Business sale receipts taxed on profit element; gross deposits not treated as unexplained income, AO additions deleted.

Where account credits represented repeated business sale receipts supported by matching debits and documentary explanation, the correct tax treatment is to tax only the profit element of those receipts rather than treating gross deposits as unexplained income; the Assessing Officer's additions treating entire deposits as unexplained cash credits were deleted and only the profit already offered and taxed at 8% was sustained. The Tribunal accepted the assessee's account-based evidence of turnover and decided the appeals in the assessee's favour for the relevant years without deciding the separate procedural issue on reopening.

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Issues: Whether deposits made by the assessee in Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd. are taxable as unexplained income in full or only to the extent of profit element; and whether the additions made by the Assessing Officer treating the entire deposits as unexplained income are sustainable.

Analysis: The assessee established that the deposits in the society account comprised multiple receipts on various dates corresponding to sale proceeds of business transactions (sales of submersible pumps and plastic products) with matching debit entries. The Assessing Officer relied on information from a search in the society and reopened assessment under section 147/148, treated the entire deposits as unexplained cash credits and made additions. The Tribunal examined the factual matrix of repeated small credits and corresponding debits, the nature of the transactions as business sales, and the return filed by the assessee offering profit at 8% under section 44AD. The Tribunal noted that where credits represent business sales with corresponding debits, the proper tax treatment is to tax the profit element of such receipts rather than treating gross receipts as unexplained income. The Tribunal accepted the assessee's documentary and account-based explanation of turnover and the concession that profit at 8% was offered and taxed; the Tribunal therefore held that no further addition was warranted. The Tribunal also observed the point raised about assessment pursuant to search (sections 153A-153C) but decided the matter on merits of the deposits and did not adjudicate the separate legal issue concerning the correctness of reopening procedure at this stage.

Conclusion: The additions made by the Assessing Officer treating the full deposits as unexplained income are deleted; only the profit element already offered and taxed at 8% is to be treated as taxable income. The appeals for the assessment years 2015-16, 2016-17 and 2017-18 are allowed in favour of the assessee.

Ratio Decidendi: Where bank or society account credits represent business sale receipts supported by corresponding debits and documentary explanation, the correct tax treatment is taxation of the profit element of such receipts rather than treating gross deposits as unexplained income.

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