Additions Citing Unexplained Cash Credits Inapplicable Where No Books Maintained: ITAT Treats Entire Bank Deposits As Business Receipts of Fruit Trader

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that additions under Section 68 of the Income Tax Act, 1961 cannot be sustained where the assessee does not maintain books of account and the bank deposits are explainable as business receipts. The bench of Keshav Dubey (Judicial Member) and Waseem Ahmed (Accountant Member) directed the Assessing Officer (AO) to treat the entire bank deposits as gross receipts from the assessee’s fruit trading business and to compute income on a presumptive basis at 8%. An appeal filed by a Bangalore-based assessee engaged in the business of buying seasonal fruits from farmers and selling them to wholesalers. The appeal related to Assessment Year (AY) 2015–16 and challenged the order of the National Faceless Appeal Centre (NFAC), which had upheld additions made by the AO on account of alleged unexplained cash deposits. The assessee, a fruit dealer by occupation, had not filed his return of income for AY 2015–16. The case was reopened under Section 147 of the Act after the department noticed substantial cash deposits aggregating to ₹1.59 crore in his bank accounts. A notice under Section 148 was issued, followed by notices under Sections 142(1) and 143(2). During assessment proceedings, the assessee explained that he was engaged in fruit trading, an activity exempt from VAT and GST, and therefore did not maintain formal books of account. He also stated that he operated his business from his residence and that the bank deposits represented sale proceeds of fruits. An affidavit was filed along with confirmation letters from persons who identified him as a fruit dealer. However, the AO rejected the explanation, observing that no documentary evidence or corroborative material was produced to establish the nature of business. The AO treated deposits of ₹1.29 crore (including cheque deposits of about ₹26 lakh) as unexplained cash credits under Section 68 and added the same to income. Interest income of ₹76,297 was also added under “income from other sources”, and deduction under Section 80TTA was denied. On appeal, the NFAC upheld the assessment order. It reasoned that acceptance of large cash transactions was against RBI guidelines and that the assessee had failed to discharge the onus of explaining the cash deposits in three bank accounts. The appellate authority also observed that the assessee merely claimed to be a fruit trader without satisfactorily explaining the source of deposits. The ITAT noted several infirmities in the approach adopted by the tax authorities. At the outset, the Tribunal observed that Section 68 presupposes the existence of books of account maintained by the assessee. In the present case, it was undisputed that the assessee did not maintain any books of account. Therefore, the very foundation for making additions under Section 68 was missing. The Tribunal also found fault with the NFAC’s reliance on RBI guidelines relating to cash transactions, pointing out that the assessment year in question was 2015–16 and had no connection with the demonetisation period. Such observations were held to be wholly misplaced and irrelevant. Importantly, the Tribunal took note of the fact that for AY 2016–17, the AO himself had accepted the assessee’s claim of carrying on a genuine fruit trading business in reassessment proceedings. This, according to the Tribunal, lent credibility to the assessee’s explanation regarding the nature of business for the year under consideration as well. The Bench further observed that the assessee had filed a return in response to the Section 148 notice, declaring gross receipts of ₹92.80 lakh and net profit of ₹8.18 lakh, which worked out to approximately 8% of turnover. The assessee had also produced affidavits and confirmations identifying him as a fruit dealer, which were rejected by the AO without bringing any contrary material on record. Another inconsistency noted by the Tribunal was that while the AO treated the entire amount of ₹1.29 crore as cash deposits, he himself acknowledged that a portion of the deposits consisted of cheque credits, undermining the conclusion that the entire amount represented unexplained cash. In light of these findings, the ITAT held that once the assessee’s business activity was accepted as genuine, the bank deposits had to be treated as business receipts in the absence of any contrary evidence. The Tribunal directed the AO to treat the entire deposits of ₹1.29 crore (cash as well as cheque) as gross receipts from fruit trading business and to compute net profit at 8%, as declared by the assessee. The Tribunal also directed that savings bank interest be assessed under the head “income from other sources” and that deduction under Section 80TTA of ₹10,000 be allowed. Case Details Case Title: Mr. Abdul Jaleel Versus ITO Case No.: ITA No.585/Bang/2025 Date: 24/11/2026 Counsel For Appellant: Siddesh N Gaddi, A.R. Counsel For Respondent: Balusamy N., D.R. Click Here To Read Order Read More: University Grants Commission (UGC) Laws in India: Past, Present, and Controversy

Additions Citing Unexplained Cash Credits Inapplicable Where No Books Maintained: ITAT Treats Entire Bank Deposits As Business Receipts of Fruit Trader

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