Unexplained cash credit reduced by appellate discretion where documentary evidence was lacking, giving partial relief to assessee.

Addition treated as unexplained cash credit where assessee failed to produce sale or purchase bills to substantiate claimed cash sales; absence of documentary evidence prevented full acceptance of the source explanation, while Revenue's complete rejection was also unsupported. Applying appellate discretion in the interest of justice, the unexplained cash-credit addition was reduced by a compensatory lump-sum amount, so that the addition stands limited to Rs. 2.50 lakh and the appeal is partly allowed in favour of the assessee.

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Issues: Whether the addition of Rs. 12.50 lakh as unexplained cash credit under Section 68 of the Income-tax Act, 1961 in an assessment framed under Section 144 of the Income-tax Act, 1961 for A.Y. 2006-07 is sustainable.

Analysis: The assessee claimed the cash deposit represented sales proceeds from the business of dairy products but did not produce sale or purchase bills to substantiate the sales. The assessing officer made the addition under Section 68 on the basis of failure to furnish supporting documents, which was upheld by the Commissioner (Appeals). On review, the assessee prima facie discharged part of the evidentiary burden by asserting cash sales as source, but the absence of documentary proof meant the explanation could not be fully accepted. Conversely, the Revenue's complete rejection of the claim was not fully justified on the record. In the exercise of appellate discretion and in the interest of justice, a compensatory lump-sum reduction of the addition was considered appropriate.

Conclusion: The addition under Section 68 is not sustained to the full extent; the addition is reduced to Rs. 2.50 lakh and the appeal is partly allowed in favour of the assessee.

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