Section 68 additions cannot be made when assessee declares income under presumptive taxation scheme Section 44AD

The ITAT Mumbai held that additions under section 68 cannot be made when an assessee declares income under section 44AD. The AO treated the assessee's grey cloth trading activity as non-genuine due to insufficient documentary evidence and added the entire turnover under section 68. The CIT(A) allowed the appeal, which was upheld by the ITAT. The tribunal ruled that since the assessee declared income on presumptive basis under section 44AD for trading activities with turnover below Rs. 2 crores, no requirement exists for maintaining books of accounts, making section 68 additions untenable. The assessee's appeal was allowed.

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Issues Involved:
1. Whether the addition made u/s 68 of the Income Tax Act is valid when the assessee has declared income u/s 44AD.
2. Whether the CIT(A) erred in deleting the addition made by the Assessing Officer under section 68.

Summary:

Issue 1: Validity of Addition u/s 68 when Income is Declared u/s 44AD

The assessee, a partner in various firms and engaged in trading of grey clothes, declared income u/s 44AD of the Income Tax Act for AY 2017-18. The Assessing Officer (AO) noticed cash deposits of Rs. 1,96,87,000 in the assessee's bank account and treated the trading activity as non-genuine, making an addition of Rs. 1,88,98,744 u/s 68 of the Act. The CIT(A) allowed the appeal in favor of the assessee, holding that additions u/s 68 cannot be made when income is declared u/s 44AD.

Issue 2: Deletion of Addition by CIT(A)

The Revenue appealed, arguing that the CIT(A) erred in deleting the addition and not appreciating that the assessee failed to prove the genuineness of the business. The Tribunal noted that u/s 68, additions can only be made if sums are found credited in the books of accounts, which the assessee is not required to maintain under section 44AD. The Tribunal referenced various judicial pronouncements, including the Delhi High Court's decision in CIT vs. Kulwant Rai and the ITAT's decision in Narendra Kumar Gupta vs. DCIT, which support that bank passbooks are not considered books of accounts and that additions u/s 68 cannot be made when income is declared u/s 44AD.

Conclusion:

The Tribunal concluded that the addition made by the AO under section 68 is not tenable as the assessee declared income on a presumptive basis u/s 44AD and is not required to maintain books of accounts. The appeal by the Revenue was dismissed, and the addition made by the AO was deleted.

Order:

The appeal of the Revenue is dismissed. Order pronounced in the open court on 16-01-2024.

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