Delhi ITAT Removes Addition U/S 69A as Books of Accounts Not Necessary in 44AD Return

The addition was removed by the Delhi Bench of Income Tax Appellate Tribunal (ITAT) under Section 69A of the Income Tax Act 1961 which states that the books of account and vouchers are not needed in returns filed under Section 44AD of the Income Tax Act.

A search and seizure operation was conducted on the premises of Faquir Chand Lockers and Vaults Pvt. Ltd. In the course of this operation, locker No. 237, belonging to the assessee, Narendra Kumar Gupta, was also covered under Section 132(1) of the Income-tax Act, 1961. During the search of locker No. 237, a sum of cash was discovered and subsequently seized.

In response to inquiries, the assessee claimed that a portion of the cash belonged to his proprietorship concern, Nelly Creations, while the rest was associated with the trading of kirana items conducted by Narender Kumar Gupta and Sons Hindu Undivided Family (HUF).

However, the Assessing Officer (AO) remained unconvinced by this explanation. He disallowed the cash claimed to be from Nelly Creations and also rejected the assertion regarding the trading of kirana items by Narender Kumar Gupta and Sons HUF.

The Commissioner of Income Tax Appeals (CIT(A)), concerning the cash purportedly linked to Narender Kumar Gupta and Sons HUF, rejected the claim, citing that the tax return filed under Section 44AD of the Income Tax Act appeared to be an afterthought.

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He further made an adverse inference due to the absence of supporting books and vouchers, thereby dismissing the assessee’s plea in this matter. Consequently, he denied the inclusion of the cash amount seized that was associated with Narender Kumar Gupta and Sons HUF and upheld the addition under Section 69A of the Income Tax Act.

Regarding the remaining cash, the Commissioner of Income Tax (Appeals) examined the assessee’s cash book and ledger. He identified discrepancies, particularly in the low cash sales and minimal expenditure recorded by the assessee. Additionally, he observed that the assessee had made cash withdrawals in July, September, October, and November, casting doubt on the logic of withdrawing the entire sum from the bank and placing it in the locker. Consequently, this aspect was also dismissed.

Gaurav Jain represented the assessee, while Subhra Jyoti represented the revenue in the case.

A two-member Bench consisting of Shamim Yahya (Accountant Member) and Astha Chandra (Judicial Member) made the following observations: Regarding the cash amount associated with Narender Kumar Gupta and Sons HUF, it was noted that a return filed under Section 44AD of the Income Tax Act had been submitted and subsequently accepted. This acceptance indicated that the income in question had already been acknowledged. Consequently, there was no valid justification to deny the acceptance of the cash corresponding to the income disclosed under Section 44AD of the Income Tax Act.

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The Bench overturned the contested order, emphasizing the well-established legal principle that 44AD returns do not require the maintenance of books of account and vouchers. Consequently, no adverse inference should be drawn from the absence of cash books and vouchers. It was also stressed that the same income should not be subject to taxation twice, once in the hands of the HUF and again in the hands of the assessee.