Unexplained cash deposits sustained, while partial relief was granted by reducing the disallowance of indirect expenses.

Unexplained cash deposits linked to NEFT transfers were sustained as an addition because the assessee failed to produce confirmation or other credible evidence to establish the source of the cash. For indirect expenses, the absence of complete bills and vouchers justified only a partial estimate, since the expenditure was found necessary for day-to-day business operations. The disallowance was therefore restricted from 10% to 5% of total indirect expenses, giving the assessee partial relief, and interest chargeable followed consequentially.

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Issues: (i) Whether the addition of Rs. 30,00,000 made on account of cash deposits linked to NEFT transfers was sustainable as unexplained income or expenditure; (ii) Whether the disallowance of indirect expenses should be sustained in full or restricted.

Issue (i): Whether the addition of Rs. 30,00,000 made on account of cash deposits linked to NEFT transfers was sustainable as unexplained income or expenditure.

Analysis: The assessee claimed that the cash was received from a financer and was wrongly reflected in the books, but no confirmation or supporting evidence was produced to prove the source of the cash deposits. The corresponding cash deposits on the same dates as the bank transfers remained unexplained, and the explanation was not substantiated before the lower authorities or the Tribunal.

Conclusion: The addition of Rs. 30,00,000 was upheld and the assessee failed on this issue.

Issue (ii): Whether the disallowance of indirect expenses should be sustained in full or restricted.

Analysis: The assessee did not produce bills and vouchers to fully verify the indirect expenses, but the expenses were found to be necessary for the day-to-day business activity. In the absence of complete vouchers, a partial estimate was considered appropriate.

Conclusion: The disallowance was restricted from 10% to 5% of the total indirect expenses and the assessee succeeded partly on this issue.

Final Conclusion: The appeal succeeded only in part, with the addition sustained but the expense disallowance reduced, and interest chargeable as per law being consequential.

Ratio Decidendi: Where the assessee fails to substantiate the source of cash deposits with credible evidence, the addition may be sustained; where business expenses are partly unverifiable but shown to be necessary, an estimated partial disallowance may be made.

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