November 25, 2025 : The Bangalore Bench of the Income Tax Appellate Tribunal has ruled that additions under Section 68 of the Income Tax Act, 1961 cannot be sustained where the assessee does not maintain books of account. The Tribunal further held that when bank deposits are reasonably explained as business receipts, income must be computed on a presumptive basis.
The ruling was delivered by a Bench comprising Judicial Member Keshav Dubey and Accountant Member Waseem Ahmed in Mr. Abdul Jaleel vs ITO (ITA No. 585/Bang/2025), relating to Assessment Year 2015–16.
The appeal arose from reassessment proceedings initiated after the department noticed deposits aggregating to about ₹1.59 crore in the assessee’s bank accounts. The assessee, a Bangalore-based fruit trader dealing in seasonal fruits purchased from farmers and sold to wholesalers, had not originally filed a return for the year. He explained that fruit trading was exempt from VAT and GST, and that he therefore did not maintain formal books of account. According to him, the bank deposits represented sale proceeds from his trading activity, which he conducted from his residence.
The Assessing Officer rejected this explanation, citing lack of documentary evidence, and treated deposits of ₹1.29 crore, including cheque deposits of about ₹26 lakh, as unexplained cash credits under Section 68. Savings bank interest of ₹76,297 was also added under “income from other sources,” and deduction under Section 80TTA was denied. The National Faceless Appeal Centre upheld the assessment, relying in part on observations about RBI guidelines on cash transactions.
The Tribunal found the approach of the lower authorities fundamentally flawed. It noted that Section 68 presupposes the existence of books of account, which was admittedly not the case here. On that ground alone, the addition could not stand. The Bench also rejected the NFAC’s reliance on RBI cash transaction guidelines, pointing out that the year in question was AY 2015–16 and had no connection with the demonetisation period.
A key factor that weighed with the Tribunal was that, for AY 2016–17, the Assessing Officer himself had accepted the assessee’s fruit trading business as genuine in reassessment proceedings. This, the Bench held, lent credibility to the assessee’s explanation for the year under consideration as well. The Tribunal also noted 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 about 8 percent, a rate consistent with presumptive taxation norms.
The Bench highlighted an internal inconsistency in the assessment order. While the Assessing Officer treated the entire ₹1.29 crore as cash deposits, he simultaneously acknowledged that a portion of the amount consisted of cheque credits. This undermined the conclusion that the whole sum represented unexplained cash.
In these circumstances, the Tribunal held that once the business activity was accepted as genuine, the bank deposits had to be treated as business receipts in the absence of any contrary material. It directed the Assessing Officer to treat the entire deposits of ₹1.29 crore, including cash and cheque deposits, as gross receipts from the fruit trading business and to compute net profit at 8 percent. The Tribunal also directed that the savings bank interest be assessed under “income from other sources” and that deduction under Section 80TTA up to ₹10,000 be allowed. The appeal was partly allowed accordingly.
