Peak credit and undisclosed turnover in Jari business: only profit element taxable, with reasonable estimation applied under presumptive scheme.

Bank credits arising from Jari trading sale proceeds were treated as business receipts, and the peak credit balance was considered taxable as income. For undisclosed turnover, only the profit element could be assessed, not the full sale proceeds. Where the turnover fell within the presumptive-tax threshold, estimation had to be made on a reasonable basis having regard to the nature of the business and section 44AD. Applying that approach, the profit rate was reduced to 10% for the relevant assessment years.

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Issues: (i) Whether the peak credit balance for the relevant assessment years was to be treated as income from the assessee's business. (ii) Whether the income from undisclosed turnover in the Jari business was to be estimated at 26.62% or at a lower reasonable percentage having regard to section 44AD of the Income-tax Act, 1961.

Issue (i): Whether the peak credit balance for the relevant assessment years was to be treated as income from the assessee's business.

Analysis: The assessee carried on Jari trading business and the credits in the bank account represented sale proceeds received from purchasers. The Tribunal accepted that the deposits were business receipts and, following the principle applied in the assessee's own case, the peak balance could be brought to tax as income.

Conclusion: The peak credit addition was upheld and the issue was decided against the assessee.

Issue (ii): Whether the income from undisclosed turnover in the Jari business was to be estimated at 26.62% or at a lower reasonable percentage having regard to section 44AD of the Income-tax Act, 1961.

Analysis: The Tribunal held that only the profit element in the turnover could be taxed and not the entire sale proceeds. As the assessee's turnover was within the statutory threshold, the estimation had to be made on a reasonable basis. The Tribunal considered 10% of the turnover to be an appropriate estimate and directed assessment accordingly.

Conclusion: The estimation at 26.62% was reduced to 10%, and the issue was partly in favour of the assessee.

Final Conclusion: The appeals were disposed of by sustaining the peak credit addition, but reducing the rate of estimated income on undisclosed turnover to 10% for both assessment years.

Ratio Decidendi: Where bank credits represent business sale proceeds from undisclosed turnover, only the profit element can be taxed, and estimation must be made on a reasonable basis having regard to the nature of business and the applicable presumptive scheme.

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