Cash deposits from regular cash sales vs "unexplained credits" u/s68, s.115BBE-estimated additions rejected, deleted

The dominant issue was whether cash deposits in bank accounts could be treated as unexplained credits under s.68 and taxed under s.115BBE on an estimated basis (including a 1/3rd estimation or bank-wise approach) despite the assessee producing evidence that the deposits arose from regular cash sales. The ITAT held that the tax authorities were required to examine each deposit entry on merits against the supporting material and could not sustain an addition on mere estimation without identifying deposits remaining unexplained. As the assessee had explained the source with relevant evidence and the authorities failed to rebut it through entry-wise scrutiny, the addition was held unsustainable and was deleted.

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Issues: Whether the addition of Rs. 94,66,666/- made by the Assessing Officer and sustained by the CIT(A) under section 68 read with section 115BBE by treating certain bank deposits as unexplained cash deposits (including sustaining a 1/3rd estimation of deposits as not derived from business sales) is sustainable where the assessee produced evidentiary material attributing the deposits to regular business sales.

Analysis: The authorities below upheld additions by applying a blanket estimation (one-third) to certain bank deposits and treated deposits as unexplained under provisions of the Income-tax Act, 1961. The decided issue required examination of whether such estimation and summary treatment were permissible when the assessee submitted bank-wise and transaction-specific evidence attributing the deposits to business sales. The relevant statutory framework includes section 68 (unexplained cash credits), section 115BBE (taxation of unexplained cash credits), and related provisions addressing assessment procedure. The question of whether an incorrect section citation (e.g., section 69A) could be treated as a curable mistake under section 292B was raised but the decisive point was whether the departmental authorities examined each deposit entry on merits in light of the cogent material furnished by the assessee. Reasoned, entry-wise scrutiny is required before sustaining additions by estimation; where the assessee furnishes cogent bank-wise evidence explaining deposits as business receipts, blanket estimation without such examination is not permissible.

Conclusion: The addition of Rs. 94,66,666/- is not sustainable and is deleted; the appeal is allowed in favour of the assessee.

Ratio Decidendi: A revenue authority may not sustain additions by broad estimation of unexplained deposits without examining each deposit on its merits when the assessee produces cogent, bank-wise evidence attributing the deposits to legitimate business receipts; such summary estimation is not a valid basis for upholding additions under section 68/115BBE.

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