Business bank deposits treated as sale receipts; only profit element taxable and 8% net profit estimation upheld.

Bank deposits reflected in regular books as business sale receipts could not be added in full as unexplained cash credits under section 68; only the income element embedded in those receipts was taxable. The books were found defective and unreliable because of cash balance discrepancies and doubtful receipts, so rejection of the books was justified and income could be estimated on a reasonable basis. On that footing, application of an 8% net profit rate on turnover was upheld as supported by the record. The Revenue's challenge to the full addition of deposits and the estimated-profit assessment was rejected.

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Issues: (i) Whether the bank deposits could be assessed as unexplained cash credits under section 68 or only the profit element from business turnover could be brought to tax. (ii) Whether estimation of net profit at 8% after rejecting the books of account was justified.

Issue (i): Whether the bank deposits could be assessed as unexplained cash credits under section 68 or only the profit element from business turnover could be brought to tax.

Analysis: The deposits were found to be reflected in the regular books and treated as business sale receipts. The assessment order did not satisfactorily establish that the entire deposits represented unexplained cash credits. The appellate authority examined the bank account, found that the aggregate cash deposits were lower than the figure adopted in assessment, and held that the deposits were business receipts, not cash credits requiring full addition under section 68.

Conclusion: The entire bank deposits could not be taxed under section 68; only the income element embedded in the receipts was liable to be assessed.

Issue (ii): Whether estimation of net profit at 8% after rejecting the books of account was justified.

Analysis: The books were found to contain defects and unreliabilities, including discrepancies in cash balance and doubtful cash receipts. On that basis, rejection of the books was warranted and income had to be estimated on a reasonable basis. The appellate authority adopted turnover-based estimation and applied a net profit rate of 8%, which was found to be supported by the record and not shown to be factually incorrect by the Revenue.

Conclusion: Estimation of net profit at 8% was upheld.

Final Conclusion: The addition of the entire bank deposits was not sustained, and the income was properly determined on an estimated profit basis, resulting in rejection of the Revenue's challenge.

Ratio Decidendi: Where deposits in a bank account are established to be business sale receipts reflected in the books, the full amount cannot be added as unexplained cash credits under section 68, and if the books are unreliable, income may be determined by reasonable estimation of profit from turnover.

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