Profit element on alleged cash sales only, not entire cash deposits, where sales are treated as unrecorded.

Cash deposits linked to alleged unrecorded sales cannot be taxed in full where the business maintained regular books and disclosed turnover. The Tribunal applied the principle that, if sales are treated as unrecorded, only the profit element embedded in those sales is taxable because corresponding purchases would also be present. As the supporting details were incomplete, it estimated net profit at 4% on the alleged cash sales and restricted the addition to that profit element, deleting the balance addition.

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Issues: Whether the addition sustained in respect of cash deposits could be restricted to the profit element attributable to alleged cash sales instead of treating the entire amount as unexplained income.

Analysis: The assessee carried on regular business, maintained books, and had disclosed turnover and audited results. The Assessing Officer made the addition under section 69A of the Income-tax Act, 1961 on the basis of cash deposits during the demonetization period, while the first appellate authority accepted that the deposits could be from cash sales but sustained a part addition for want of supporting details. The Tribunal held that where sales are treated as unrecorded, only the profit element embedded in such sales can be brought to tax, since corresponding purchases would also exist. As relevant details were not fully furnished, the Tribunal estimated the net profit rate at 4% on the alleged cash sales.

Conclusion: The addition was restricted to the estimated profit element and the remaining addition was deleted, resulting in partial relief to the assessee.

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