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Facts
The assessee, engaged in textile trading and money lending, filed his return declaring income under Section 44AD. His case was selected for scrutiny due to large cash deposits in his savings bank accounts. The Assessing Officer (AO) added Rs. 1,25,17,803/- to the total income as unexplained investment, which was confirmed by the Commissioner of Income Tax (Appeals).
Held
The Tribunal held that Section 69 of the Act can only be invoked if investments are not recorded in books of account and the assessee fails to explain their nature and source. In this case, the deposits were reflected in bank accounts and supported by entries in the cash book. The mere absence of third-party confirmations does not automatically justify the addition. Furthermore, taxing entire deposits would amount to taxing turnover, not income.
Key Issues
Whether the addition of Rs.1,25,17,803/- as unexplained investment under Section 69 of the Act is sustainable when deposits are reflected in bank accounts and supported by cash book entries. Whether the entire deposits can be treated as income or only the profit element should be taxed.
Sections Cited
143(3), 44AD, 69, 250
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY & SHRI S. R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM:
The present appeal is filed by the assessee against the order dated 13.08.2025 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “ld.CIT(A)”), dismissing the appeal filed by the assessee against the assessment order dated 29.12.2018 passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), pertaining to Assessment Year (A.Y.) 2016-17.
:-2-: ITA No: 2848/Chny/2025
The brief facts of the case emanating from the records are that the assessee is an individual engaged in the business of textile and money lending, has filed his return of income on 12.08.2016 admitting business income u/s.44AD presumptive of Rs.3,19,020/-. The assessee’s case was selected for scrutiny under CASS for the issue to verify “Large cash deposit in savings bank accounts” to the tune of Rs.2,89,02,719/-. The assessee had justified the cash deposits as being his receipts from his textile business offered to tax u/s.44AD of the Act by taking 8% of Rs.46,12,450/- and other amounts are loans from relatives. On perusal of the bank transactions and explanations furnished by the assessee, the AO concluded the assessment by considering the cash withdrawals and other loan repayments, the balance amount of Rs.1,25,17,803/- has been added to the total income u/s.69 of the Act as unexplained, unproven and unaccounted investments and passed an order u/s.143(3) of the Act dated 29.12.2018.
Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the ld.CIT(A) by way of filing of Form 35 on 12.01.2019. During the appellate proceedings, the assessee presented its case by way of written submissions and explained that the amounts deposited are out of collection from my textile business, Interest income earned from my customers and also refund of loan amounts from customers. Further, the assessee submitted that the amounts are also transferred to his Sharekhan Share broking company and during the impugned year I have incurred a loss of Rs.4.50 Lakhs. The detailed day to day cash deposited to bank were also submitted by the assessee apart from the cash book for the entire financial year 2015-16. On perusal of the submissions and documents of the assessee, the ld.CIT(A) confirmed the order of the AO by passing an order u/s.250 of the Act on 13.08.2025 by dismissing the appeal of the assessee.
:-3-: ITA No: 2848/Chny/2025
Aggrieved by the order of the ld.CIT(A), the assessee in appeal before us.
Before us, the ld.AR for assessee submitted a paperbook containing the following:
i) Bank statements for the F.Y.2015-16 of Axis Bank , Karur Vysya Bank, Lakshmi Vilas Bank (Page No.1 to 33 of the Paper Book) ii) Cash book from 01.04.2015 to 31.03.2016 iii) Ledger accounts of the Bank, parties account, expenditure etc.
The ld.AR also submitted the chart showing the Income tax returns filed by the assessee from A.Y.2015-16 to 2019-20 (Enclosed an entire set of returns filed from 1 – 43 pages), showing the gross receipts and Income declared as detailed below:
AY ITR Ack (Date) ITR Form Gross Income Section Receipts 2015-16 407234760120816 ITR-4S 41,01,090/- 3,40,305/- 44AD 2016-17 407240450120816 ITR-4S 47,36,600/- 3,78,971/- 44AD 2017-18 445397040140318 ITR-4 49,50,070/- 3,96,940/- 44AD 2018-19 384490210041218 ITR-4 19,54,550/- 1,76,810/- 44AD 2019-20 287769930060120 ITR-4 20,81,557/- 1,95,280/- 44AD
The ld.AR for the assessee contended that the credits in the bank account mainly on account of business receipts of textile business as declared in the income tax return u/s.44AD of the Act, amounts collected as refunds of loan along with the interest from the customers / borrowers in the money lending business. Further, the ld.AR reiterated that the cash withdrawn has been redeposited into the bank account, which has already been given credit by the AO and hence prayed to delete the amounts deposited out of explained sources.
Alternatively, the ld.AR contended that the entire deposits/credits found in the bank cannot be treated as income of the assessee. Further, he submitted that :-4-: ITA No: 2848/Chny/2025 assessee has declared income at 8% on presumptive basis u/s.44AD of the Act from A.Y. 2015-16 to 2019-20 and prayed for estimating the income @ 8% on the impugned additions of Rs.1,25,17,803/- in the interest of justice.
On the contrary, the ld.DR argued that the assessee has failed to provide for any documents before the authorities and did not sufficiently discharge its onus to explain the source of the addition. Therefore, the order of the ld.CIT(A) must be upheld.
We have heard the rival submissions and perused the material available on record. We have carefully perused the assessment order passed u/s.143(3) of the Act, the impugned order passed by the ld.CIT(A) u/s. 250 of the Act, and the material placed before us in the paper book.
The undisputed facts are that the assessee, an individual engaged in the business of textile trading and money lending, filed his return of income for the Assessment Year 2016-17 declaring income under the presumptive scheme of section 44AD of the Act. The case was selected for scrutiny under CASS on the issue of large cash deposits in the savings bank accounts aggregating to Rs.2,89,02,719/-. During the course of assessment proceedings, the assessee explained that the deposits represented business receipts from textile trade, collections of loans advanced in the course of money-lending business along with interest, and redeposit of earlier cash withdrawals. The Assessing Officer, however, after granting credit for certain withdrawals and repayments, treated a sum of Rs.1,25,17,803/- as unexplained investment u/s.69 of the Act and added the same to the total income. The said addition was confirmed by the ld.CIT(A).
The primary contention of the assessee before us is that the impugned deposits are duly recorded in the cash book maintained for the financial year 2015-16 and are attributable to business receipts and loan recoveries. It is further contended that the assessee has consistently offered income u/s.44AD of the Act in earlier and subsequent assessment years and that the entire bank deposits cannot be treated as income. In the alternative, it is pleaded that :-5-: ITA No: 2848/Chny/2025 income may be estimated at 8% on the disputed amount in line with the presumptive provisions.
On consideration of the material on record, we find that the assessee has produced bank statements of multiple banks, cash book for the entire year, and ledger accounts of parties. It is not the case of the Assessing Officer that the business of textile trading or money lending is non-existent. Nor has the Assessing Officer invoked section 145(3) of the Act to reject the books of account. The addition has been made primarily on the ground that the assessee failed to substantiate the source of each deposit with independent corroborative evidence.
In our considered view, section 69 of the Act can be invoked only where the assessee has made investments not recorded in the books of account and fails to offer a satisfactory explanation regarding the nature and source thereof. In the present case, the deposits in question are reflected in the bank accounts and are supported by entries in the cash book produced before the authorities. In the absence of a categorical finding that the books of account are unreliable or that the entries therein are fictitious, the mere absence of third-party confirmations cannot ipso facto justify the addition of the entire amount u/s.69 of the Act.
It is also a settled principle of law that where an assessee is engaged in business and deposits in the bank account are relatable to business transactions, the entire deposits cannot be treated as income; only the profit element embedded therein can be brought to tax. The scheme of section 44AD itself contemplates taxation of income at a prescribed percentage of gross receipts, and not taxation of the gross receipts as such. Bringing the whole of the disputed deposits to tax would amount to taxing turnover rather than income, which is impermissible.
At the same time, we cannot lose sight of the fact that the assessee has not produced complete independent evidence in respect of all loan recoveries and interest collections. Therefore, the explanation furnished cannot be :-6-: ITA No: 2848/Chny/2025