Best judgment business income estimation sustained, but separate demonetisation cash-deposit addition deleted on telescoping grounds.
In the absence of a regular return, business income was estimated on a best judgment basis under section 44AD, and the addition was sustained because the available material supported estimation of profit from the assessee's business activity. The cash deposits made during the demonetisation period were not separately taxable as income from other sources after the business income had already been estimated, because the same funds could not be brought to tax again; telescoping was applied to prevent double addition. The business-income addition was therefore maintained, while the separate addition for cash deposits was deleted.
Issues: (i) Whether the addition made by estimating business income under section 44AD of the Income-tax Act, 1961 was sustainable; (ii) whether the cash deposits made during the demonetisation period could also be separately added as income from other sources after estimating business income.
Issue (i): Whether the addition made by estimating business income under section 44AD of the Income-tax Act, 1961 was sustainable.
Analysis: No regular return of income was filed for the assessment year. In the absence of a returned income and on the available material, the assessment was framed on a best judgment basis. The business carried on by the assessee justified estimation of income for the year.
Conclusion: The estimation of business profit was upheld and the addition of Rs. 5,92,823/- was confirmed.
Issue (ii): Whether the cash deposits made during the demonetisation period could also be separately added as income from other sources after estimating business income.
Analysis: Once income was estimated for the business activity, the same cash availability could not be subjected to a separate addition without duplication. The principle of telescoping applied to avoid double addition on the same set of funds.
Conclusion: The separate addition of Rs. 3,93,000/- towards cash deposits was deleted.
Final Conclusion: The appeal succeeded only in part, with the business-income addition maintained and the separate cash-deposit addition removed.
Ratio Decidendi: Where business income is estimated on best judgment basis in the absence of a regular return, a separate addition for the same available funds is not warranted if it results in double taxation and telescoping is applicable.
TaxTMI 
AI Drafter ✕
TaxTMI 
