Cash deposits during demonetisation: only embedded profit, not full sales proceeds, was taxable on the recorded business evidence.

Cash deposits during the demonetisation period were linked to recorded business activity, supported by business records, stock register and cash book, so the entire deposit could not be treated as unexplained income. In the absence of incriminating material showing that the full amount represented undisclosed income, and where the search statement was not corroborated by independent enquiry into the affidavits and stock records, the appropriate course was to estimate income by applying a net profit rate. Only the profit element embedded in the sales was taxable, and the balance addition was deleted.

---

---

Issues: Whether the cash deposits found during the demonetisation period were liable to be assessed in full as unexplained income, or whether only the profit element embedded in the sales was taxable.

Analysis: The assessee's business records, stock register and cash book showed that the deposits were linked to recorded business activity, including bullion received from melting centres and sales effected during the relevant period. The search yielded no incriminating material establishing that the entire deposit represented undisclosed income. The statement recorded during search, though evidentiary, was not treated as conclusive in the absence of supporting material, and the absence of independent enquiry into the affidavits and stock records weakened the full addition. In such circumstances, the proper course was to estimate the income by applying a net profit rate, so that only the embedded profit and not the entire sales proceeds would be brought to tax.

Conclusion: The addition could not be sustained in full; only the estimated income of Rs. 32,92,080 was upheld and the balance addition was deleted.

---