Reassessment and cash deposit treatment: bank-supported trading receipts may be taxed only for estimated profit, not full deposits.

Reassessment under sections 147 and 148 may be sustained where the Assessing Officer has tangible information, such as bank data showing cash deposits, and the assessee does not respond to the reopening inquiry; in that situation, notice under section 148 can validly issue with prior approval. Where contemporaneous business records support the explanation that cash deposits represent trading receipts, the deposits may be treated as business turnover rather than unexplained money, and only the profit element can be brought to tax. If the supporting material is incomplete, the profit rate may be estimated on the facts, with the balance addition deleted.

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Issues: (i) Whether the reassessment proceedings under sections 147 and 148 were valid on the facts of the case. (ii) Whether the addition made on account of cash deposits was sustainable in full, or whether only a part of the amount was liable to be brought to tax by estimating the business profit.

Issue (i): Whether the reassessment proceedings under sections 147 and 148 were valid on the facts of the case.

Analysis: No return of income had been filed and the Assessing Officer had information from the bank regarding cash deposits in the assessee's account. A prior letter calling for a response went unanswered. On these facts, the Assessing Officer had material to form the belief that income had escaped assessment and notice under section 148 was issued with prior approval.

Conclusion: The reassessment was held to be valid and the challenge to the reopening failed.

Issue (ii): Whether the addition made on account of cash deposits was sustainable in full, or whether only a part of the amount was liable to be brought to tax by estimating the business profit.

Analysis: The bank statements, sales register, Gram Panchayat letter, purchase and sale records, and the material filed before the Tribunal showed that the cash deposits were linked to trading activity in cashew seeds. At the same time, the supporting material did not fully establish the entire claim, and the profit element in the business had to be estimated. The Tribunal therefore accepted the deposits as business receipts, but estimated a higher net profit than that returned by the assessee.

Conclusion: The addition was sustained only to the extent of the estimated excess profit and the balance was deleted.

Final Conclusion: The reopening was upheld, but the quantum addition was substantially reduced by treating the deposits as business receipts and taxing only the estimated higher profit.

Ratio Decidendi: Where bank deposits are supported by contemporaneous business material, the receipts may be treated as business turnover and only the profit element can be brought to tax, while reassessment is valid if there is tangible information indicating escapement of income and the assessee does not respond to the reopening inquiry.

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