Estimation of income from cheque discounting cash deposits reduced after Tribunal found the original rate excessive.

Cash deposits routed through cheque discounting transactions were treated as undisclosed income, but the estimation had to be based on the surrounding circumstances and the material placed on record. The Tribunal accepted the existence of the transactions, found the first appellate authority's 42% estimate excessive, and reduced the rate to 26% of gross cash deposits. The addition was sustained only to that extent, with partial relief granted and the balance, including any peak credit claim, allowed.

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Issues: Whether the income from cash deposits routed through cheque discounting transactions should be estimated at the rate adopted by the first appellate authority, and whether the estimate required downward revision in view of the material placed on record.

Analysis: The income was assessed under section 143(3) of the Income-tax Act, 1961 on the basis of cash deposits treated as income from undisclosed sources. The first appellate authority accepted the existence of cheque discounting transactions but estimated income by applying 42% of the gross cash deposits after considering the matter through the test of human probability and surrounding circumstances. The Tribunal found that the complete details furnished before the authorities justified interference with the rate of estimation and that the effective interest rate adopted by the first appellate authority was on the higher side. The Tribunal therefore reduced the estimated rate to 26% of the gross cash deposits, while allowing the balance as relief, including any claim on account of peak credit.

Conclusion: The estimate of income was reduced, and the addition was sustained only to the extent of 26% of the gross cash deposits, resulting in partial relief to the assessee.

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