Unrecorded sales and duplicate addition principles: profit confined to out-of-books sales, with separate cash-deposit addition deleted.

Unrecorded sales were supported by seized material and survey findings, so profit could be estimated only on those out-of-books sales, not on the entire turnover. The declared profit on regular sales was left undisturbed, and the alleged out-of-books purchases and accommodation entries were treated as absorbed within the estimated profit, leaving no basis for separate additions. A cash deposit reflected in the books against recorded sales was also not separately taxable because the sales invoices were produced and no independent evidence showed undisclosed income. The profit estimate was restricted to 0.30% on unrecorded sales, and the separate addition for the cash deposit was deleted.

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Issues: (i) whether the books of account could be rejected and profit estimated on out-of-books sales, and whether separate addition was warranted for alleged out-of-books purchases and accommodation entries; (ii) whether the cash deposit of Rs. 5,10,00,000 was liable to be added separately as unexplained income.

Issue (i): whether the books of account could be rejected and profit estimated on out-of-books sales, and whether separate addition was warranted for alleged out-of-books purchases and accommodation entries

Analysis: The seized material and survey findings supported the existence of unrecorded sales, and the assessee did not rebut that conclusion with satisfactory evidence. At the same time, the profit shown on regular sales was not in dispute, so the profit rate applied to the entire turnover was not justified. The proper course was to retain the declared profit on regular sales and estimate profit only on the unrecorded sales at a slightly higher rate. The alleged out-of-books purchases and accommodation entries were transactions connected with the same business activity and would stand absorbed in the estimated profit on such unrecorded sales, leaving no scope for separate addition on those components.

Conclusion: The books could be rejected for the limited purpose of dealing with out-of-books sales, but the profit rate applied by the lower authorities on the entire turnover was not sustained. Profit on out-of-books sales was directed to be estimated at 0.30%, and no separate addition for the alleged out-of-books purchases or accommodation entries was required.

Issue (ii): whether the cash deposit of Rs. 5,10,00,000 was liable to be added separately as unexplained income

Analysis: The cash deposit was recorded in the books against sales, and the printed sales invoices were furnished. No concrete evidence established that the sales were bogus, and the explanation was not disproved by any material showing that the deposit represented undisclosed income apart from the recorded sales. A separate addition on the same amount would result in duplication.

Conclusion: The separate addition of Rs. 5,10,00,000 was deleted.

Final Conclusion: The appeal succeeded only in part. The estimation of income was modified by restricting profit to out-of-books sales alone at 0.30%, while the addition for the cash deposit was set aside.

Ratio Decidendi: Where unrecorded sales are established, profit may be estimated only on those sales, and amounts already reflected in the books cannot be separately added again in the absence of independent incriminating evidence.

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