Estimated business profits can absorb an unexplained cash credit when the factual record supports deletion of a separate addition.

Where business profits are estimated after rejection of the books, an unexplained cash credit may be treated as absorbed in the trading addition if the factual record supports that inference. On the facts noted, the Tribunal found that the cash deposit was covered by the already sustained business addition, so no separate addition was required. The reference court accepted this as a permissible factual inference rather than a new case, and held that the Tribunal could reach it even though the specific plea had not been raised in the appeal memorandum. The unexplained deposit was therefore excluded from taxable income.

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Issues: Whether the cash deposit of Rs. 6,531 could be treated as coming out of and covered by the addition of Rs. 18,000 made to the business profits of the assessee.

Analysis: The Tribunal rejected the assessee's explanation for the cash credit, but also found that the business profits had been estimated after rejection of the books and that an addition of Rs. 18,000 had already been sustained in the trading account. On that footing, the Tribunal held that the unexplained cash credit stood covered by the business addition and no separate addition was called for. The reference court treated this as a permissible inference from the facts and not as an impermissible new case, and held that the Tribunal was competent to reach that conclusion even though the assessee had not taken that precise plea in the memorandum of appeal.

Conclusion: The cash deposit of Rs. 6,531 was held to be covered by the addition of Rs. 18,000 to the business profits, and the issue was answered in favour of the assessee.

Final Conclusion: The unexplained cash deposit was excluded from the assessee's taxable income because it was treated as absorbed in the estimated business addition.

Ratio Decidendi: Where business profits are estimated after rejection of the books, the Tribunal may infer that an unexplained cash credit is covered by the trading addition and delete a separate addition if that inference is a finding of fact.

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