2025 (2) TMI 1409 - AT - Income Tax

Presumptive taxation under section 44AD and unexplained bank credits under section 68: tribunal disallows s.68 additions.

Whether section 68 additions can be sustained against an assessee who declared business income under the presumptive taxation regime under section 44AD ... Addition u/s 68 made on the basis of the entries found in the passbook - assessee returned its business income under presumptive taxation u/s 44AD of the Act by which he gets immunity from maintaining books of accounts HELD THAT:- Co-ordinate Bench of the Tribunal in the case of Shri Kokarre Prabhakara [2020 (9) TMI 536 - ITAT BANGALORE] in a similar situation where the assessee had declared income under section 44AD of the Act without maintaining books and the Assessing Officer had invoked the provisions of section 68 of the Act, the Tribunal deleted the addition by placing reliance of various decisions of the Tribunal holding that where the returns are filed on the basis of income declared under section 44A of the Act, there cannot be any application of section 68 of the Act. It is pertinent to note that in DINESHKUMAR VERMA [2021 (1) TMI 13 - ITAT MUMBAI], the Coordinate Bench has considered the identical issue and followed the decision of Hon’ble Bombay High Court in the case of Bhaichand N. Gandhi [1982 (2) TMI 28 - BOMBAY HIGH COURT] while deciding the issue in favour of the assessee and against the revenue. Issues: (i) Whether addition of Rs. 3,00,00,000 made under section 68 of the Income-tax Act, 1961 can be sustained where the assessee filed return under presumptive taxation u/s 44AD and did not maintain books of account; (ii) Whether claims for deductions under section 80C and section 80D should be remitted to the Assessing Officer for verification.Issue (i): Whether section 68 can be invoked where the alleged cash credits are reflected only in bank passbooks and the assessee has filed return under section 44AD without maintaining books of account.Analysis: Section 68 applies where any sum is found credited in the books of account maintained by the assessee. The definition of 'books or books of account' in section 2(12A) does not include bank passbooks or bank statements. Jurisprudence establishes that a bank passbook is a copy of the bank's records and is not a book maintained by the assessee. Section 44AD permits filing on a presumptive basis without maintenance of books; where no books are maintained, the precondition for invoking section 68 is not satisfied. Coordinate decisions applying these principles were considered and followed.Conclusion: Addition under section 68 deleted; the invocation of section 68 in the absence of books of account and where deposits appear only in bank passbooks is not justified. Decision is in favour of the assessee on this issue.Issue (ii): Whether the deductions claimed under section 80C and section 80D require further examination and verification by the Assessing Officer.Analysis: The claims for deduction under section 80C and section 80D are supported by documents on record which were not considered by the authorities below. In the interest of justice, the Tribunal directed re-examination by the Assessing Officer with allowance for the assessee to furnish supporting documents and be heard.Conclusion: Issues remitted to the Assessing Officer for verification and decision after affording reasonable opportunity of being heard; direction benefits the assessee procedurally.Final Conclusion: The appeal is partly allowed - the addition under section 68 is deleted in favour of the assessee, and the deductions under sections 80C and 80D are restored to the file of the Assessing Officer for verification.Ratio Decidendi: Section 68 can be invoked only where a sum is found credited in books of account as defined in section 2(12A); a bank passbook is not a book of account and where an assessee has filed under section 44AD without maintaining books, section 68 cannot be applied.