Cash deposits and AIR-based scrutiny require proper reconciliation before treating amounts as undisclosed turnover.

Cash deposits in bank accounts could not be treated mechanically as undisclosed turnover without proper examination of the cash book, bank statements, reconciliation and the source of deposits. The record required fresh verification of inter-bank cash withdrawals and other cash movements before any profit estimation could be made. The scope of scrutiny was also stated to be relevant where the case originated from AIR information, with wider enquiry subject to the applicable administrative instructions. The matter was remitted to the Assessing Officer for fresh verification and lawful estimation, so the addition was not finally sustained.

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Issues: Whether cash deposits in bank accounts could be treated as undisclosed turnover and profit could be estimated thereon without proper verification of the cash book and reconciliation, and whether the assessment could travel beyond AIR information without the requisite administrative approval.

Analysis: The cash deposits were examined against the assessee's revised return, cash book, bank statements and reconciliation of deposits and withdrawals across bank accounts. The deposits could not be mechanically treated as unaccounted turnover merely because they appeared in bank accounts. The explanation that part of the deposits arose from inter-bank cash withdrawals and other cash sources required verification. The record also showed that the case was picked up on AIR information, and the applicability of the CBDT instruction restricting scrutiny to AIR issues and requiring approval for wider scrutiny was relevant to the validity of the enlarged enquiry. Since the factual verification was incomplete, the addition sustained by the first appellate authority could not stand as final.

Conclusion: The matter was remitted to the Assessing Officer to verify the turnover and cash deposits afresh, consider the assessee's reconciliation and bank-wise cash movements, and then estimate profit, if any, in accordance with law. The assessee obtained partial relief and the addition was not finally upheld.

Ratio Decidendi: Cash deposits cannot be treated as undisclosed turnover without examining the assessee's books, reconciliation and source of deposits, and an AIR-based scrutiny cannot be widened without compliance with the applicable administrative instructions.

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