Unexplained cash deposits, agricultural income, and best judgment profit estimation under the Income-tax Act were addressed in detail.

Cash deposits of specified bank notes during demonetisation may be assessed as unexplained money under section 69A where the assessee fails to produce audited books, bills, vouchers, or other corroborative evidence establishing the source and nature of the deposits. Agricultural income, however, cannot be varied on a conjectural or ad hoc basis when the agricultural source itself is accepted; the declared amount was directed to be accepted without variation for the year. Rejection of books under section 145(3) was justified due to non-production of primary records and audit inconsistencies, but profit estimation must remain fact-based and reasonable, not ad hoc; the 10% estimate was reduced to 8%.

---

---

Issues: (i) whether cash deposits of specified bank notes during demonetisation were liable to be treated as unexplained money under section 69A; (ii) whether the assessee's claim of agricultural income could be disallowed in full or the income had to be accepted as declared; and (iii) whether rejection of books under section 145(3) and estimation of business profit was justified, and if so, at what rate.

Issue (i): whether cash deposits of specified bank notes during demonetisation were liable to be treated as unexplained money under section 69A.

Analysis: The assessee did not produce audited books, bills, vouchers, or corroborative material to establish that the deposits represented genuine sales receipts. The records called for from the agricultural market channels were not furnished in support of the explanation. In these circumstances, the explanation for the source and nature of the cash deposits remained unproved, and adverse inference was permissible.

Conclusion: The addition under section 69A was rightly restored and the deletion by the first appellate authority was reversed, in favour of Revenue.

Issue (ii): whether the assessee's claim of agricultural income could be disallowed in full or the income had to be accepted as declared.

Analysis: The assessee's agricultural source was accepted, but the authorities below adopted inconsistent and ad hoc approaches to quantify the income without adequate factual or empirical basis. The Revenue did not establish a sustainable basis to deny the agricultural source altogether, and the assessee's claim could not be varied merely on a conjectural estimation of yield.

Conclusion: The declared agricultural income was directed to be accepted without variation for the year, in favour of the assessee.

Issue (iii): whether rejection of books under section 145(3) and estimation of business profit was justified, and if so, at what rate.

Analysis: Non-production of books, stock records, vouchers, and invoices, coupled with inconsistencies in the audit report, justified rejection of books and resort to best judgment estimation. However, the estimation at 10% was held to be ad hoc and unsupported by material. A reasonable estimate had to be made on the facts and the nature of business, leading to a moderated rate.

Conclusion: Rejection of books and estimation of profit were upheld, but the profit rate was reduced to 8%, resulting in partial relief to Revenue.

Final Conclusion: The Revenue succeeded on the unexplained cash deposit issue, the assessee succeeded on the agricultural income issue, and the business profit addition was sustained only to a reduced extent, so the appeal was partly allowed.

Ratio Decidendi: Where an assessee withholds primary books and corroborative evidence, adverse inference may be drawn and income may be determined on best judgment, but the estimate must still rest on a reasonable and fact-based basis rather than an ad hoc rate.

---