Bank deposits treated as business turnover; unexplained income addition rejected and profit rate confined to estimated business income.

Bank deposits shown to be business receipts from commission trading, supported by corresponding supplier payments through banking channels and an earlier identical factual finding, should not be assessed in full as unexplained income under section 69. Where deposits are accepted as turnover, taxable income is to be estimated by applying a reasonable profit rate rather than bringing the entire credits to tax. On the facts discussed, the earlier 5% profit rate applied in the assessee's own case was followed instead of 6%, reflecting consistency with the prior year's approach and limiting the addition to estimated profit on turnover.

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Issues: (i) Whether the cash deposits in the assessee's bank accounts were liable to be treated as unexplained income or investment under section 69 of the Income-tax Act, 1961. (ii) Whether the profit rate applied on the bank deposits had to be 5% or 6% for estimating taxable income.

Issue (i): Whether the cash deposits in the assessee's bank accounts were liable to be treated as unexplained income or investment under section 69 of the Income-tax Act, 1961.

Analysis: The deposits were found to represent business receipts from sale of goods on commission basis, with corresponding payments made through banking channels to suppliers. The same issue had already been decided in the assessee's favour for an earlier assessment year on identical facts, and the deposits were treated as turnover rather than unexplained money. In view of the consistent pattern of deposits and withdrawals and the earlier binding factual finding, the full deposits could not be added as unexplained income.

Conclusion: The addition of the entire bank deposits as unexplained income was not sustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether the profit rate applied on the bank deposits had to be 5% or 6% for estimating taxable income.

Analysis: Once the deposits were accepted as business turnover, income had to be estimated by applying a profit rate. The earlier tribunal decision in the assessee's own case had applied 5% on similar deposits, and that rate was followed for one year. For the later year, the lower appellate authority's application of 6% was modified to 5% to maintain consistency with the earlier year's approach.

Conclusion: The applicable rate was 5%, not 6%, and the assessee succeeded on this issue.

Final Conclusion: The departmental appeals failed, and the assessee obtained partial relief by having the additions confined to estimated profit at 5% on the relevant turnover.

Ratio Decidendi: Where bank deposits are shown to represent business turnover from commission trading and the transactions are supported by corresponding banking movements and an earlier finding on identical facts, the deposits cannot be assessed in full as unexplained income and income must be estimated by applying a reasonable profit rate consistently.

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