Bank deposits linked to business turnover cannot be taxed fully as unexplained investment; only profit element is taxable.

Cash deposits in a bank account, when satisfactorily linked to business sale proceeds through a consistent banking trail, supplier payments, confirmations and surrounding evidence, cannot be treated in full as unexplained investment under section 69. The Tribunal found that the receipts arose from commission trading activity, with identifiable debit entries, meagre opening and closing balances, and no verification by the authorities of the named parties despite a request for summons. On that basis, the deposits were regarded as turnover, and only the income element embedded in the receipts was liable to tax on a presumptive basis. The full addition was deleted and only the profit component was sustained.

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Issues: Whether cash deposits in the assessee's bank account, explained as sale proceeds arising from a commission trading activity, could be assessed in full as unexplained investment under section 69, or only the presumptive profit on turnover could be brought to tax.

Analysis: The assessee consistently explained that the deposits represented receipts from sale of ladies suits brought from Surat and sold on commission basis, with corresponding payments made to suppliers through banking channels. The bank statement showed identifiable debit entries matching the cheques issued to traders, meagre opening and closing balances, and a pattern consistent with business circulation of funds rather than unexplained accumulation. The explanation was supported by the assessee's statement, confirmations filed, and the surrounding banking details, while the authorities did not verify the identified parties despite a request for summons. On these facts, the deposits were found to be sale proceeds from business activity and not unexplained investment. Since the receipts represented turnover, only the profit element was liable to be estimated, and the Tribunal applied the presumptive rate applicable to retail business turnover.

Conclusion: The addition of the entire bank deposits under section 69 was rejected, and only the profit component on the turnover was sustained; the decision was in favour of the assessee to that extent.

Ratio Decidendi: Where cash deposits in a bank account are satisfactorily linked to business sale proceeds supported by banking trail and surrounding evidence, the full deposits cannot be taxed as unexplained investment and only the income element embedded in the turnover may be assessed.

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