Delhi ITAT: Demonetisation Addition Deleted Despite No Cash Balance in Earlier Section 44AD ITRs

Munijhar Vs ITO (ITAT Delhi)

Delhi ITAT: Presumptive Taxpayer Under Section 44AD Cannot Be Faulted for Absence of Cash Balance in Earlier ITRs; Demonetisation Addition Deleted

The Delhi ITAT deleted additions aggregating over ₹1.05 crore, holding that an assessee declaring income under the presumptive taxation scheme of section 44AD cannot be disbelieved merely because earlier ITRs did not disclose detailed cash balances or balance sheet particulars, when such disclosures were not statutorily required.

The Assessing Officer had made an addition of ₹45.98 lakh under section 69A, treating cash deposited during the demonetisation period as unexplained. The assessee explained that the deposits were made out of opening cash-in-hand of ₹82.92 lakh, duly supported by cash books for the preceding years. The Tribunal observed that, up to AY 2016-17, an assessee filing ITR-4 under section 44AD was not required to furnish detailed balance sheet items such as cash balances or sundry debtors. Therefore, the absence of such particulars in earlier returns could not be used to reject the cash book or treat the deposits as unexplained. The addition under section 69A was accordingly deleted.

The Tribunal also deleted the addition of ₹57.19 lakh made by treating the sale of agricultural land as short-term capital gains. It held that the assessee had produced a Tehsildar’s certificate and official correspondence showing that the land was situated beyond the prescribed municipal limits and was therefore not a capital asset under section 2(14). The Assessing Officer’s reliance on Google Maps was held insufficient to displace the official revenue records. Consequently, the profit on sale of the agricultural land was held to be exempt.

The ITAT further deleted the estimated addition of ₹2.92 lakh computed at 8% of ₹36.59 lakh as alleged business income. It accepted the assessee’s explanation that the bank credits represented sale proceeds of agricultural land and repayment of loans/advances, supported by sale deeds, confirmations, ledger accounts and income-tax records of the parties. The Tribunal held that business income cannot be estimated on mere conjectures without corroborative material showing that the credits represented business receipts.

Accordingly, the ITAT allowed the appeal in full and deleted all the additions.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal is preferred by the assessee against the order dated 03.07.2025 of the Ld. National Faceless Appeal Centre (NFAC) Delhi (hereinafter referred to as the First Appellate Authority or ‘the ld. FAA’ for short) in DIN & Order No: ITBA/NFAC/S/250/2025-26/1078135727(1)arising out of the order dated 11.12.2019 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by ITO, Ward 1(5), for AY: 2017-18.

2. Heard and perused the records. The assessee’s return of income showing income under the head business and provisions and income from other sources was filed on 01.08.2017 wherein assesse also claimed exempt income of Rs.26,49,050/-. Assessee had deposited Rs.45,98,000/- in saving bank account number with Panjab National Bank during the period of demonetization therefore, case of assesse was taken up for scrutiny and ld. AO asked assesse to justify the deposit, assesse filed a reply claiming that assesse has shown income from business u/s 44AD as the nature of business is job work relating to horticulture, filling of agricultural land including supply of mitti. The AO was not satisfied with the explanation given by assesse and had made an addition of Rs.45,98,000/- which has been sustained by the ld. CIT(A) and relevant finding of ld. CIT(A) in para 6.3 are reproduced below:

“6.3 Ground Nos.3 & 4 are raised against the action of AO in making addition of Rs.45,98,000/-u/s 69A of the Act. The appellant filed thepaper book in which the details pertaining to above addition have been found in pages 34 to 36. The details of cash accumulation over a period of three A.Ys.2015-16, 2016-17 & 2017-18 were submitted as the source for depositing cash of Rs.45,98,000/- during the demonetization period as business receipts. The AO in the assessment order brought out the. details of cash available as per ITRs filed for the above three assessment years (refer page -4 of the assessment order). Further, the AO analyzed the details of income, turnover and the capital as per the IRs from the A.Y. 2014-15 to 2017-18.The AO clearly brought out the factual matrix and proved that the appellant had no known sources for the cash deposit of Rs.45,98,000/-The AO rightly rejected the cash books submitted by the appellant. In view of the facts and circumstances of the case, I am of the considered opinion that the action of the AO is justified and the addition is upheld.”

3. Then AO had examined the issue on sale of agricultural land for sale consideration of Rs.57,19,000/- which AO alleged were sold in the form of plots and assesse claimed the same to be agricultural land. During assessment proceedings it was submitted to revise computation of capital gains claimed expenditure of Rs.30,00,000/- as the deduction from capital gain and have shown net loss of Rs.3,86,450/- in schedule. The AO had made the addition holding that the land is not agricultural in nature and does not fall for eligibility of exempt income u/s 10 accordingly the entire sale consideration was taken as short capital gain and addition of Rs.57,19,000/- was made. Thus, the same has been sustained by ld. CIT(A) vide para 6.4 to 6.5 as follows:

“6.4. Ground no.5 & 6 relates to the action of AO in making addition of Rs.57,19,000/- on account of short-term capital gains. The appellant submitted the details in the paper book in page nos. 46 to 49A, 50 to 53A, 54 to 59, 60 to 65 and 66. Further, the appellant submitted the copy of the letter of DCIT, Central Circle, Noida, details filed by the appellant before the Tahsildar. To sum-up the submission of the appellant is the land in question was an agricultural land and away from the municipal boundaries beyond 8 KMs. On the other hand, the AO with the help of google maps proved that the land sold was not an agricultural land and falls within the 8 KMs from the municipal boundaries. The AO with the help of google maps made his point that the land sold do not fall under the definition of capital asset u/s. 2(14) of the Act. Therefore, the AO concluded that the land sold was not an agricultural land within the meaning of the Section 2(14) of the Act. In para no.11 of the assessment order, the AO clearly established that the land situated in the village DostpurMangroli is falling within the 8 KMs from the municipal boundaries of Noida and Faridabad in general, precisely 1.58KMs and 5.4KMs respectively. The appellant produced the same evidences which were produced before the AO during the appellate proceedings. The appellant miserably failed to substantiate the claim that the said land wasin agricultural in nature within the meaning of Section 2(14) of the Act.The submissions made in paper book are of no use to the appellant. In view of the facts and circumstances of the case, I am of the considered opinion that the action of the AO is justified and the addition is upheld.

5. Then, AO had made addition of Rs.2,92,720/- on the basis that assesse had shown receipt of Rs.5,00,000/- during relevant Financial Year 2016-17 to total credit entries reflecting in the account of assesse are Rs.36,59,000/-. Assessing Officer observes that to avoid total taxation of cash deposit of Rs.45,98,000/- and sale consideration of Rs.19,40,000/- and Rs.16,75,000/-has already been excluded from the credit entries of the bank account, therefore, amount of Rs.36,59,000/- have been taken as business receipt of the assesse during the financial year 2016-17 and income @ 8% has been added and same have been sustained by ld. CIT(A) by following para 6.5 and 6.6:

6.5 Ground Nos.7 & 8 relates to non-consideration of the revised computation of income filed during the assessment proceedings. In which, the appellant claimed deduction of Rs.30,00,000/- on account of filling of the mitti. The appellant in the paper book in page nos. 85 to 88, 142 & 143 submitted the details regarding the filling of mitti. On the other hand, the AO mentioned that the appellant has not claimed this expenditure in the original return filed and did not believe the contention of the appellant that he had forgotten to claim the expenditure while filing the return. In view of the facts and circumstances of the case, I am of the considered opinion that the contention of the appellant is an after though action and as has no merit. The grounds on these issues are dismissed.”

6.6. Ground No.9 relates to estimation of income @8% of the gross receipt of Rs.36,59,000/-. The AO rightly estimated 8% of gross receipts of Rs.36,59,000/- as income after taking into consideration of the credit entries and cash deposits. The appellant failed to rebut the findings of the AO except stating that the credits are nothing but sale considerations from the different parties. In view of the facts and circumstances of the case, am of the considered opinion that the action of the AO is justified and the contention of the appellant is rejected. The ground on the issue is dismissed.

6. Assessee is in appeal and has raised following grounds :

“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.45,98,000/-on account of cash deposits u/s 69A and taxing the same u/s 115BBE and that too by recording incorrect facts and findings and in violation of principles of natural justice and without appreciating/considering the facts and circumstances of the case.

2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.45,98,000/- on account of cash deposits u/s 68/115BBE, is bad in law and against the facts and circumstances of the case.

3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.57,19,000/-by wrongly treating it as short-term capital gain and that too by recording incorrect facts and findings and in violation of principles of natural justice and without appreciating/considering the facts and circumstances of the case.

4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.57,19,000/- on account of alleged short-term capital gain, is bad in law and against the facts and circumstances of the case.

5. Without prejudice to the above, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in not allowing the deduction of Rs.30,00,000/-as claimed by the assessee from capital gain in the revised computation of income filed during the course of assessment proceedings.

6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.2,92,720/-and that too by treating it as business income and further erred in treating an amount of Rs.36,59,000 as business receipts of the assessee.

7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in charging interest u/s 234B of Income Tax Act, 1961.

8. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”

7. Ground no. 1 is general in nature and in regard to issue No. 1covering ground No. 1 & 2 we find that ld. AO has primarily disregarded the assesse’s contention of having cash balances on the basis that in the returns filed in earlier years the cash statements were filed and for which ld. Counsel has rightly submitted that when the return was filed in ITR-4 showing income from business on presumptive basis u/s 44AD and till the year AY: 2016-17 the Act did not require assesse to file such statement including details of sundry debtors and other details, then it is not justified to corner the assesse on the basis that the returns of earlier years did not reflect the cash balance so as to justify the deposit of Rs.45,98,000/- out of cash in hand reflected in the cash books of Rs.82,92,351/- which assesse had justified on the basis of cash books of AY: 2015-16, 2016-17 & 20117-18. When we examined the copy of cash movement for AY; 2015-16, 2016-17 & 2017-18 which has been made available in the paper book and also filed before NFAC the closing cash balance on 31.03.2016 is duly established at Rs.82,92,351/- we also do not find any substance in the reasoning of ld. AO that as assesse has revised the return of AY: 2016-17 so that should be considered as a suspicoius circumstance, as assesse has sufficiently justified that revision was on account of adding agricultural income and as assesse was informed of defective return being filed.

8. We further find that AO has doubted the deposits on the basis that there was a mismatch in the capital shown in the ITR and the reply filed for which assesse has sufficiently established that since return was filed on presumptive basis the assesse filed only cash in hand and balance with bank as part of the capital while in submissions to AO during the assessment proceedings complete details of balance sheet were filed. Thus, in the light of aforesaid discussion we are of the considered view ld. Tax authorities have merely doubted the cash deposits on the basis of suspicion arising out of the manner in which assesse had earlier reported its income and assets, however, when assesse had taken a recourse to filing the return on presumptive basis and there was no mandate under the law to provide particular set of information at the time of filing returns, then to discredit the submissions and the financials submitted to justify cash in hand, is not justified and the ground are decided in favour of the assesse.

9, Ground with regard to Addition of Rs. 42,99,980, assessee has claimed that during the impugned assessment year, the assessee sold two pieces of agricultural land situated in Village Dostpur Mangroli, KhadarParagna, Tehsil Dadri, Distt. Gautam Budhnagar, Uttar Pradesh on 06.06.2015 for Rs. 16,86,000/-(50% of his share) and Rs.16,86,000/-. Amount of sale consideration is not disputed as also established from the copy of sale deed available in PB. It is pertinent to mention that agricultural land sold total of Rs.33,72,000/- vide sale deed no. 12151 dated 06.06.2015 has been sold jointly whereas assessee’s share in the said land was 50% only. Therefore, he received 50% of sale consideration i.e. Rs.16,86,000/- (50% of Rs.33,72,000/-) as his share of sale consideration. The said pieces of land were sold against purchases of agricultural land made on 02.12.2013 vide sale deed no. 30129 and 30130. Copy of purchase deeds are in PB and details of cost of agricultural land sold and profit earned of Rs.1,77,185/- thereon is also in PB.

10. The issue is that assessee claimed that said agricultural land is situated beyond 8km from the outer limit of the district Greater Noida while ld. AO on the basis of Google App, found it to be not so. However, what is relevant tis that assessee had filed a certificate in this regard from Tehsildar and Ld. DCIT, Central Noida had also enquired about the land situated in these villages and written a letter to Tehsildar, who duly replied to the said letter, to verify that land doesn’t fall in mandatory territorial limit of any municipal body. In fact based on same report on of the co-sharer has been benefited by the department. Thus the profit earned of Rs.1,77,185/- on sale agricultural land situated beyond 8km from the outer limit of district Greater Noida, is exempted u/s 10 of the Act because the said agricultural land is not falling under the definition of capital asset as laid down u/s 2(14) of the Act. The corresponding ground is thus sustained and the ground no. 5, becomes infructuous.

11. As with regard to issue No. 3 covered by ground No.6, it comes up that Ld. AO has computed business income at Rs. 2,92,720/- by taking the income at 8% of the gross receipt of Rs. 36,59,000/-. During the impugned year assessee made deposits of various amount in his bank account details of which is mentioned as under:-

12. In this regard, it was submitted for the assessee that the amount of Rs. 1,86,000/- on 10.06.2016 vide cheque number 127691 and Rs. 6,68,000/- is received against the sale consideration of the lands sold by assessee and this fact was confirmed by the perusal of sale deed read with assesses bank statement enclosed. The remaining credits of Rs. 21,30,000/- and Rs.6,75,000/- were received by assessee, the source of which is mentioned as under:-

1) The credit of Rs. 21,30,000/- is received from Sh. Ramavtar Agarwal HUF. In this regard it is submitted that assessee has granted loan of Rs.21,30,000/-two installments of Rs.19,40,000/- and Rs.1,90,00/- to Sh. Ramavtar Agarwal HUF which was refunded back to him in full on 02.09.2016. PB 144 is the copy of ledger account of assessee in the book of Sh. Ramavtar Agarwal HUF showing the grant of loan by assessee of Rs. 19,40,000/-& Rs. 1.90.000 on 18.04.2016 and 14.06.2016 respectively and repayment of the same Sh. Ramavtar Agarwal HUF on 02.09.2016 for Rs.21,30,000/- PB 145 is the copy of confirmation of Sh. Ramavtar Agarwal HUF confirming the above mentioned transaction. PB 146 is the copy of acknowledgment of ITR of Sh. Ramavtar HUF for AY 2017-18.

2) Rs. 6,75,000 is received from Mr. Dinesh Tyagi which is in nature of repayment of loan granted by assessee to Mr. Dinesh Tyagi. PB 81 is the copy of confirmation of Mr. Dinesh Tyagi confirming that he has paid Rs. 6,75,000/-to assessee and further mentioning his PAN No. and bank details etc. PB 82-84 is the copy of acknowledgment of ITR and computation of income of Sh. Dinesh Tyagi showing that he is assessed to tax and is person of means.

13. Thus in view of the above submissions, credit stands fully explained and same do not indicate that the proceeds of business income were deposited. Even otherwise, business income additions cannot be on the basis of conjectures, and some corresponding expenditures or corroborating material from the books should be reflected in the assessment order, to tax the same. Same is not the case. The ground is thus sustained.

14. Resultantly, the appeal is allowed and impugned additions are deleted.

Order pronounced in the open court on 05.08.2026