Bijal Avkesh Shah Vs ITO (ITAT Rajkot)
Section 44AD: Absence of Books Alone Cannot Make Entire Bank Deposits Unexplained, Rules ITAT
The Rajkot Bench of the Income Tax Appellate Tribunal (ITAT) deleted a ₹68,44,230 addition under Section 69A of the Income-tax Act, 1961, holding that the entire cash deposits could not be treated as unexplained merely because an assessee opting for Section 44AD had not produced regular books and supporting bills. The Tribunal noted that the deposits had been disclosed as business receipts and income offered at the presumptive rate of 8%.
The Tribunal also deleted an addition of ₹1,57,118 relating to an SBI Life Insurance transaction and a disallowance of ₹59,500 claimed under Chapter VI-A.
Cash deposits treated as unexplained despite presumptive return
The assessee had not filed an original return for Assessment Year 2015-16. Departmental information reflected cash deposits of ₹68,44,230 in an account with Saurashtra Gramin Bank, interest income of ₹3,419 and a transaction of ₹1,57,118 concerning SBI Life Insurance.
The Assessing Officer issued a notice under Section 148 on 31 March 2022. In response, the assessee filed a return on 12 August 2022, declaring income under the presumptive taxation scheme.
During reassessment, the assessee stated that he dealt in brass at Jamnagar and that the deposits represented sales receipts against which purchase payments were made. He furnished bank statements, a computation of income and other details.
The Assessing Officer sought further evidence, including trade licences, sales/VAT returns, purchase and sales bills and transportation records. Finding the business explanation insufficiently substantiated, he treated the entire cash deposits as unexplained money under Section 69A.
The CIT(A) sustained the addition.
Failure to maintain books did not establish unexplained money
Before the Tribunal, the assessee argued that he had offered business income at 8% under Section 44AD and paid the applicable tax. He maintained that regular books were not required under the presumptive scheme.
The Revenue defended the addition, citing the absence of documentary evidence establishing purchase and sale transactions and the nature of the business.
The Tribunal found that the assessee had disclosed the deposits in the return filed in response to Section 148 and offered presumptive business income of ₹5,47,546.
On the facts, it held that failure to produce regular books and supporting bills did not, by itself, establish that the entire bank deposits represented unexplained money. Accordingly, the ₹68,44,230 addition was deleted.
Insurance transaction explained as maturity proceeds
The Assessing Officer had also treated ₹1,57,118 relating to SBI Life Insurance as unexplained investment.
Before the Tribunal, the assessee explained that the amount represented maturity proceeds received from an insurance policy.
The Tribunal noted that the Revenue had not produced material contradicting this explanation. It held that the addition could not be sustained merely because the transaction’s source had not been explained during assessment and directed its deletion.
Chapter VI-A deduction restored
The assessee explained that the ₹59,500 deduction comprised tuition fees of ₹49,500 and savings bank interest of ₹10,000.
Accepting the explanation, the Tribunal deleted the disallowance.
After condoning a delay of 19 days in filing the appeal, the Tribunal allowed the assessee’s appeal and deleted the additions and disallowance sustained by the CIT(A).
FULL TEXT OF THE ITAT RAJKOT JUDGMENT/ORDER
Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2015-16, is directed against the order under section 250 of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] passed by the National Faceless Appeal Centre [hereinafter referred to as ‘NFAC’], dated 20.08.2025, which in turn arises out of an order passed by assessing officer u/s. 147 read with section 144 of the Act, dated 11.03.2023.
02. Brief facts of the case are that the assessee, is an individual, did not file his original return of income for the assessment year 2015-16. Based on the information available with the Department, it was noticed that the assessee had deposited cash of Rs.68,44,230/- in his bank account maintained with Saurashtra Gramin Bank, received interest income of Rs.3,419/- from State Bank of India and made a payment of Rs.1,57,118/- towards a life insurance policy with SBI Life Insurance Company Limited. Accordingly, notice under section 148 of the Income-tax Act, 1961, was issued on 31.03.2022. In response thereto, the assessee filed his return of income on 12.08.2022, declaring income under the presumptive taxation scheme under section 44AD of the Act. During the course of reassessment proceedings, the Assessing Officer issued notices under sections 143(2) and 142(1) of the Act, calling upon the assessee to furnish documentary evidence in support of his business activities, including trade licence, sales/VAT returns, purchase and sales bills, transportation bills and the insurance certificate. The assessee submitted his bank statement, computation of income and certain other details, stating that he was engaged in the business of dealing in brass and was not required to maintain bills and records under the presumptive taxation scheme. However, the Assessing Officer held that the assessee had failed to substantiate the nature of his business and establish that the cash deposits represented business receipts. Accordingly, the entire cash deposit of Rs.68,44,230/- was treated as unexplained money under section 69A of the Act. Further, the payment of Rs.1,57,118/- towards the SBI Life Insurance policy was treated as unexplained investment under section 69 of the Act, in the absence of an explanation regarding its source. The deduction of Rs.59,500/- claimed under Chapter VI-A (where as in computation of income stated as Rs.54,024/- instead of Rs.59,500/-) was also disallowed for want of supporting evidence. Consequently, the Assessing Officer passed the reassessment order dated 11.03.2023 under section 147 read with section 144B of the Act, determining the total income at Rs.70,55,372/-, including the aforesaid additions and disallowance. Penalty proceedings under section 271(1)(c) of the Act were also initiated separately.
03. Aggrieved by the reassessment order, the assessee preferred an appeal before the Ld. Commissioner of Income Tax (Appeals) [CIT(A)], who dismissed the appeal and sustained the additions made by the Assessing Officer.
04. Still, aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this tribunal. There is a delay of 19 days in filing the present appeal. Having considered the reasons stated in the application for condonation of delay and being satisfied that sufficient cause prevented the assessee from filing the appeal within the prescribed period, the delay of 19 days is condoned and the appeal is admitted for adjudication.
05. Before us, the Ld. AR submitted that, in response to the notice issued under section 148 of the Income-tax Act, 1961, the assessee had declared total income of Rs.5,42,070/-, comprising income from business or profession computed under section 44AD of the Act and income from other sources, besides claiming deduction of Rs.59,500/- under Chapter VI-A of the Act. It was contended that the assessee was engaged in the business of dealing in brass at Jamnagar and that the cash deposits of Rs.68,44,230/- in his bank account represented business receipts from sales, against which payments were made towards purchases. Since the turnover was below the prescribed audit limit and the assessee had opted for presumptive taxation under section 44AD of the Act, he was not required to maintain regular books of account. The Ld. AR, therefore, contended that the Assessing Officer was not justified in treating the entire cash deposits as unexplained money under section 69A of the Act, particularly when the assessee had already offered business income at the presumptive rate of 8% and paid the applicable taxes. With regard to the addition of Rs.1,57,118/-, the Ld. AR submitted that the amount represented the maturity proceeds of a life insurance policy received from SBI Life Insurance Company Limited and, therefore, could not be treated as an unexplained investment. Regarding the disallowance of Rs.59,500/- under Chapter VI-A (where as in computation of income stated as Rs.54,024/- instead of Rs.59,500/-), it was submitted that the deduction comprised tuition fees of Rs.49,500/- and interest on savings bank deposits of Rs.10,000/-, both of which were duly reflected in the computation of income. The Ld. AR accordingly prayed for deletion of the additions and disallowance sustained by the Ld. CIT(A).
06. The Ld. DR, on the other hand, supported the orders of the lower authorities and submitted that the assessee had failed to furnish documentary evidence regarding the purchase and sale transactions or otherwise substantiate the nature of his business activities. It was, therefore, contended that the Assessing Officer was justified in treating the cash deposits as unexplained money and in making the consequential additions.
07. We have considered the rival submissions and perused the material available on record. We find that the assessee had disclosed the cash deposits of Rs.68,44,230/- in his bank account in the return filed in response to the notice under section 148 of the Act and had offered income from business at the presumptive rate of 8% under section 44AD of the Act, amounting to Rs.5,47,546/-, besides income from other sources of Rs.54,024/-. The assessee had thus offered income on a presumptive basis and paid the applicable taxes. In the facts and circumstances of the case, the Assessing Officer was not justified in treating the entire amount of cash deposits as unexplained money under section 69A of the Act merely because the assessee had not produced regular books of account and supporting bills, particularly when the assessee had opted for presumptive taxation under section 44AD of the Act. The failure to maintain regular books of account, by itself, does not establish that the entire amount deposited in the bank represents unexplained money. Accordingly, the addition of Rs.68,44,230/- made under section 69A of the Act is deleted. As regards the addition of Rs.1,57,118/- towards payment to SBI Life Insurance Company Limited, the Ld. AR has explained that the amount represented maturity proceeds of the insurance policy. In the absence of any material brought on record by the Revenue to controvert this explanation, the addition cannot be sustained merely on the ground that the source of the payment was not explained during the assessment proceedings. Accordingly, the addition of Rs.1,57,118/- made under section 69A of the Act is deleted. With regard to the disallowance of Rs.59,500/- claimed under Chapter VI-A of the Act, we find that the assessee has explained that the claim comprised tuition fees of Rs.49,500/- and interest on savings bank deposits of Rs.10,000/-. Since the claim has been explained by the assessee, the disallowance is directed to be deleted. In view of the foregoing discussion, the additions and disallowance sustained by the Ld. CIT(A) are deleted. Accordingly, the appeal of the assessee is allowed.
08. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on this 15th day of October, 2026.
