Presumptive taxation under Section 44AD bars gross profit enhancement unless book results are first rejected in principle.

Under the presumptive taxation scheme in Section 44AD, an addition made by enhancing gross profit on cash sales is not sustainable where the assessee's book results are not rejected in principle. The analysis states that once the declared business receipts are accepted under the scheme, a further gross profit enhancement based only on cash sales deposits in bank would defeat the object of presumptive taxation. The issue was therefore decided in favour of the assessee, and the addition was held unsustainable.

---

---

Issues: Whether an addition by enhancing gross profit on cash sales was sustainable when the assessee's book results were filed under the presumptive taxation scheme under Section 44AD of the Income-tax Act, 1961 and had not been rejected in principle.

Analysis: The assessee had declared business receipts and the lower authorities enhanced the profit rate and made an addition on the basis of cash sales deposited in bank. It was held that unless the book results filed under presumptive taxation are rejected in principle, an enhancement of gross profit would defeat the purpose of the scheme and cannot be sustained in law.

Conclusion: The addition was held unsustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: Where book results under presumptive taxation are not rejected in principle, an addition by merely enhancing gross profit is not sustainable.

---