Rina Radha Madhab Jena Vs Assessment Unit Income Tax Department / DCIT (ITAT Mumbai)
Once Section 44AD Presumes the Profit, AO Cannot Audit Every Rupee Through Sections 69A & 69C—ITAT Deletes ₹20.39-Lakh Double Additions
Facts of the Case
The assessee, an individual, was engaged in the business of manpower consultancy & recruitment. She also earned rental & interest income.
For AY 2023-24, the assessee filed her return declaring total income of ₹11,78,580. She disclosed business turnover of ₹52,01,836 & offered business income at 6% under the presumptive taxation scheme u/s 44AD.
The return was selected for scrutiny under CASS for the reason: “Large cash payments made for credit card purchases.”
During the assessment, the AO examined cash deposits appearing in the bank accounts & cash payments made toward credit-card bills.
Two separate additions aggregating to ₹20,39,312 were ultimately made.
Addition of ₹10.24 Lakh u/s 69A
The AO noticed aggregate cash deposits of ₹10,24,000.
The assessee furnished the following explanation:
₹3,11,000 represented cash receipts arising from her manpower consultancy business; and
₹7,13,000 was deposited in a joint overdraft account held with her husband, who was the primary account holder. This amount was allegedly deposited by her husband & did not belong to the assessee.
The assessee submitted copies of her return, computation of income & the relevant joint bank-account details.
The AO was not satisfied with the explanation & treated the entire amount of ₹10.24 lakh as unexplained money u/s 69A.
Addition of ₹10.15 Lakh u/s 69C
The AO further noticed cash payments of ₹10,15,312 toward credit-card bills.
The assessee explained that she was engaged in the service sector & had received cash from various customers during her business activities. Such business cash was utilised to pay expenses through the credit-card accounts.
She furnished credit-card statements, a table showing payments & details of cash deposits before the AO as well as the CIT(A).
The assessee contended that actual cash deposited toward credit-card payments amounted to ₹7,20,500, whereas the AO considered ₹10,15,312. However, the AO treated the entire amount as unexplained expenditure u/s 69C.
The assessment was completed at a total income of ₹32,17,892.
CIT(A) Confirms Both Additions
Before the CIT(A), the assessee reiterated that her business income was already offered presumptively u/s 44AD. The cash receipts & corresponding expenditure arose from the same disclosed business.
The CIT(A) distinguished judicial precedents relied upon by the assessee. It held that presumptive taxation did not automatically explain cash deposits or expenditure unless a nexus with the declared business receipts was proved through documentary evidence.
Both additions were confirmed.
Assessee’s Contentions Before the ITAT
The assessee argued that once income from an eligible business was computed u/s 44AD, she was not required to substantiate every individual business receipt or expense through regular books & vouchers.
Reliance was placed upon CIT v. Surinder Pal Anand [(2010) 192 Taxman 264 (P&H)].
In that decision, the Punjab & Haryana High Court held that where presumptive income forms the basis of taxation, an assessee is not ordinarily required to explain each cash deposit individually, unless the deposit has no nexus with the gross business receipts.
The assessee maintained that ₹3.11 lakh formed part of her disclosed business turnover, while ₹7.13 lakh belonged to her husband. Similarly, credit-card payments represented expenditure incurred for her business out of cash received from customers.
Presumptive Taxation Deems Business Profit
The Tribunal observed that the assessee’s turnover of ₹52,01,836 & profit offered at 6% u/s 44AD were undisputed.
Under section 44AD, eligible business income is determined on a presumptive basis. The statutory scheme substitutes the usual item-wise computation under the business head with a deemed determination of profits.
Consequently, expenditure relatable to the disclosed business receipts cannot ordinarily be subjected to a separate disallowance merely because individual bills or vouchers are unavailable.
This protection, however, applies where the transactions have a nexus with the disclosed business & there is no evidence that they represent an independent or undisclosed source.
Cash Deposits Could Not Be Taxed Again
The assessee consistently maintained that ₹3.11 lakh represented cash business receipts forming part of the turnover offered u/s 44AD.
The Revenue produced no material demonstrating that the amount arose from a source outside the disclosed business. Taxing the same receipt independently u/s 69A would therefore amount to bringing an already disclosed business receipt into taxation once again.
The balance ₹7.13 lakh was explained as belonging to the husband & deposited in the joint overdraft account. Relevant bank-account material was produced in support.
The Tribunal accepted the overall explanation & deleted the addition of ₹10.24 lakh u/s 69A.
Business Expenditure Could Not Be Added u/s 69C
The credit-card payments were consistently explained as expenditure connected with business activities.
Since business income had been offered & accepted under section 44AD, separately adding the underlying expenditure merely because individual vouchers were not produced would contradict the presumptive scheme.
In the absence of evidence showing that the expenditure came from an independent unexplained source, the addition of ₹10,15,312 u/s 69C was also deleted.
The assessee’s appeal was accordingly allowed.
Authors’ Comments
The judgment does not make section 44AD a blanket immunity against sections 69A & 69C. The crucial requirements remain a credible business nexus & absence of evidence pointing to an independent undisclosed source.
If a deposit is unrelated to turnover or expenditure is manifestly personal or sourced outside the business, presumptive taxation will not prevent a separate addition.
Here, the disclosed turnover was sufficient, supporting bank & credit-card documents were furnished & the Revenue could not establish any outside source. The principle is therefore precise: presumption of business profit cannot coexist with a second, voucher-by-voucher taxation of the same business cash flow.
Cases Discussed
- CIT-II vs. Surinder Pal Anand, (2010) 192 Taxman 264 (P&H) — discussed in the context of cash deposits and presumptive taxation under section 44AD.
- Lakshmanram Bheemaji Purohit v. ITO [2025] 175 taxmann.com 996 (Bangalore ITAT) — discussed and distinguished on the scope of the issue concerning unexplained cash deposits and expenditure.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT MUMBAI
The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity “Ld. CIT(A)”], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’), for Assessment Year 2023-24, date of order 16.01.2026. The impugned order emanated from the order of the Assessmenu Unit, Income Tax Department (for brevity ‘Ld. AO’), order passed under Section 143(3) r.w.s. 144B of the Act, date of order 25.02.2025.
2. The assessee has taken the following grounds:
“1) The Learned CIT(A)/NFAC erred in confirming the order of AO making the addition of cash deposits Rs. 10,24,000/- u/s 69A without appreciating that the provisions of Section 69A is not applicable as Assessee is offering her income on presumptive basis u/s 44AD and not maintaining any books of accounts and thus the addition of Rs. 10,24,000/-u/s 69A may be deleted.
1.1) Without prejudice to ground of appeal no 1, the Learned CIT(A)/NFAC erred in confirming the order of AO making the addition of cash deposits Rs 10,24,000/- u/s 69A without appreciating that Rs 7,13,000/- was deposited in the Joint Overdraft Account of her husband and said cash did not belong to the Assessee and further the balance cash deposit of Rs 3,11,000/- was included in the turnover of the Assessee and hence the addition of Rs 10,24,000/-u/s 69A may be deleted.
1.2) Without prejudice to ground of appeal no 1 and 1.1, the Learned CIT(A)/NFAC erred in confirming the order of AO making the addition of cash deposits Rs 10,24,000/-u/s 69A without appreciating that entire cash deposit cannot be added and only profit element embedded in the cash deposit can be added and thus addition of cash deposit may be restricted to a reasonable profit percentage embedded in the cash deposits.
2) The Learned CIT(A)/NFAC erred in confirming the order of AO making the addition of cash expense of Rs 10,15,312/- u/s 69C without appreciating that the provisions of Section 69C are not applicable asAssessee is offering her income on presumptive basis u/s 44AD and same is duly accepted and thus the addition of Rs 10.15.324/-u/s 69C may be deleted.
2.1) Without prejudice to ground of appeal no 2, the Learned CIT(A)/NFAC erred in confirming the order of AO making the addition of cash expenses Rs 10,15,324/-u/s 69C without appreciating that the cash expense were out of cash income arising from the business and hence the addition of Rs. 10,15,324/-u/s 69C may be deleted.
2.2) Without prejudice to ground of appeal no 1 and 1.1, the Learned CIT(A)/NFAC erred in confirming the order of AO making the addition of cash deposits Rs 10,15,324/-u/s 69C without appreciating that entire cash expense cannot be added and only profit element embedded in the cash expense can be added and thus addition of cash expense may be restricted to a reasonable profit percentage embedded in the cash expense.
3) The Appellant craves leave to add, amend, alter, delete any of the above grounds of appeal.”
3. The brief facts of the case are that the assessee, an individual engaged in the business of manpower consultancy and recruitment and also deriving income from rent and interest, filed her return of income for A.Y. 2023-24 declaring total income of Rs.11,78,580/-. The assessee offered her business income under the presumptive taxation scheme provided under section 44AD of the Act. The case was selected for scrutiny under CASS for the reason, “Large cash payments made for credit card purchases (Business ITR)”. During the assessment proceedings, the Ld. AO examined the cash deposits appearing in the bank accounts and cash payments towards the assessee’s credit card. The assessee explained that out of the aggregate cash deposits of Rs.10,24,000/-, an amount of Rs.3,11,000/- represented receipts from her business of manpower consultancy, whereas Rs.7,13,000/- pertained to the joint overdraft account held with her husband, who was the primary account holder. The assessee contended that the latter amount did not represent her income. The Ld. AO, however, was not satisfied with the explanation and made an addition of Rs.10,24,000/- under section 69A of the Act as unexplained money. The Ld. AO further noticed cash payments of Rs.10,15,312/- towards credit card bills and, being dissatisfied with the explanation regarding their source, treated the same as unexplained expenditure under section 69C of the Act. Consequently, the assessment was completed at a total income of Rs.32,17,892/-.
The assessee carried the matter before the Ld. CIT(A) and reiterated that her business income had been offered under section 44AD and that the cash receipts and corresponding expenditure arose from the business activity. The Ld. CIT(A), however, confirmed the additions. Aggrieved by the impugned appellate order, the assessee is in appeal before the Tribunal.
4. The Ld. AR filed a paper book comprising pages 1 to 243, which has been placed on record. The Ld. AR summarized the total cash deposit, which is reproduced in tabular format:
| Sl No. | Particulars | Amount |
|---|---|---|
| 1. | Cash deposit from own business | Rs. 3,11,000/- |
| 2. | Cash deposited in the joint overdraft account of the husband of the assessee | Rs. 7,13,000/- |
| 3. | Total | Rs. 10,24,000/- |
5. The Ld. AR submitted copies of the ITR, computation of income, and the relevant bank account held jointly by the assessee and her husband. It was submitted that cash amounting to Rs.7,13,000/- was deposited by the assessee’s husband in the said joint account and the same was duly reflected in the assessee’s accounts. The Ld. AR further contended that the cash deposit of Rs.3,11,000/- was made out of the assessee’s own business receipts. It was submitted that the assessee had sufficient business turnover to explain the source of the said cash deposit.
6. The Ld. AR further contended that the assessee had made cash deposits towards credit card payments in connection with services rendered to different parties. The assessee is engaged in the service sector and, according to the Ld. AR, cash received from various parties in the course of business was utilised for making payments towards the credit card account. The total cash deposited towards the credit card payments amounted to Rs.7,20,500/-. However, the Ld. AO considered an amount of Rs.10,15,312/- and made an addition under section 69C of the Act. The Ld. AR submitted that the assessee had furnished the relevant credit card statements along with submissions made before the Ld. AO as well as the Ld. CIT(A) on different dates. It was contended that the entire amount represented expenditure incurred in connection with the assessee’s business. The Ld. AR further submitted that, considering the presumptive taxation scheme under section 44AD of the Act, no separate addition in respect of such business expenditure was warranted. In support of the contention, the Ld. AR respectfully relied upon the judgment of the Hon’ble Punjab & Haryana High Court in CIT-II vs. Surinder Pal Anand, reported in (2010) 192 Taxman 264 (P&H). The relevant paragraphs 5 to 10 of the said judgment are reproduced as under:
“5. It was submitted on behalf of the appellant that since from the information available in respect of the cash deposit in bank account of the respondent-assessee, the total deposits made during the year amountingto Rs. 14,95,300 had been made in the said hank account, the assessee having failed to explain the source of the said amount, the addition made by the Assessing Officers was justified.
6. We have considered the submission of learned counsel for the appellant and do not find any merit in the same.
7. Section 44AD of the Act was inserted by the Finance Act, 1994 with effect from 1-4-1994. Sub-section (1) of section 44AD clearly provides that where an assessee is engaged in the business of civil construction or supply of labour for civil construction, income shall be estimated at 8 per cent of the gross receipts paid of payable to the assessee in the previous year on account of such business or a sum higher than the aforesaid sum as may be declared by the assessee in his return of income notwithstanding anything to the contrarycontained in sections 28 to 43C of the Act. This income is to be deemed to be the profits and gains of said business chargeable of tax under the head “profits and gains” of business. However, the said provisions are applicable where the gross receipts paid or payable does not exceed Rs. 40 lakhs.
8. Once under the special provision, exemption from maintaining of books of account has been provided and presumptive tax at the rate of 8 per cent of the gross receipt itself is the basis for determining the taxable income, the assessee was not under obligation to explain individual entry of cash deposit in the bank unlesssuch entry had no nexus with the gross receipts. The stand of the assessee before the Commissioner of Income-tax (Appeals) and the ITAT that the said amount of Rs. 14,95,300 was on account of business receipts had been accepted. Learned counsel for the appellant with reference to any material on record, could not show that the cash deposits amounting to Rs. 14,95,300 were unexplained or undisclosed income of the assessee.
9. In view of the above position, we are unable to hold that any substantial question of law arises in this appeal.
10. The appeal is dismissed.”
7. The Ld. DR argued and contended that the assessee’s cash deposit and the expenses in credit card was not duly verified by any of the authorities. The Ld. DR contended that the purpose of deposit of cash & payment of expenses are not interlinked with the business. So, the revenue authorities are justified to confirm the additions. The Ld. DR invited our attention to page 14 of the impugned appellate order, which is in reproduced as below:
“The ratio of Surinder Pal Anand case applies only when there is nexus between cash deposits and gross receipts. In the present case, the assessee has failed to establish any such nexus through documentary evidence.
Case 2: Lakshmanram Bheemaji Purohit v. ITO [2025] 175 taxmann.com 996 (Bangalore ITAT)
The Tribunal held that when return is filed under Section 44AD, no disallowance of purchases can be made if turnover is undisputed.
Distinguishing Features:
| Lakshmanram Case | Present Case |
|---|---|
| Issue was bogus purchases | Issue is unexplained cash deposits and expenditure |
| Turnover was undisputed | Turnover not disputed, but source of cash deposits questioned |
| Addition was for disallowance of expenses | Addition is for unexplained money u/s 69A and unexplained expenditure u/s 69C |
| Within the scope of business operations | Outside the declared business operations |
The Lakshmanram case dealt with disallowance of expenses within the business operations. The present case deals with unexplained cash deposits which are outside the purview of declared business receipts.”
8. We have heard the rival submissions and perused the material available on record. The undisputed fact emerging from the record is that the assessee has offered her business income under the presumptive taxation scheme contained in section 44AD of the Act. The assessee declared turnover of Rs.52,01,836/- and offered profit at 6% thereof. The assessment proceedings resulted in separate additions of Rs.10,24,000/- under section 69A and Rs.10,15,312/- under section 69C. The assessee explained the cash deposit of Rs.10,24,000/- by bifurcating the same into Rs.3,11,000/- received from her own business and Rs.7,13,000/- deposited in the joint overdraft account held with her husband. The latter amount was stated to have been deposited by the husband and not to represent the assessee’s income. The assessee also produced the ITR, computation of income and relevant bank-account details in support of the explanation.
9. So far as the addition under section 69C is concerned, the assessee explained that the credit card payments related to expenditure incurred in connection with her business activities and that the cash receipts from customers were utilised towards such payments. The assessment order itself records that the assessee furnished copies of the credit card statements, a table showing the credit card payments and details of cash deposits. At this juncture, it is pertinent to consider the nature of the presumptive taxation scheme under section 44AD. Once the eligible business income is computed on the presumptive basis prescribed by the section, the statutory scheme proceeds on a deemed determination of the profits and gains of such business. Therefore, the expenditure relatable to such business receipts cannot ordinarily be subjected to a separate item-wise disallowance merely for want of individual bills or vouchers, provided the transactions have nexus with the business and there is no material establishing that they represent an independent or undisclosed source of income.
10. In this regard, the reliance placed by the Ld. AR on the judgment of the Hon’ble Punjab & Haryana High Court in Surinder Pal Anand, (supra) is relevant. The Hon’ble High Court observed, in the context of section 44AD, that where presumptive income is the basis for determining taxable business income, the assessee is not required to explain each individual cash deposit unless the particular deposit has no nexus with the gross receipts.
11. In the present case, the assessee has consistently explained that the amount of Rs.3,11,000/- represented her business receipts forming part of the turnover offered under section 44AD. Once such business receipts have been brought within the presumptive taxation scheme, taxing the same amount independently under section 69A, without material demonstrating that it represents income from a source outside the disclosed business, would not be justified. Further, the balance amount of Rs.7,13,000/- was explained as pertaining to the joint overdraft account of the assessee’s husband and was specifically stated not to belong to the assessee.
12. Similarly, in respect of the addition of Rs.10,15,312/- under section 69C, the expenditure has been explained as relating to the assessee’s business activities. When the business income itself has been offered and accepted under the presumptive scheme of section 44AD, a separate addition of the underlying business expenditure merely on the ground that individual supporting vouchers were not produced would run contrary to the scheme of presumptive taxation, in the absence of material demonstrating that the expenditure was incurred from an independent unexplained source.
13. Considering the totality of the facts and the material placed on record, read with the ratio of the Hon’ble Punjab & Haryana High Court in Surinder Pal Anand (supra), the additions of Rs.10,24,000/- under section 69A and Rs.10,15,312/- under section 69C are deleted. Accordingly, the grounds raised by the assessee are allowed.
14. In the result, the appeal of the assessee bearing ITA No.3587/Mum/2026 is allowed.
Order pronounced in the open court on 04th day of September 2026.
