Bank deposits cannot be treated as unexplained income without proper factual examination and mandatory notice before appellate enhancement.

Bank deposits could not be sustained as unexplained income where the assessee explained them as business receipts supported by opening balances and running-account entries, and the assessment order failed to examine the return and banking trail properly. The addition under section 68 was deleted because bank credits alone did not justify an unexplained cash credit or unexplained investment finding on the facts recorded, especially where no books of account were maintained. The first appellate authority also could not enhance the assessment by substituting section 69A without issuing notice under section 251(2).

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Issues: Whether the addition made on account of bank deposits as unexplained cash credit or unexplained investment was sustainable, and whether the enhancement made by the first appellate authority without notice could be upheld.

Analysis: The assessee had filed a return in response to reassessment proceedings and had explained that the bank deposits formed part of business receipts and were supported by opening balances and debit entries in a running account. The assessment order did not analyse the return, the bank credits and debits, or the basis on which only part of the deposits was treated as unexplained. The addition under section 68 could not be sustained merely on bank deposits when no books of account were maintained. The first appellate authority also could not substitute the addition under section 69A and enhance the assessment without issuing notice under section 251(2), besides relying on a figure that was not properly explained from the record.

Conclusion: The addition was unsustainable and was deleted. The issue was decided in favour of the assessee.

Final Conclusion: The assessment based on unexplained bank deposits did not survive judicial scrutiny, and the assessee obtained full relief.

Ratio Decidendi: Bank deposits cannot be added as unexplained income without a proper evaluation of the returned income, bank entries and surrounding circumstances, and any enhancement by the appellate authority must comply with the notice requirement under section 251(2).

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