. ITO Ward -2ITA no. 1183/MUM/2019

iii. DCIT v. Kalpesh Kantilal Gada ITA

iv. Kokkarne Prabhakara V. ITO Ward3(2) Hubbali ITA no.1239/ Bang/2019

v. Vishan Swaroop Gupta V. ITO Ward 7(3) ITA no. 13/JP/2020

7. The Ld. AR further submitted that the assessee has withdrawn the cash of Rs.3,90,000/- on 24-07-2019 for household purposes. The unutilized balance of Rs.1,00,000/-was re deposited in the same account on 11-12-2019. The entry was explained by the assessee.

8. The Ld. DR has relied upon the order of the lower authorities. He further relied the case of Hemant M Shah HUF v. ITO ITAT Mumbai ITA No. 4516/MUM/2024.

9. We have heard the parties and perused the material available on record. We find that Ld. CIT(A) for the A.Y. 2021-22, 2022-23 and 2023-24 on the same seized invoices, same transacting parties, and the appraisal report deleted the additions made by the AO.

10. In the appeal No CIT(A) Delhi-30/10234/2021-22 the addition made by the AO has been deleted by holding as under:

8.2 The Assessing Officer has made aggregating to Rs.21,32,500/- on account of alleged non-genuine receipts and unexplained cash deposits, thereby determining the total income at Rs.28,74,140/- as against the returned income of Rs.7,41,640/-. During the course of appellate proceedings, the appellant furnished detailed written submissions along with supporting documentary evidence, including additional admitted under rule 46A. the same were forwarded to the Assessing Officer for verification and comments. However, in the remand proceedings, the Assessing Officer has not brought any cogent adverse material on record to rebut the evidences filed by the appellant and has largely reiterated the observations made in the assessment order.

8.3 On perusal of the material available on record, it is observed that the addition in respect from M/s Utoo Cabs Ltd. has been made primarily on the ground that no formal agreement or engagement letter was furnished. However, that fact that the applicant has received an amount of Rs.12,00,000/- through banking channels from an identifiable corporate entity is not in dispute, and the same has been duly offered to tax. In such circumstances merely in the absence of formal documentation the transaction cannot be held to be non-genuine, particularly when the Assessing Officer has not carried out any independent verification despite having powers under the Act.

8.4 Further, the Assessing Officer has drawn adverse inference in respect of transactions relating to certain persons/ entities such as Chandra Bose HRDS and AIWO. The appellant has submitted that these parties are identifiable and the transactions wherever applicable, have been carried out through banking channels and supported by confirmations and other documentary evidences. It is observed that the Assessing Officer has neither conducted any independent enquiry nor brought any material on record to establish that these transactions are fictitious or represent accommodation entries. In these circumstances, the adverse inference drawn by the assessing officer is not sustainable. 8.5 The Assessing Officer has also made observation regarding absence of details such as meetings travel or correspondence in support of business activities. The appellant has clarified the nature of her activities and provided the identity of the concerned persons. It is noted that business facilitation and liaisoning activities are often conducted through informal interactions and may not always be supported by formal documentation. In the absence of any contrary evidence, the explanation furnished by the appellant cannot be rejected merely on the basis of assumptions.

8.6 The additions on account of cash deposits amounting to Rs.2,32,500/- has been made by the Assessing Officer treating the same as unexplained. The appellant has explained that the cash deposits are sourced from earlier withdrawals and personal savings accumulated over time, including customary receipts and that the time gap in deposit is attributable to the disruption caused during the COVID-19 period. Considering the smallness of the amount, the status of the appellant, and in the absence of any material brought on record by the Assessing Officer to establish that the deposits represent undisclosed income, the explanation furnished by the appellant is found to be reasonable and acceptable.

8.7 Overall it is observed that the additions made by thee assessing Officer are largely based on absence of certain documents and general presumptions without conducting necessary enquiries or brining any corroborative material on record. The appellant on the other hand has furnished plausible explanations supported by documentary evidences which have not been effectively rebutted. In view of the above facts and circumstances it is held that the appellant has satisfactory discharged the onus cast upon her. Accordingly. the addition of Rs. 21,32,500/- made by the Assessing Officer is deleted.

9. All grounds raised by the appellant are either general or consequential in nature and do not require separate adjudication and are disposed of accordingly.

10. As a result, the appeal is partly allowed.”

11. We also find that for the AY 2022-23 & 2023-24 the appeals of the assessee were allowed by the Ld. CIT(A) and deleted the additions made by the Assessing Officer. We find that the Ld. CIT(A) observed that the Bank statements which reflect credits and transaction treated as equivalent to books of account for the purposes of section 68 of the Act as they form a record of financial entries maintained by the assessee is not tenable. In the case of Dr. Vishan Swaroop Gupta vs. ITO Ward7(3) Jaipur for the AY 2015-16 the coordinate bench held that pass book maintained by the assessee or under his instructions can not be held to be the books of the assessee by observing as under:-

“9. After having gone through the facts and circumstances, we observe that credit in the ‘bank account’ of an assessee cannot be construed as a credit in the ‘books’ of the assessee, for the very reason that the bank account cannot be held to be the ‘books’ of the assessee. Though, it remains as a matter of fact that the ‘bank account’ of an assessee is the account of the assessee with the bank, or in other words the account of the assessee in the books of the bank, but the same in no way can be held to be the ‘books’ of the assessee. We have given a thoughtful consideration to the scope and gamut of the aforesaid statutory provision of Section 68, and are of the considered view that an addition made in respect of a cash deposit in the bank account of an assessee, in the absence of the same found credited in the ‘books’ of the assessee maintained for the previous year, cannot be brought to tax by invoking the provisions of Section 68 of the Act. In this respect, we draw strength from the decision of the Hon’ble Bombay High Court in the case of CIT Vs Bhaichand N Gandhi (1983) 141 ITR 67 (Bombay) wherein the High Court has held as under:-

“As the Tribunal has pointed out, it is fairly well settled that when moneys are deposited in a bank, the relationship that is constituted between the banker and the customer is one of debtor and creditor and not of trustee and beneficiary. Applying this principle, the pass book supplied by the bank to its constituent is only a copy of the constituent’s account in the books maintained by the bank. It is not as if the pass book is maintained by the bank as the agent of the constituent, nor can it be said that the pass book is maintained by the bank under the instructions of the constituent. In view of this, the Tribunal was, with respect, justified in holding that the pass book supplied by the bank to the assessee in the present case could not be regarded as a book of the assessee, that is, a book maintained by the assessee or under his instructions. In our view, the Tribunal was justified in the conclusions at which it arrived.”

We find that the aforesaid view of the Hon’ble Bombay High Court had thereafter been followed by a ‘SMC’ bench of the ITAT, Mumbai in the case of Smt. Manshi Mahendra Pitkar Vs. ITO 1(2), Thane (2016) 73 taxmann.com 68 (Mumbai Trib.) wherein it was held as under: –

“I have carefully considered the rival submissions. In the present case the addition has been made by the income tax authorities by treating the cash deposits in the bank account as an unexplained cash credit within the meaning of section 68 of the Act. The legal point raised by the assessee is to the effect that the bank Pass book is not an account book maintained by the assessee so as to fall within the ambit of section 68 of the Act. Under section 68 of the Act, it is only when an amount is found credited in the account books of the assessee for any previous year that the deeming provisions of section 68 of the Act would apply in the circumstances mentioned therein. Notably, section 68 of the Act would come into play only in a situation Where any sum is found credited in the books of an assessee , The Hon’ble Bombay High Court in the case of Shri Bhaichand Gandhi (supra) has approved the proposition that a bank Pass Book maintained by the bank cannot be regarded as a book of the assessee for the purposes of section 68 of the Act. Factually speaking, in the present case, assessee is not maintaining any books of account and section 68 of the Act has been invoked by the Assessing Officer only on the basis of the bank Pass Book. The invoking of section 68 of the Act has to fail because as per the judgment of the Hon’ble Bombay High Court in the case of Shri Bhaichand N. Gandhi (supra), the bank Pass Book or bank statement cannot be construed to be a book maintained by the assessee for any previous year as understood for the purposes of section 68 of the Act.

Therefore, on this account itself the impugned addition deserves to be deleted. I hold so.” We further find that a similar view had also been arrived at in a ‘third member’ decision of the Tribunal in the case of Smt. Madhu Raitani Vs. ACIT (2011) 10 taxmann.com 206 (Gauhati) (TM), as well as by the coordinate Benches of the Tribunal in the case of Mehul V. Vyas Vs. ITO (2017) 16 4 ITD 296 (Mum) and ITO, Barabanki Vs. Kamal Kumar Mishra (2013) 33 taxamann.com 610 (Lucknow). 10. W e f i n d t h a t a s s t a n d s g a t h e r e d f r o m t h e r e c o r d s , t h e addition aggregating to Rs. 4.03 lacs sustained by the ld. CIT(A) is in respect of the cash deposits in the bank accounts of the assessee, and not in any ‘books’ of the assessee for the year under consideration. We thus are of the considered view that in the backdrop of the aforesaid settled position of law, the addition made by the A.O in respect of the cash deposits of Rs.7,13,000/- in the bank accounts of the assessee by invoking Section 68 has to fail, for the very reason that as per the judgment of the Hon’ble Bombay High Court in the case of CIT Vs. Bhaichand N. Gandhi (1983) 141 ITR 67 (Bombay), a bank pass book or bank statement cannot be considered to be a ‘book’ maintained by the assessee for any previous year for the purpose of Section 68 of the Act. Therefore, on this count itself the impugned addition made and sustained deserves to be deleted and we direct to delete the same. Since we have quashed the addition on the ground that no such addition could have been validly made U/s 68 of the Act, therefore, we refrain ourselves to decide the other grounds wherein the assessee has assailed on merits the additions sustained by the ld. CIT(A) 11. In the result, appeal of the assessee is allowed.

12. We find that arising from the same search proceedings, for the A.Y. 2021-22, 2022-23, & 2023-24 the additions made by the Assessing Officer have been deleted by the Ld. CIT(A) in appeals. The assessee furnished the documentary evidences in support of her claim. The additions were made on the basis of the assumptions only. The assessee also explained the cash deposits amounting to Rs.1,00,000/- which a smaller amount, which was deposited from the earlier cash withdrawal. The additions made by the Assessing Officer and confirmed by the Ld. CIT(A) deserve to be deleted and thus, we direct to delete the same. The grounds raised by the assessee are accordingly allowed.

13. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 22.05.2026.