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Issues: (i) Whether the Commissioner (Appeals) could sustain an enhanced addition without giving the assessee a reasonable opportunity of showing cause; (ii) Whether the cash deposits in the bank account were liable to be treated wholly as unexplained cash credit under section 68, or only an estimated profit element was taxable.
Issue (i): Whether the Commissioner (Appeals) could sustain an enhanced addition without giving the assessee a reasonable opportunity of showing cause.
Analysis: The assessment made after remand had accepted the cheque deposits and retained only the cash deposits as unexplained. The Commissioner (Appeals), however, restored the entire original addition without issuing any enhancement notice. Section 251(2) mandates that no enhancement of assessment can be made unless the appellant is given a reasonable opportunity to meet the proposed enhancement.
Conclusion: The enhancement was invalid for want of notice and the addition relating to cheque deposits was deleted in favour of the assessee.
Issue (ii): Whether the cash deposits in the bank account were liable to be treated wholly as unexplained cash credit under section 68, or only an estimated profit element was taxable.
Analysis: The assessee explained that the cash deposits represented sale proceeds from shares purchased through banking channels and sold in cash. The bank account was reflected in the balance sheet and was not treated as concealed. Although the explanation for the entire cash trail was not fully acceptable and the conduct was not above board, the facts indicated a trading-like activity in shares through a broker or mediator. In such circumstances, taxing the whole cash deposit as income was held to be excessive, and an estimate of profit element was considered appropriate.
Conclusion: Only 2.5% of the cash deposits was directed to be taxed, and the balance addition was deleted, partly in favour of the assessee.
Final Conclusion: The appeal succeeded to the extent that the impermissible enhancement was set aside and the addition was restricted to a small estimated profit element instead of the entire cash deposit.
Ratio Decidendi: A Commissioner (Appeals) cannot enhance an assessment without affording reasonable opportunity under section 251(2), and where cash deposits are linked to a trading-like activity but the explanation is not fully satisfactory, only a reasonable profit element may be taxed rather than the entire deposit under section 68.
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