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Facts
The assessee, engaged in trading/export business, declared income under Section 44AD. The Assessing Officer estimated business income at 8% instead of 6% and added Rs.5,35,000/- as unexplained income under Section 69A. The CIT(A) upheld the assessment.
Held
The Tribunal held that the proviso to Section 44AD(1) clearly allows for 6% presumptive rate when receipts are through banking channels. Regarding Section 69A addition, the Tribunal found that cash withdrawals and past savings adequately explained the amount, directing deletion of the addition.
Key Issues
Whether the AO was justified in estimating business income at 8% instead of 6% under Section 44AD when all receipts were through banking channels? Whether the addition under Section 69A for unexplained income was sustainable considering cash withdrawals and past savings?
Sections Cited
44AD, 69A, 44AD(1)
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI JAGADISH
आदेश / O R D E R
PER MANU KUMAR GIRI, JM:
This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), (in short ‘the CIT(A), NFAC / Delhi dated 11.06.2025 for the Assessment Year (in short ‘AY’)
2021-22.
In sum and substance, the assessee has raised, inter alia, the following grounds:
1. I. The learned CIT(A) erred in confirming the estimation of business income at 8% under Section 44AD of the Act as against 6% adopted in similar cases, despite the assessee’s business receipts being entirely through prescribed banking channels. II. The learned CIT(A) further erred in sustaining the addition of Rs.5,35,000/- under Section 69A of the Act as unexplained income, without properly considering the available sources including cash withdrawals and past savings.
Brief facts are that the assessee, engaged in trading/export business, declared income under the presumptive provisions of Section 44AD. The Assessing Officer, however, estimated business income at 8% of the turnover instead of 6%, and also made an addition of Rs.5,35,000/- under Section 69A treating the same as unexplained income. The ld.CIT(A) upheld the assessment. Aggrieved, the assessee is now before the Tribunal.
Ground No. I as referred supra – Estimation of income at 8% instead of 6%: The learned Authorised Representative (AR) submitted that the assessee’s entire business receipts were through banking channels, and hence the benefit of the lower presumptive rate of 6% under Section 44AD(1) proviso ought to have been granted. It was argued that the Assessing Officer, having invoked Section 44AD, should have applied the provision as a whole and not selectively estimated at 8%. Copies of export bills and bank statements were produced before both the lower authorities.
Per contra, the learned Departmental Representative (DR) supported the orders of the lower authorities and pleaded for the dismissal of the appeal.
We have considered the rival submissions and perused the material on record. Section 44AD(1) proviso clearly provides that where turnover or gross receipts are received through prescribed banking channels, income shall be deemed to be 6% of such turnover. The authorities below have not disputed that all receipts were through banks. In such circumstances, estimation at 8% is unjustified. Accordingly, we direct the Assessing Officer to adopt 6% as the presumptive rate under Section 44AD. This ground of appeal is therefore allowed.
7. Ground No.II as referred supra – Addition under Section 69A of Rs.5,35,000/-: This issue relates to the addition of Rs.5,35,000/- as unexplained money. The assessee contends that the authorities below failed to consider cash withdrawals of Rs.2,97,500/- during the year and the past savings and returned income of preceding years (Rs.4,35,660/- and Rs.5,87,160/- for AYs 2019–20 and 2020–21 respectively). The assessee produced bank extracts before the ld.CIT(A) showing the withdrawals corresponding to the deposits, but the ld.CIT(A) rejected the explanation for want of purchase/sales vouchers.
8. Having considered the facts, we note that the assessment itself is based on bank statements, and no discrepancy in withdrawals has been pointed out. When such withdrawals and past income are demonstrated, addition under Section 69A cannot be sustained to that extent. Accordingly, we direct the Assessing Officer to delete the addition of Rs.2,97,500/- being covered by cash withdrawals, and to further delete Rs.2,37,500/- on account of past savings, since the assessee had disclosed sufficient income in prior years. Thus, the entire addition of Rs.5,35,000/- is deleted.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in open Court on the 10th day of November 2025, in Chennai.