No Addition Under Section 68 for Cash Deposits; Profit Presumed at 8% Under Section 44AD; 80C Deduction Allowed

The ITAT Mumbai held that no addition under section 68 could be made regarding cash and cheque deposits, treating them as business receipts. The profit was to be computed presumptively at 8% under section 44AD, allowing the assessee's alternate prayer. Additionally, the disallowance of deduction under section 80C was set aside, as the assessee had furnished valid LIC premium payment receipts. The AO was directed to allow the deduction accordingly. Both grounds raised by the assessee were allowed.

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ISSUES:

Whether additions under section 68 of the Income Tax Act can be made in respect of unexplained cash and cheque deposits when the assessee has opted for presumptive taxation under section 44AD and does not maintain books of account'Whether the unexplained difference between bank deposits and declared gross receipts can be treated as income and added to the taxable income under section 68'Whether the assessee is entitled to claim deduction under section 80C of the Income Tax Act based on submitted LIC premium receipts'Whether the provisions of section 68 can be invoked in the absence of maintained books of account?

RULINGS / HOLDINGS:

On the issue of additions under section 68, the Court held that "the provisions of section 68 cannot be invoked where the assessee has filed return of income under the provisions of section 44AD of the Act without maintain books of account."The Court found that "maintenance of books by the assessee is sine qua non for making addition u/s. 68 of the Act" and since the assessee did not maintain books, additions under section 68 were not justified.The unexplained deposits of Rs. 14,51,660/- were to be treated as business receipts, and profit @ 8% thereon was to be computed on a presumptive basis under section 44AD.Regarding the deduction under section 80C, the Court allowed the claim of Rs. 1 lakh as the assessee had submitted valid receipts for LIC premium payments and no fault was found in the documentation by the assessing officer.

RATIONALE:

The Court relied on the statutory framework of sections 44AD and 68 of the Income Tax Act, emphasizing that section 68 additions require the existence of books of account where the cash credit is recorded.The Court referred to the decision of the Hon'ble High Court of Gauhati in Anand Ram Raitani vs. CIT, which held that "existence of books of account is a condition precedent for invoking the provisions of section 68."The Tribunal's precedents were cited, including Madhu Raitani and Shri Kokkarne Prabhakara, which held that where income is declared under section 44AD without maintaining books, section 68 is not applicable.The Court distinguished between bank passbooks and books of account, noting that bank passbooks alone cannot be considered as books of account for the purpose of section 68.The Court applied the principle that the burden of proof under section 68 arises only after the existence of books of account is established, which was not the case here.The Court also emphasized that the assessing officer had granted relief for redeposits and only added unexplained amounts unsupported by documentary evidence, which the assessee failed to provide.On the deduction under section 80C, the Court applied the principle that valid documentary evidence such as premium receipts entitles the assessee to claim the deduction, and denial without fault in documents is unjustified.

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