Section 68 cash credit requires evidence of source, while factual explanation can defeat ad hoc presumptive additions.
Cash entries recorded in a maintained cash book and balance sheet can fall within "books of account" for section 68, but the assessee must still prove the nature and source of the credit with cogent evidence; a mere claim of trade advances or business receipts is insufficient, so the cash credit addition of Rs. 78,00,000 was sustained. On the balance cash deposits, the factual record accepted that part of the money came from the assessee's own capital and business accruals and part from the father's cash use of the bank account, so the further ad hoc 8% addition under section 44AD was not warranted and was deleted.
Issues: (i) Whether the cash credit of Rs. 78,00,000 was liable to addition under section 68 of the Income-tax Act, 1961. (ii) Whether the ad hoc addition of 8% on the balance cash deposit of Rs. 28,14,676 was sustainable under the presumptive taxation scheme of section 44AD of the Income-tax Act, 1961.
Issue (i): Whether the cash credit of Rs. 78,00,000 was liable to addition under section 68 of the Income-tax Act, 1961.
Analysis: The assessee had maintained and produced a cash book and balance sheet, bringing the entries within the expression "books of account" for the purposes of section 68 read with section 2(12A). The explanation offered for the source of the cash deposits was not supported by cogent evidence, and the source of the amount transferred to the trader remained unsubstantiated. Mere assertion that the amount represented trade advances or business receipts was insufficient to discharge the burden of proving the nature and source of the credit.
Conclusion: The addition of Rs. 78,00,000 under section 68 was justified and was sustained against the assessee.
Issue (ii): Whether the ad hoc addition of 8% on the balance cash deposit of Rs. 28,14,676 was sustainable under the presumptive taxation scheme of section 44AD of the Income-tax Act, 1961.
Analysis: The balance cash deposits were accepted, on the facts and surrounding circumstances, as being explainable partly by the assessee's own capital and business accruals and partly by cash belonging to the assessee's father who had also used the bank account. In that factual setting, the further addition by applying 8% to the balance amount was not warranted.
Conclusion: The addition of Rs. 2,25,676 on the balance amount was deleted in favour of the assessee.
Final Conclusion: The appeal succeeded only in part, with the section 68 addition maintained but the presumptive addition on the balance cash deposits set aside.
Ratio Decidendi: Cash entries recorded in a maintained cash book constitute books of account for section 68, and an unexplained credit may be taxed where the assessee fails to furnish a satisfactory and evidence-based explanation of its nature and source; a further presumptive addition cannot be sustained where the balance deposits are factually explained on the overall record.
TaxTMI 
AI Drafter ✕
TaxTMI 
