Cash deposits from commodities trading: bifurcation into unexplained portion rejected; apply uniform 6% presumptive profit on receipts

Whether the AO could bifurcate cash deposits and treat half as unexplained with a separate addition: ITAT held that, on the facts, the sole source of deposits was trading receipts in highly competitive commodities and there was no rational basis for bifurcation; therefore the separate unexplained cash deposit addition is unjustified. Legal consequence: AO directed to apply a uniform presumptive profit rate of 6% on entire receipts and recompute income. Appeal partly allowed.

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Issues: Whether the profit rate applied by the Assessing Officer and confirmed by the Commissioner (Appeals), and the separate addition of unexplained cash deposits, in assessment framed under Section 144 of the Income-tax Act, 1961, are justified.

Analysis: The assessee, engaged in trading of cement and iron, did not file return and had bank credits and cash deposits totalling Rs. 171.36 lakhs. The Assessing Officer applied an 8% profit rate on non-cash deposits and treated cash deposits partly as unexplained and partly as business receipts. The Tribunal considered the nature of the business (trading in highly competitive commodities) and found no rational basis to bifurcate cash deposits where the only source of deposits is business receipts. On these facts, the Tribunal concluded that a uniform, revised profit rate should be applied to the entire receipts and that the separate addition for unexplained cash deposits was not justified.

Conclusion: The profit rate applied by the Assessing Officer and confirmed by the Commissioner (Appeals) is modified; the Assessing Officer is directed to apply a profit rate of 6% on the entire receipts of Rs. 171.36 lakhs and to re-compute the assessee's income. The separate addition of unexplained cash deposits is set aside. This conclusion is in favour of the assessee.

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