SHIPRA VISHAL BANDLISH,MUMBAI vs. INCOME TAX OFFICER, WARD 41(3)(4), MUMBAI, MUMBAI

PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against the order passed by the learned Commissioner of Income-Tax (Appeals) – National Faceless Appeal Centre, Delhi [in short, ‘the Ld. CIT(A)’], for the Assessment Year 2018-19, whereby the learned CIT(A) upheld (i) the action of the Assessing Officer in assessing the interest receipts under the head "Income from Other

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Sources"instead of "Profits and Gains of Business or Profession", thereby denying the benefit of section 44AD of the Income-tax Act, 1961 ("the Act"), and (ii) the addition made under section 68 of the Act in respect of sundry creditors. The grounds raised by the assessee are reproduced as under:-

i. : Violation of principles of natural justice and non-application of mind a. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the assessment order passed under section 143(3) read with section 144B of the Income-tax Act, 1961 ('the Act), which is vitiated by gross violation of the principles of natural justice and non-application of mind. That the Ld. AO erred in passing the final assessment order without granting the Appellant a real, reasonable and effective opportunity of being heard. That the Ld. CIT(A) further erred in proceeding on an incorrect factual assumption that the Appellant had not complied with notices issued under section 142(1) of the Act, despite material on record evidencing due compliance.

b. In view of the above, the Appellant prays that the order u/s 250 of the Act is bad in law and be quashed.

Without prejudice to the above Ground 1 Ground 2: Erroneous characterization of interest income from ii. lending business as income from other sources and not business income a. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in assessing the interest income earned by the Appellant from money-lending activity under the head "Income from Other Sources" under section 56 of the Act instead of "Profits and Gains from Business or Profession". That the Ld. AO and the Ld. CIT(A) erred in re-characterising the interest receipts solely on the ground that the Appellant did not possess a

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licenceunder the state legislation without disputing the existence, continuity, or organised nature of the money- lending activity carried on by the Appellant. That the action of the Ld. AO in changing the character of income is vitiated by internal inconsistency, given that in the computation forming part of the assessment order the Ld. AO treats the interest income from lending activity as business income. The Ld. CIT(A) failed to appreciate that money-lending is not an excluded business under section 44AD and that, once the activity is accepted as a business, the interest receipts therefrom constitute eligible business receipts for presumptive taxation. b. In view of the above facts of the case, the Appellant prays that the order of Ld. CIT(A) affirming the erroneous re- characterisation of business income as income from other sources and consequent addition of INR 42,47,702, is liable to be quashed.

iii. Ground 3: Erroneous addition u/s 68 of the Act amounting to INR 10,45,400 a. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the addition under section 68 of the Act despite the absence of any books of account maintained by the Appellant, the Appellant having declared income under the presumptive taxation scheme and having duly explained the source of the impugned loans, which were not considered either by the L'd AO during the assessment proceedings or by the L'd CIT(A) during the appellate proceedings, whereas section 68 can be invoked only where a sum is found credited in the books of the assessee maintained for the relevant previous year. b. In view of the above facts of the case, the Appellant prays that the order of L'd CIT(A) upholding the addition of INR 10,45,400 under section 68 of the Act be quashed. iv. Ground 4: Short credit of TDS a. The Ld. AO erred in non-grant of 'TDS credit amounting to INR 3,64,667 reflecting in Form 26AS of the Appellant.

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b. 2. In view of the above, the Appellant prays that the correct TDS credit be granted to the Appellant. v. Ground 5: Levy of interest under section 234B a. This ground is consequential in nature and will not survive if the additions made by Ld. AO are deleted.

2.1 During the course of assessment proceedings, the assessee stated that she is a commerce graduate and that she had allegedly commenced a proprietary money-lending activity in F.Y. 2015-16. The assessee further stated that the alleged business was conducted through a broker who sourced the parties to whom money was lent on interest. The assessee also contended that since her receipts were less than Rs.2 crores and she had offered income on presumptive basis under section 44AD,she was not required to maintain books of account or to get the accounts audited. It was further claimed that all amounts were received through banking

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channels and, therefore, income was offered at the presumptive rate of 6%.

2.2 The Assessing Officer found that the assessee did not possess a license under section 5(1) of the Maharashtra Money-Lending (Regulation) Act, 2014. The Assessing Officer also noted that the said Act requires a money-lender to obtain license and to maintain prescribed records, including cash book and ledger. The Assessing Officer therefore held that the assessee could not be said to have carried on a legally recognised money-lending business and treated the entire interest income as "Income from Other Sources" under section 56 of the Act. Since the assessee had already offeredRs.2,71,130/-, the differential amount of Rs.42.47.702/- was added to the total income. The Assessing Officer also made an addition of Rs. 10,45,400/- under section 68 of the Act in respect of sundry creditors/unexplained loans. The AO noted that the assessee had claimed that loans were taken from family members and relatives for business purposes, but the assessee failed to furnish satisfactory evidence regarding the nature and source of such amount.

2.3 The learned CIT(A) upheld the action of the Assessing Officer. The learned CIT(A) held that the assessee had failed to comply with the statutory requirements under the Maharashtra Money-Lending (Regulation) Act, 2014 and that the alleged money-lending business had no existence in the eyes of law. The learned CTT(A) further held

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that the interest receipts were rightly treated as income from other sources and that the benefit of section 44AD could not be extended. The ld CIT(A) also upheld the addition of sundry creditors. The assessee is now in appeal before this Tribunal challenging the order of the learned CIT(A).

(i) Whether, on the facts and in the circumstances of the case, the interest receipts earned by the assessee from lending activities are assessable under the head "Profits and Gains of Business or Profession", entitling the assessee to the benefit of section 44AD of the Act, or are liable to be assessed as "Income from Other Sources" under section 56.

(ii) Whether the addition of ₹10,45,400 made under section 68 of the Act in respect of sundry creditors is sustainable in law.

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(i) The assessee had furnished before the Assessing Officer particulars of 23 borrowers, comprising both corporate entities and individuals, inter-alia their names, PAN, addresses, amounts advanced and the respective dates of disbursement during the year under consideration, for supporting the regularity and continuity of the lending operations [refer Paper Book pages 31 to 34]. (ii) The assessee claimed to have engaged a broker for identifying and introducing prospective borrowers, which, according to the learned counsel, clearly demonstrated that the lending activity was undertaken in an organised and business- oriented manner, but no document support therefore were filed. (iii) Funds borrowed from friends and family members were deployed in the money-lending activity for advancing loans and earning interest income, thereby indicating a commercial and profit-oriented deployment of capital. (iv) All loan disbursements, repayments and interest receipts were routed through normal banking channels. In support thereof, copies of the relevant bank statements highlighting loan advances, repayments and interest receipts during the year were furnished before the Assessing Officer [refer Paper Book pages 36 to 43].

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(v) The assessee had also placed on record ledger confirmations received from certain borrowers evidencing the underlying loan transactions [refer Paper Book pages 44 and 45]. 4.1Relying upon the aforesaid documentary evidence, the learned counsel submitted that the frequency of lending transactions, the number of borrowers, the volume of funds deployed, the regular accrual and receipt of interest income, and the conduct of all transactions through banking channels unmistakably establish that the activity was neither sporadic nor in the nature of isolated investments. According to her, the activity possessed all the essential attributes of a systematic, organised and continuous business undertaken with the predominant object of earning profits. 4.2The learned counsel further submitted that, consistent with the aforesaid business activity, the assessee disclosed gross interest receipts of ₹45,18,832/- arising from the money-lending business and opted for taxation under the presumptive provisions by offering 6% thereof, amounting to ₹2,71,130/-, as business income. It was also pointed out that in the return of income, the nature of business was specifically disclosed as "13006 – Commercial loan activities. 4.3It was further submitted that tax had been deducted at source by various borrowers on the interest paid to the assessee, as

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reflected in Form 26AS.The learned counsel pointed out that while the aggregate interest receipts appearing in Form 26AS amounted to ₹35,63,832/-, the assessee had disclosed a higher amount of ₹45,18,832/- as business receipts in the return of income. Thus, the receipts offered to tax exceeded those reflected in Form 26AS. In support of this contention, a reconciliation statement comparing the interest receipts as per Form 26AS with the turnover disclosed in the return of income was also furnished [refer Paper Book page 35]. 4.4The learned counsel submitted that, notwithstanding the aforesaid material, the Assessing Officer re-characterised the interest receipts as "Income from Other Sources" chargeable under section 56 of the Act and consequently treated the differential amount of ₹42,47,702/- as taxable under that head. According to the learned counsel, the sole basis for such re-characterisation was the alleged non-compliance with the provisions of the Maharashtra Money Lending (Regulation) Act, 2014. The learned CIT(A) affirmed the action of the Assessing Officer. 4.5The Counsel referred to Section 2(13) of the Act , and submitted that the expression "business" has been defined in an inclusive and expansive manner so as to encompass any trade, commerce, manufacture or any adventure or concern in the nature thereof. She further drew our attention to section 28(i), which provides that the profits and gains of any business carried on by an assessee during

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the previous year shall be chargeable to tax under the head "Profits and Gains of Business or Profession." According to her, the determinative test for characterising an activity as a business is whether it is conducted in a systematic, organised and continuous manner with a profit motive. Neither section 2(13) nor section 28 of the Act stipulates possession of any licence as a statutory pre- condition for recognising an activity as a business for the purposes of the Income-tax Act. 4.6 In this regard, the ld Counsel invited our attention to the decision of the Mumbai ITAT in MulchandShamjiChheda HUF v. Income-tax Officer [2026] 182 taxmann.com 236 (Mumbai Trib.). The ld Counsel submitted that in the said case, while considering whether interest earned from money-lending activities was taxable as business income or income from other sources, the Tribunal examined the scope of the term "business" under section 2(13) of the Act. It is pertinent to note that, on the facts of that case, the assessee was carrying on money-lending activities without holding a money-lending license. Nevertheless, considering the systematic and organised manner in which the lending activity was conducted and the profit motive underlying such activity, the Tribunal held that the interest income was assessable as business income. 4.7The ld Counsel submitted that the Section 44AD is a special provision for computing profits and gains of business on a presumptive basis. It applies to an eligible assessee, being an

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individual, HUF or partnership firm (other than an LLP), carrying on an eligible business with turnover or gross receipts not exceeding INR 2 crores. The term "eligible business" is defined to mean any business other than the business of plying, hiring or leasing goods carriages referred to in section 44AE. Further, the benefit of section 44AD is not available in respect of income from a specified profession, income earned in the nature of commission or brokerage, or to a person carrying on an agency business. Under the scheme, income is deemed to be 8% of turnover or gross receipts, or 6% in respect of receipts received through banking channels or prescribed electronic modes. 4.8The ld Counsel submitted that in the present case, the assessee is an individual and the gross receipts from the money-lending business amount to INR 45,18,832, which is well within the prescribed threshold of INR 2 crores. She further referred to her arguments made and submitted that the activity constitutes a business within the meaning of section 2(13) of the Act and is neither a specified profession nor covered by any of the exclusions prescribed under section 44AD. Accordingly, the assessee was eligible to offer the income from such business under the presumptive taxation scheme contained in section 44AD. 4.9The ld Counsel also placed reliance on the decision of the Bangalore ITAT in the case of Sri Chowdry (ITA No. 2418/Bang/2024, order dated 28 January 2025), which according

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to her have fact pattern substantially similar to the present case. In that case, the assessee had offered interest income from money- lending activities as business income under the presumptive taxation scheme under section 44AD of the Act, despite not holding a money-lending license and the Assessing Officer sought to deny the business character of the activity solely on account of the absence of such license. The Tribunal held that the classification of income under the Act must be based on the substance of the activity rather than mere procedural compliance with local laws. If the assessee is systematically engaged in lending money with the intention of earning profit, such activity can qualify as a business, irrespective of whether a license is obtained 4.10 Reliance was also placed on the decision of the Ahmedabad ITAT in Soham Securities Ltd. (ITA No. 2208/Ahd/2015, order dated 02 November 2018), wherein the Tribunal held that the mere absence of registration with the RBI as a Non-Banking Financial Company (NBFC) cannot lead to the conclusion that the assessee is not carrying on a financing business. The Tribunal observed that regulatory registration and the determination of whether an activity constitutes a business for income-tax purposes operate in different fields.Accordingly, relying upon its earlier decision in International Housing Finance Corporation Ltd. (ITA No. 868/Ahd/2004, order dated 05 August 2011), the Tribunal held that the interest income arising from financing activities was assessable as business income

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and not as income from other sources, notwithstanding the absence of the requisite regulatory registration 4.11. Reliance was also placed on the decision of the Ahmedabad ITAT in the case of ViniyogFincap (ITA No. 1745/Ahd/2025, order dated 15 April 2026). In that case, reassessment proceedings were initiated on the premise that interest income had escaped assessment. The assessee was engaged in trading activities as well as money-lending activities (without holding money lending license) and had offered the aggregate receipts, including interest income, to tax under the presumptive taxation scheme under section 44AD. The Tribunal accepted the assessee's position and held that, since the interest receipts formed part of the business turnover disclosed under section 44AD, there was no escapement of income. The ld Counsel submitted that the Tribunal accepted the treatment of interest income arising from money-lending activities as business receipts eligible for presumptive taxation under section 44AD, notwithstanding the fact that the assessee did not possess a money-lending license. 4.12. Further, reliance was placed on the following rulings wherein the courts recognised money-lending activities as a business notwithstanding the absence of a money-lending license. It is pertinent to note that these decisions were rendered in the context of claims under section 36(1)(vii) relating to bad debts. Since section 36 forms part of the provisions governing computation of income

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under the head "Profits and Gains of Business or Profession" (sections 28 to 44DB), the allowance of a bad debt claim necessarily presumes the existence of a business. Accordingly, while the issue before the courts concerned allowability of bad debts, the underlying principle emerging from these decisions is that a lending activity may constitute a business for income-tax purposes even in the absence of a money-lending license: a) Smt. Padma Bora v. ITO (2015) 54 taxmann.com 319 (Bom.) b) B.N. Khandelwal v. Income-tax Officer, Ward 14(1)4, Circle 24(3), Mumbai [2007] 16 SOT 343 (MUM.) c) Commissioner of Income-tax. v. Vivek Engineering & Casting Ltd. [2017] 80 taxmann.com 125 (Calcutta) 4.13The Ld Counsel submitted that the Ld AO had not disputed the assessee’s status as an eligible assessee, the quantum of gross receipts, or the applicability of any of the exclusions contained in section 44AD. The only objection raised is to the characterisation of the interest receipts as business income. Consequently, upon accepting that the assessee was carrying on a money-lending business, the benefit of section 44AD follows as a natural corollary. 4.14The ld Counsel submitted that in view of the aforesaid facts and judicial precedents, the assessee had been carrying on a systematic, organised and continuous money-lending business with clear profit motive since FY 2015-16. The absence of a money- lending license under the Maharashtra Money Lending (Regulation)

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Act, 2014 cannot, by itself, alter the true character of the activity or lead to the conclusion that no business exists, particularly when neither section 2(13) nor section 28 of the Act prescribes possession of such license as a condition for recognising an activity as a business. The assessee, being an individual, satisfies the conditions of an eligible assessee under section 44AD; the money-lending activity constitutes an eligible business within the meaning of the said provision; the gross receipts are within the prescribed threshold; and the activity was not covered by any of the exclusions specified therein. Accordingly, the interest receipts from the money- lending business ought to be assessed under the head "Profits and Gains of Business or Profession" and the assessee's claim of presumptive taxation under section 44AD deserves to be accepted. 5.1 Per contra, the learned Departmental Representative ("the ld. DR") supported the orders of the Assessing Officer and the learned CIT(A). He submitted that section 44AD is merely a machinery provision prescribing a simplified method for computation of profits of an eligible business and does not create a legal fiction deeming every receipt disclosed by an assessee to be business income. According to him, the applicability of section 44AD necessarily presupposes the existence of an ‘eligible business’ carried on by an ‘eligible assessee’. Therefore, before invoking the presumptive provisions of section 44AD, the assessee is required to establish, by cogent evidence, that the receipts emanate from a genuine,

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systematic and organised business activity. He submitted that while section 44AD dispenses with the requirement of maintaining regular books of account in eligible cases, it does not absolve the assessee from establishing the very existence of the ‘business’. The burden to prove the true nature of the receipt remains upon the assessee. The assessee cannot first claim that she was not required to maintain books because she opted for section 44AD and then use the very same provision as a shield to avoid proving the existence of business itself. The legislative intent underlying the presumptive taxation scheme is to simplify compliance for genuine small businesses and reduce disputes relating to maintenance of books of account; it was never intended to convert passive receipts into business income merely because the assessee elects to compute income under section 44AD. 5.2 The ld. DR further submitted that the assessee admittedly received interest amounting to ₹45,18,832, the source and quantum whereof were readily ascertainable from the banking transactions. Since the interest receipts were identifiable, the assessee could not avoid taxation of the actual income merely by invoking section 44AD without first establishing that such receipts arose from an eligible business activity. 5.3 The ld. DR contended that throughout the assessment proceedings the assessee attempted to avoid furnishing the foundational facts necessary to establish the existence of the

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alleged money-lending business by taking shelter under section 44AD. According to him, the assessee's stand that no books of account were required to be maintained under the presumptive taxation scheme could not dispense with the obligation to disclose the primary facts relating to the alleged business. He submitted that the Assessing Officer was justified in examining the manner in which the alleged business was conducted. However, the assessee failed to furnish elementary particulars such as the place from which the business was carried on, the existence of any office or business establishment, employment of staff, the process adopted for identifying borrowers, the due diligence undertaken before advancing loans, verification of the borrowers' creditworthiness, execution of loan agreements or promissory notes, furnishing of security, repayment terms and the recovery mechanism adopted. According to him, these constituted foundational facts essential to establish the existence of a business and were distinct from the maintenance of books of account. In the absence of such primary evidence, the question of invoking section 44AD did not arise. The assessee cannot refuse to disclose primary facts and simultaneously insist that the Department must accept the claim of business income merely because she has chosen to compute income under section 44AD. 5.4 The ld. DR further submitted that the assessee repeatedly described the activity as ‘systematic’ and ‘organised’; however, the

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mere use of such expressions could not establish the existence of a business. According to him, no contemporaneous material was produced to demonstrate that the lending activity was carried on in a commercial and organised manner. No evidence was furnished regarding any office or business infrastructure, borrower-wise records, loan registers, loan agreements, promissory notes, security documents, due diligence records, borrower verification documents, repayment schedules, recovery mechanism, lending policy, risk assessment, broker records or other documents ordinarily maintained by a person engaged in the business of money-lending. 5.5 Referring to the assessee's claim that borrowers were sourced through a broker, the ld. DR submitted that the explanation itself remained wholly unsubstantiated. According to him, the assessee neither disclosed the identity of the broker nor furnished his name, address, PAN, confirmation, agreement, correspondence, brokerage payment, TDS particulars, if any, or details of the borrowers introduced through such broker. No independent confirmation from the alleged broker was produced. He submitted that the failure to identify even the person through whom the alleged lending business was stated to have been conducted undermined the claim that a systematic money-lending business was carried on. 5.6 The ld. DR further submitted that the conduct of the assessee was inconsistent with the claim of carrying on an organised finance business. Although it was claimed that the money-lending activity

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had been carried on since Financial Year 2015-16, all transactions were admittedly routed through the assessee's personal savings bank account and no separate current account or business account was maintained. According to him, it was difficult to accept that a person allegedly engaged in organised money-lending activity involving interest receipts exceeding ₹45 lakh during the relevant previous year would conduct the entire activity through a personal savings account. He further submitted that although the assessee claimed the benefit of the concessional presumptive rate of 6% under section 44AD on the ground that all receipts were received through banking channels, the bank statements disclosed cash withdrawals from the very account through which loans were advanced and interest was received. According to him, the assessee failed to explain the purpose and utilisation of such cash withdrawals. 5.7 The ld. DR also submitted that the assessee failed to establish the source of capital employed in the alleged lending activity. Apart from showing her husband as a sundry creditor, no material was produced to establish any organised source of business finance, rotation of funds, lending policy, recovery mechanism, business planning or risk management ordinarily associated with commercial lending operations. According to him, the surrounding circumstances indicated that the assessee had merely sought to characterise the ‘interest receipts’ as ‘business income’ for the

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limited purpose of availing the benefit of section 44AD. The operation through personal savings account, absence of current account, unexplained cash withdrawals, absence of organised capital source, non-identification of broker and complete lack of documentation are wholly inconsistent with the claim of systematic finance business. 5.8 Placing reliance upon the decisions of the Hon'ble Supreme Court in CIT v. Durga Prasad More 82 ITR 540(SC) and SumatiDayal v. CIT 214 ITR 801(SC), he submitted that the taxing authorities are entitled to examine the surrounding circumstances and apply the test of human probabilities while determining the true nature of a transaction.Applying the said principles, the assessee's claim of carrying on systematic money- lending business is improbable and unsupported by credible evidence.

5.9 The ld. DR further submitted that the Revenue's case did not rest solely upon the absence of a licence under the Maharashtra Money-Lending (Regulation) Act, 2014. According to him, the significance of the said enactment lies in the fact that it recognises money-lending as a regulated commercial activity requiring a statutory licence, maintenance of prescribed books and compliance with various regulatory conditions. He submitted that the statutory requirements relating to licence, maintenance of records, disclosure of principal place of business and area of operation indicate that

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money-lending is not an informal or casual activity but one regulated by law. Since the assessee, admittedly a commerce graduate, neither obtained the requisite licence nor maintained the records ordinarily expected of a genuine money-lender, and since such omission was accompanied by the absence of borrower-wise documentation, broker details, due diligence records and organised business infrastructure, the learned CIT(A), according to him, rightly concluded that the alleged money-lending business had not been established and, consequently, the benefit of section 44AD was not available.

5.10 Without prejudice to the aforesaid submissions, the ld. DR contended that even assuming the activity constituted a business, no fiscal benefit could be claimed in respect of an activity allegedly carried on in violation of the governing statute. Referring to Explanation 1 to section 37(1), he submitted that although the assessee claimed not to have claimed any separate expenditure by opting for section 44AD, the presumptive scheme inherently allows deduction of business outgoings by taxing only the prescribed percentage of gross receipts. According to him, the assessee could not indirectly derive the benefit of presumptive taxation in respect of an activity allegedly carried on without complying with the mandatory requirements of the governing law. He clarified that the said submission was without prejudice to the principal contention

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of the Revenue that the assessee had, in any event, failed to establish the existence of any eligible business.

5.11 The learned DR further submitted that the assessee's contention that the Assessing Officer had accepted the interest receipts as business income in the computation of income is wholly misconceived. According to him, the mere inclusion of the interest receipts while computing the assessed income cannot be construed as an acceptance of the head under which such income is chargeable. He submitted that the assessment order unequivocally characterises the impugned interest receipts as "Income from Other Sources" chargeable under section 56 of the Act and, therefore, no inconsistency can be attributed to the assessment order. It was, accordingly, contended that the Assessing Officer was fully justified in assessing the interest income under section 56 of the Act and in making the consequent addition of ₹42,47,702, which has rightly been sustained by the learned CIT(A). 5.12 The learned DR further submitted that the assessee's reliance upon the treatment accorded to similar income in Assessment Years 2016-17 and 2017-18 is equally misconceived. He submitted that the learned CIT(A) has rightly rejected the said contention, as each assessment year constitutes an independent unit of assessment and the principle of res-judicata has no strict application to income- tax proceedings. He further submitted that the returns for the aforesaid assessment years were merely processed under section

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143(1) of the Act and were never subjected to scrutiny assessment under section 143(3). Consequently, no conscious or considered opinion had been formed by the Department on the nature of the assessee's activities or the head under which the impugned receipts were assessable. Accordingly, the mere processing of the returns under section 143(1) cannot be construed as acceptance of the assessee's claim of carrying on an organised money-lending business or as creating any binding precedent for the year under consideration. 5.13 The learned DR further submitted that the reliance placed by the assessee on the decisions in Smt. Padma Bora v. ITO (supra), Soham Securities Ltd. (supra), M/s IMA-PG India Pvt. Ltd. (supra), Smt. GulabSundriBapna (supra) and other judicial precedents is misplaced and does not advance the assessee's case. According to him, in all those decisions the existence of the underlying business activity had either been accepted or stood duly established on facts. The controversy therein was confined to the question whether the absence of a statutory licence, RBI registration or other regulatory compliance would, by itself, disentitle the assessee from claiming business treatment or a deduction otherwise admissible under the Act. 5.14 The learned DR submitted that the factual matrix in the present case stands on an entirely different footing. According to him, the assessee has failed to establish the very existence of an

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organised and systematic money-lending business and, therefore, the foundational requirement for invoking the aforesaid decisions is itself absent. Consequently, the ratio laid down therein cannot be mechanically extended to the facts of the present case. 5.15 Elaborating his submissions, the learned DR contended that in Smt. Padma Bora (supra), the issue was whether deduction could be denied merely for want of a money-lending licence when the business activity itself was otherwise accepted. In the present case, however, the existence of any organised money-lending business is itself disputed and, according to the Revenue, remains unsubstantiated. Likewise, in Soham Securities Ltd. (supra) , there was a categorical finding that the assessee was carrying on money-lending activities in a systematic and organised manner. No such factual foundation, according to him, exists in the instant case. Similarly, M/s IMA-PG India Pvt. Ltd.(supra) dealt with issues arising in the context of an established money-lending business and the allowability of bad debts; the said decision, according to him, does not lay down that an assessee can invoke section 44AD without first establishing the existence of an eligible business. In Smt. GulabSundriBapna (supra), the controversy pertained to the utilisation of interest-bearing funds for earning interest income, which, according to the learned DR, is factually distinguishable from the issue arising in the present appeal. He, therefore, submitted that the decisions relied upon by the assessee

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are distinguishable on facts and do not support the claim for presumptive taxation under section 44AD in the absence of proof of an organised business activity. 5.16 The learned DR further placed reliance upon the decision of the Ahmedabad Bench of the Tribunal in the case of NirvaArvindkumar Patel (HUF) in ITA No. 1576/Ahd/2025 for AY 2022-23. He submitted that in the said case also, the assessee had offered income under section 44AD by claiming to be engaged in lending and finance activities, whereas the Assessing Officer treated the interest receipts as assessable under the head "Income from Other Sources" and computed the income under the normal provisions of the Act. 5.17 Referring to the said decision, the learned DR submitted that the Tribunal did not accept the proposition that the Assessing Officer is precluded from making any enquiry merely because the assessee has opted for the presumptive scheme under section 44AD. On the contrary, the Tribunal held that the correctness of the interest receipts, interest expenditure and the true nature of the lending activity required verification with reference to the books of account, bank statements, ledgers, confirmations and other primary evidence. Accordingly, the matter was restored to the file of the Assessing Officer for fresh examination and determination of the correct taxable income in accordance with law.

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5.18 The learned DR submitted that the principle emerging from the aforesaid decision is that section 44AD merely prescribes a simplified mode of computation and does not curtail the statutory authority of the Assessing Officer to enquire into the primary facts for determining the correct nature and taxability of the receipts. According to him, the presumptive provisions do not create an embargo against enquiry where the Assessing Officer entertains a bona fide doubt regarding the genuineness of the business activity or the correctness of the assessee's claim. He submitted that the said decision fortifies the Revenue's case inasmuch as, unlike the assessee in that case, the present assessee has failed to produce books of account, borrower-wise records, confirmations, broker details, due diligence records or any other contemporaneous evidence in support of the alleged money-lending business. Instead, the assessee has sought to resist such enquiry by invoking section 44AD. He, therefore, contended that the decision in NirvaArvindkumar Patel (HUF) clearly supports the proposition that an assessee cannot avoid verification of the primary facts merely by opting for the presumptive taxation scheme under section 44AD and that the Assessing Officer is fully competent to determine the correct taxable income in accordance with law.

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sides before us. The question raised in grounds is whether the interest receipts of ₹45,18,832 earned by the assessee from lending activities are assessable under the head "Profits and Gains of Business or Profession", thereby entitling the assessee to compute income under section 44AD of the Act, or whether the authorities below were justified in treating the same as "Income from Other Sources" under section 56 of the Act.

6.1 At the outset, we may observe that the controversy before us does not turn upon the mere absence of a money-lending licence under the Maharashtra Money Lending (Regulation) Act, 2014. Equally, there can be no quarrel with the proposition canvassed by the learned counsel for the assessee that neither section 2(13) nor section 28 of the Act makes possession of such licence a statutory pre-condition for treating an activity as a business. The judicial authorities relied upon by the assessee also recognise that the absence of a regulatory licence, by itself, is not determinative of the character of income. However, those very decisions proceed on the premise that the assessee had otherwise established, on facts, the existence of a genuine, systematic and organised business activity. Therefore, the real question requiring adjudication is whether, on the facts of the present case, the assessee has discharged the burden of establishing that the lending activity possessed the attributes of a commercial business so as to qualify as an "eligible business" for the purposes of section 44AD of the Act.

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6.2 The Section 2(13) defines the expression "business" in an inclusive and expansive manner so as to include any trade, commerce or manufacture or any adventure or concern in the nature thereof. The definition is deliberately of wide amplitude and does not prescribe any rigid or exhaustive test for determining whether a particular activity constitutes a business. Equally, section 28 brings to tax the profits and gains of any business carried on by the assessee during the relevant previous year. Neither of these provisions makes the existence of a licence under any regulatory statute a condition precedent for recognising an activity as a business for the purposes of the Income-tax Act.

6.3 Section 44AD is merely a presumptive method of computation. The provision presupposes the existence of an eligible business; it does not dispense with the requirement of establishing that such business was in fact carried on. Consequently, before the benefit of section 44AD can be extended, the assessee must first establish, on the basis of objective material, that the activity was conducted in a systematic, organised and continuous manner with a commercial objective.

6.4 In the present case, the assessee has undoubtedly produced details of twenty-three borrowers, copies of bank statements evidencing disbursement of loans, receipt of repayments and interest through banking channels, and confirmations from certain borrowers. These documents establish that loans were advanced

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and interest was earned therefrom. However, the existence of lending transactions, by itself, does not necessarily establish that the assessee was carrying on the business of money-lending. What requires examination is whether the surrounding facts demonstrate an organised commercial activity possessing the recognised indicia of a business.

6.5 For commencing a business activity, a person certainly explores all regulatory and statutory requirements, but in the case no such exercise has been carried out. The assessee has not taken required licences for the activity of money lending business. Further, the assessee has not intimated to the Bank of its intention of carrying out business activity and not opened a current account.

6.6 The assessee has filed only list of 23 three borrowers who availed loan from her. The list of borrowers, their names and address and entry of interest appearing in bank statements or confirmation form few borrowers in itself nowhere indicate that the activity of loan advancing was a long standing or continuous activity , qualifying to be business activity.

6.7 On a careful evaluation of the record, we find that the assessee has not produced material which would ordinarily demonstrate that the lending activity was organised and systematic. Although it was claimed that borrowers were sourced through a broker, no documentary evidence whatsoever has been produced in support of

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such assertion. Neither the identity of the broker, nor any agreement, confirmation, correspondence, brokerage payment, norother contemporaneous record has been brought on record. The plea, therefore, remains a bare assertion unsupported by evidence.

6.8 Similarly, apart from furnishing the particulars of borrowers and certain ledger confirmations, no loan agreements, promissory notes, security documents, borrower appraisal records, due diligence reports, repayment schedules or other contemporaneous documentation ordinarily associated with an organised lending business have been produced. No material has been placed before us to show the existence of any established lending policy, borrower evaluation mechanism, recovery process or other commercial framework which ordinarily characterises a systematic financing activity.

6.9 We also find that the alleged business was conducted entirely through the assessee's personal savings bank account. No separate business account or other contemporaneous material indicating the existence of an organised business establishment has been produced. Though none of these circumstances, viewed individually, may be conclusive, their cumulative effect assumes significance while determining whether the activity possessed the attributes of a commercial business.

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6.10 Another circumstance which materially weakens the assessee's claim is the complete absence of any credible explanation regarding the commercial viability and financial structure of the alleged money-lending business. The assessee's case is that substantial funds borrowed from friends and family members were deployed for advancing loans to third parties. However, except making a bald assertion, no contemporaneous material has been brought on record to establish the terms and conditions on which such funds were allegedly obtained, the commercial rationale for such borrowings, or the financial model under which the activity was purportedly carried on. Equally, no evidence has been produced to demonstrate the manner in which the lending activity was structured so as to constitute a viable commercial venture.

6.11 It is a matter of common commercial prudence that a person engaged in the organised business of money-lending ordinarily operates with a discernible business model, supported by documented funding arrangements, risk evaluation, security for advances, and an identifiable margin between the cost of funds and the lending yield. None of these essential commercial attributes are discernible from the material placed before us. The assessee has neither disclosed the complete financial architecture of the alleged lending business nor demonstrated that the activity was conducted on recognised commercial principles.

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6.12 Significantly, while seeking the benefit of the presumptive scheme under section 44AD, the assessee has not placed on record any material explaining the source of funds, the corresponding financing cost, or the commercial basis on which the alleged lending operations generated profits. In these circumstances, the plea that the entire lending activity constituted an organised business remains unsupported by objective evidence. The invocation of section 44AD, in the absence of proof of the foundational facts establishing the existence of an eligible business, amounts to an attempt to invoke a beneficial computational provision without first satisfying the statutory conditions governing its applicability. Such an approach cannot be countenanced in law.

6.13 Tested on the touchstone of the surrounding circumstances and the principle of human probabilities enunciated by the Hon'ble Supreme Court in CIT v. Durga Prasad More(supra) and SumatiDayal v. CIT, (supra) the cumulative facts do not inspire confidence that the assessee was carrying on a systematic, organised and commercially structured money-lending business. At the highest, the evidence establishes isolated lending transactions yielding interest income; it falls far short of establishing the existence of a regular business carried on with the organisational and commercial attributes contemplated under section 2(13) of the Act.

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6.14 The authorities relied upon by the assessee, including MulchandShamjiChheda (HUF)(supra), Sri Chowdry(supra), Soham Securities Ltd.(supra), ViniyogFincap(supra), Smt. Padma Bora(supra), B.N. Khandelwal(supra) and other decisions, do not lay down that every lending activity, irrespective of its factual matrix, must necessarily be regarded as a business. On the contrary, those decisions proceed on factual findings that the lending operations were carried on in a systematic and organised manner. In the present case, the foundational facts necessary to attract the ratio of those decisions have not been satisfactorily established. The reliance placed thereon is, therefore, distinguishable on facts.

6.15 On the other hand, we find substance in the Revenue's reliance upon the decision of the Ahmadabad Bench of the Tribunal in NirvaArvindkumar Patel (HUF)(supra), wherein it was held that the Assessing Officer is not precluded from examining the foundational facts merely because the assessee has opted for section 44AD. The said decision correctly recognises that the presumptive provisions do not dispense with proof of the existence of an eligible business.

6.16 Having regard to the totality of the circumstances and on an overall appreciation of the evidence, we are of the considered opinion that the material brought on record establishes the factum of lending and earning of interest, but falls short of establishing

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that the assessee was carrying on a systematic, organised and continuous money-lending business possessing the attributes contemplated under section 2(13) of the Act. Consequently, the assessee has failed to establish the foundational requirement for invoking the presumptive scheme contained in section 44AD.

6.17 We, therefore, uphold the action of the Assessing Officer, as affirmed by the learned CIT(A), in assessing the impugned interest receipts under the head "Income from Other Sources" under section 56 of the Act. As a necessary consequence, the benefit of computation under section 44AD is not available to the assessee for the year under consideration.

6.18 However, it is clarified that where any expenditure is otherwise found to have been incurred wholly and exclusively for earning the said interest income and is otherwise admissible in law, the assessee shall be entitled to claim deduction thereof in accordance with the provisions of section 57 of the Act, subject to verification by the Assessing Officer.

6.19 Accordingly, Ground No. 1 raised by the assessee stands dismissed.

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7.1 The Ld AO has made an addition of INR 10,45,400 under section 68, treating sundry creditors disclosed in the return of income as unexplained cash credits. The said addition has been upheld by the Ld. CITIA) 7.2Before us the ld Counsel for the assessee submitted that Section 68 can be invoked only where a sum is found credited in the books of an assessee maintained for a previous year and the assessee either offers no explanation regarding the nature and source thereof or the explanation offered is found unsatisfactory. Thus, the existence of books of account containing the impugned credit is a foundational jurisdictional requirement for invoking section 68. 7.3The ld Counsel submitted that in the present case, the assessee offered income under the presumptive taxation scheme contained in section 44AD and, accordingly, was not required to maintain books of account. Since section 68 can be invoked only in respect of a sum found credited in the books of account of an assessee, the very foundation for invoking section 68 is absent in the present case. The Ld AO has merely relied upon the figure of sundry creditors disclosed in the return of income; however, a return of income does not constitute books of account. Accordingly, in the absence of any books of account and any credit found therein, the provisions of section 68 are not attracted. In support of above proposition, the ld Counsel relied upon following judicial precedents:

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a) TejsinghDhansinghRajpurohit (ITA No.2751/Mum/2025, order dated 04 August 2025) the Hon'ble Mumbai ITAT held that an addition under section 68 can be made only where a sum is credited in the books of account and the assessee fails to satisfactorily explain the same. Since maintenance of books is a prerequisite for invoking section 68, and section 44AD does notmandate maintenance of books, no addition under section 68 can be made where income is declared under section 44AD without maintaining books of account. b) DineshkumarVerma v. ITO, Ward -2(1) (ITA NO. 1183/MUM/2019, order dated 28 December 2020), the Hon'ble Mumbai ITAT held that where assessee has offered income under section 44AD of the Act, the provisions of section 68 cannot be triggered. c) SumitGahlot v. Income-tax Officer [2023] 152 taxmann.com 185 (Jodhpur - Trib.) where assessee offered income under section 44AD on presumptive basis and assessee was not required to maintain account books, Assessing Officer could not make addition to assessee's income for unexplained sundry creditors invoking provisions of section 68. d) In the case of VimladeviParasmal Jain v. Income-tax Officer [2025] 171 taxmann.com 547 (Mumbai Trib.) the Hon'ble Mumbai ITAT held that where assessee had shown exempt income under section 10(38) in his return of income from sale of shares, since assessee had not maintained books of account and credit of share sale proceeds was not found credited in books of account, impugned addition made under section 68 was to be deleted. e) The Hon'ble Bombay High Court in the case of CIT vs. Bhaichand N. Gandhi CIT vs. Bhaichand N. Gandhi 141 ITR 67 (Bom.) upholding the decision of Tribunal concluded that

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bank passbook does not constitute books as envisaged under u/s 68 of the Act. f) KuldeepJiwanMahant v ITO [2023] 157 taxmann.com 532 (Raipur Trib.) A bank pass book or bank statement could not be considered to be a 'book' maintained by assessee for section 68; thus addition could be made under section 68 treating cash deposit in bank account as unexplained cashcredit on basis of entries in bank statement/pass book of assessee. 7.4 Thus, neither a bank passbook nor a return of income constitutes "books of account" for the purposes of section 68. In the present case also the ld AO has the sundry creditors number reported in the return of income and made section 68 addition but the return of income is not valid books of account and hence does not represent credit in books of account. Hence addition cannot be made. 7.5 Since the assessee did not maintain books of account while declaring income under section 44AD, and the impugned addition has been made merely with reference to sundry creditors disclosed in the return of income, the jurisdictional condition for invoking section 68 remains unfulfilled. Consequently, the addition is unsustainable in law. 7.6The ld counsel submitted that without prejudice to the above, the assessee had furnished details of the creditors and the sources of the borrowings. Therefore, even on merits, there was no basis to invoke section 68 of the Act.

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7.8 Per contra, the ld DR submitted that he assessee has challenged the addition of Rs.10,45,400/- under section 68 by contending that no books of account were maintained and therefore section 68 couldnot be invoked. He submitted that this argument is purely technical and deserves to be rejected on the facts of the case. The assessee herself claimed that she had taken loans from family members and relatives for business purposes. The amount was reflected as sundry creditor/outstanding liability. Once the assessee claimed the existence of such liability, the burden was upon her to establish the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. The only creditor disclosed by the assessee was her husband. No satisfactory evidence was furnished to explain the source of the amount, the nature of the borrowing, the terms of repayment, the purpose of borrowing, or the utilisation of such funds in any genuine business activity. The assessee cannot, on the one hand, rely upon the alleged borrowing as part of the finance activity and, on the other hand, refuse to prove the nature and source of the same by stating that no books were maintained under section 44AD.Section 44AD cannot be used to avoid the burden of proving the source of funds. The assessee has failed to explain the nature and source of Rs.10,45,400/-. Therefore, the addition made by the Assessing Officer and confirmed by the learned CIT(A) deserves to be upheld. Without prejudice, even if the assessee raises a technical objection regarding section 68, the substantive fact remains that the assessee failed to

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explain the source of funds. The addition cannot be deleted merely on technical grounds, when shehas not discharged the primary onus regarding the nature and source of the amount. 7.9 In view of the above facts and submissions, the ld DR submitted that the assessee was not carrying out any genuine, organized and systematic money-lending business. Section 44AD is only a computation provision and cannot be invoked unless the existence of an eligible business is first established. The assessee cannot use section 44AD as a shield to avoid furnishing primary facts regarding the very existence of sins. The surrounding circumstances, including operation through persona, savings bank account, absence of current account, non-identification of broker, absence of loan documentation, absence of borrower-wise records, absence of due diligence, unexplained cash withdrawals and failure to explain the source of capital, clearly show that the assessee has not proved any organized finance business. The order of the Assessing Officer and the learned CIT(A) is correct on facts and in law. It wasaccordingly prayed that the appeal filed by the assessee might be dismissed.

7.10 We have carefully considered the rival submissions, perused the orders of the authorities below and examined the material placed on record. The controversy in this ground relates to the addition of ₹10,45,400/- made by the Assessing Officer under

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section 68 of the Act in respect of the sundry creditors reflected by the assessee.

7.11 The principal contention of the learned counsel is that, since the assessee had declared income under section 44AD of the Act and was not required to maintain books of account, the jurisdictional condition for invoking section 68, namely, the existence of a credit entry in the books of account maintained by the assessee, was absent. Reliance has been placed on various judicial precedents to contend that neither a return of income nor a bank passbook constitutes "books of account" for the purposes of section 68.

7.12 The Revenue, on the other hand, has contended that irrespective of the applicability of section 68, the assessee has failed to discharge the primary burden of explaining the nature and source of the impugned liability and cannot avoid such burden by merely invoking section 44AD.

7.13 Having considered the rival submissions, we find that the adjudication of the present issue cannot be divorced from our findings recorded while deciding Issue No. 1. We have already held that the assessee has failed to establish that she was carrying on a genuine, systematic and organised money-lending business and, consequently, was not entitled to compute her income under the presumptive provisions of section 44AD of the Act. Once that

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finding has attained finality in the present appeal, the very foundation of the assessee's plea that no books of account were required to be maintained under section 44AD loses its force.

7.14 At the same time, it is equally well settled that section 68 can be invoked only where a sum is found credited in the books of account maintained by the assessee. If, in fact, no books of account were maintained and the impugned addition has been founded merely upon entries reflected in the return of income or the bank account, the jurisdictional requirements of section 68 may not strictly stand satisfied. The authorities relied upon by the learned counsel recognise this legal position. However, those decisions do not lay down that an unexplained credit or unexplained investment necessarily escapes taxation merely because section 68 is inapplicable. The Income-tax Act contains separate charging provisions, including sections 69, 69A, 69B and 69C, to deal with unexplained amounts where the factual requirements of section 68 are absent.

7.15 In the present case, the Assessing Officer has proceeded solely under section 68 without examining whether, in the absence of books of account, the impugned amount was liable to be considered under any other applicable provision of the Act. Equally, the assessee has not placed sufficient material on record to satisfactorily establish the identity of the creditor, the creditworthiness, the genuineness of the transaction, the terms of

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borrowing or the utilisation of the funds. The assessment order as well as the appellate order does not contain any detailed examination of these factual aspects.

7.16 In these circumstances, and in the interest of substantial justice, we are of the considered opinion that the issue requires a fresh examination by the Assessing Officer. Accordingly, we set aside the orders of the authorities below on this issue and restore the matter to the file of the Assessing Officer. The Assessing Officer shall examine, in accordance with law, the true nature and source of the impugned amount of ₹10,45,400, the evidences produced by the assessee in support thereof, and thereafter determine its taxability under the appropriate provision of the Act, after affording the assessee a reasonable and effective opportunity of being heard.

7.17 It is clarified that we have expressed no opinion on the merits of the explanation offered by the assessee, and all contentions of both parties are left open to be considered by the Assessing Officer in the set-aside proceedings.

7.18 Accordingly, Ground No. 2 is allowed for statistical purposes.

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Order pronounced in the open Court on 07/07/2026.

Sd/- Sd/- (ANIKESH BANERJEE) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 07/07/2026 M. Ranganath Vittal , Sr. P.S.

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER,

//True Copy// (Assistant Registrar) ITAT, Mumbai