The Income Tax Appellate Tribunal, Mumbai, has established a significant precedent for Section 44AD taxpayers by deleting additions of over ₹20 lakh made against a woman entrepreneur who paid her credit card bills in cash. According to reports from The Economic Times and Mint, the tribunal ruled that once a taxpayer offers business income under the presumptive taxation scheme of Section 44AD, the tax department cannot separately question cash deposits and cash expenditures relating to the business merely because individual bills or vouchers were not produced. The tribunal specifically held that "taxing the same amount independently under section 69A, without material demonstrating that it represents income from a source outside the disclosed business, would not be justified".
The ITAT order came in the case of Rina Radha Madhab Jena, a Mumbai resident engaged in manpower consultancy and recruitment who also earned income from rent and interest. As reported by The Economic Times and Mint, Jena filed her return for AY 2023-24 declaring a total income of ₹11,78,580 while reporting her business income under the presumptive taxation scheme under Section 44AD on a declared turnover of ₹52,01,836 at 6% profit. Her case was selected for scrutiny under Computer-Assisted Scrutiny Selection (CASS) for the reason: 'Large cash payments made for credit card purchases (Business ITR)'. During assessment, the assessing officer examined cash deposits totalling ₹10,24,000 and cash payments of ₹10,15,312 towards credit card bills. According to Mint, Jena explained that ₹3,11,000 of the cash deposits came from her own business receipts, while ₹7,13,000 pertained to a joint overdraft account held with her husband.
During assessment, the assessing officer added ₹10,24,000 under Section 69A as unexplained money and ₹10,15,312 under Section 69C as unexplained expenditure, taking the total assessed income to ₹32,17,892. According to Mint, Jena submitted her credit card statements, explaining that the bills were paid using cash received from clients as part of her business activities. However, the income tax officer was not convinced by her explanation. The CIT(A) confirmed both additions, and Jena approached ITAT Mumbai, which ruled in her favor on September 4, 2026. The tribunal noted that the assessee had consistently offered her business income under the presumptive scheme and that the turnover was not disputed.
The ITAT relied on the Punjab and Haryana High Court's ruling in CIT-II v. Surinder Pal Anand to establish its principle. As reported by The Economic Times and Mint, the bench observed that 'where presumptive income is the basis for determining taxable business income, the assessee is not required to explain each individual cash deposit unless the particular deposit has no nexus with the gross receipts'. The tribunal laid down the governing principle: 'Once the eligible business income is computed on the presumptive basis prescribed by the section, the statutory scheme proceeds on a deemed determination of the profits and gains of such business'. The judgement specifically noted that 'a separate addition of the underlying business expenditure merely on the ground that individual supporting vouchers were not produced would run contrary to the scheme of presumptive taxation, in the absence of material demonstrating that the expenditure was incurred from an independent unexplained source'.
For millions of taxpayers who file under Section 44AD, the ITAT ruling establishes a clear principle that if turnover is declared and accepted under the presumptive scheme, the tax department cannot separately add cash deposits or cash expenditures, including credit card payments, back into income unless it can show that the money came from a source entirely outside the disclosed business. According to The Economic Times and Mint, the tribunal deleted both additions and allowed the appeal, giving major relief to Jena in this case. The ruling is particularly significant as it reinforces the presumptive taxation scheme's protection against arbitrary additions based on lack of documentation, provided the business income is properly declared under Section 44AD. The case sets important precedent for taxpayers who rely on the presumptive taxation scheme for their business income calculations.
