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Issues: (i) whether the balance cash deposit of Rs. 2,50,000 during the demonetisation period was liable to be sustained as unexplained income under section 69A; and (ii) whether estimation of profit at 8% of turnover under section 44AD was justified.
Issue (i): whether the balance cash deposit of Rs. 2,50,000 during the demonetisation period was liable to be sustained as unexplained income under section 69A.
Analysis: The cash deposits were examined in the context of the assessee's cash-based business, the monthly sales pattern, and the turnover reflected in the VAT return. The cash deposit of Rs. 3,25,000 in old currency was found to be meagre against the recorded turnover, and the average sales for the relevant period supported the explanation that the cash deposits were out of business receipts. The absence of books of account did not, on these facts, justify sustaining the entire balance addition.
Conclusion: The addition of Rs. 2,50,000 was not sustained and the assessee succeeded on this issue.
Issue (ii): whether estimation of profit at 8% of turnover under section 44AD was justified.
Analysis: The assessee did not maintain books of account and did not establish a lower profit rate with supporting evidence. In these circumstances, application of the presumptive profit rate under section 44AD was held to be appropriate.
Conclusion: Estimation of profit at 8% of turnover was upheld and the issue was decided against the assessee.
Final Conclusion: The appeal succeeded only on the cash-addition issue, while the profit estimation based on presumptive taxation was maintained.
Ratio Decidendi: Cash deposits explained by the scale and pattern of business turnover during the relevant period cannot be sustained as unexplained income where the surrounding circumstances support the business nexus, but in the absence of books and proof of lower profits, presumptive estimation under section 44AD is justified.
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