Paid credit card bills in cash, faced tax addition: How a Section 44AD taxpayer won relief at ITAT

The order dated September 4, 2026, can have significant implications for small business owners and self-employed professionals who file income-tax returns under Section 44AD of Income Tax Act, 1961 and routinely transact in cash.

The case

The ITAT order came in the case Rina Radha Madhab Jena, a Mumbai resident engaged in manpower consultancy and recruitment. She had also earned income from rent and interest.

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 (AO) examined cash deposits totalling ₹10,24,000 and cash payments of ₹10,15,312 towards credit card bills. 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, who was the primary account holder. She also furnished credit card statements and said the cash payments towards credit card bills were made from cash received from clients in the course of business.

The AO was not satisfied. He 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. The CIT(A) confirmed both additions. However, the tribunal disagreed.

The ITAT noted that the assessee had consistently offered her business income under the presumptive scheme and that the turnover was not disputed.

Relying on the Punjab and Haryana High Court's ruling in CIT-II v. Surinder Pal Anand, 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 also 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. Therefore, the expenditure relatable to such business receipts cannot ordinarily be subjected to a separate item-wise disallowance merely for want of individual bills or vouchers, provided the transactions have nexus with the business and there is no material establishing that they represent an independent or undisclosed source of income".

On the ₹3,11,000 business cash deposit, the tribunal 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".

On the ₹7,13,000 in the joint account, tribunal accepted that the amount was deposited by the husband and did not belong to the assessee.

On the credit card cash payments of ₹10,15,312, the tribunal held 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".

The tribunal deleted both additions and allowed the appeal.

For millions of taxpayers, who file under Section 44AD, the ITAT ruling establishes a clear principle: if your 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 your income unless it can show that the money came from a source entirely outside your disclosed business.

However, ITAT orders can be challenged before higher courts. Therefore, taxpayers in Jena's situation should ideally file their returns in consultation with a tax expert.