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Issues: Whether the addition made under section 68 on account of cash deposits in bank accounts, treated by the assessee as business receipts, was sustainable, and whether in the absence of complete books the entire gross receipts could be taxed as income.
Analysis: The assessee was engaged in trading business and the cash deposits were found to be prima facie linked with declared turnover that exceeded the impugned deposits. Section 68 applies where a sum is found credited in the books and the nature and source are not satisfactorily explained. On the facts, the deposits were part of circulating business receipts and there was no material to show that they were loans, share capital, accommodation entries, or income from non-business sources. Failure to produce complete books and supporting evidence could justify rejection of books and estimation of income, but not addition of the entire turnover as unexplained income. The settled principle applied was that sales or receipts cannot be treated as income in full and only the profit element embedded therein can be brought to tax.
Conclusion: The addition under section 68 was held unsustainable and deleted, while the Assessing Officer was directed to estimate income by applying a reasonable net profit rate on the turnover after giving due opportunity to the assessee.
Ratio Decidendi: Where cash deposits are shown to be part of business turnover and the Revenue does not establish a non-business source, section 68 cannot be used to tax the entire gross receipts as unexplained income; at most, income may be estimated by applying a reasonable profit rate, even if books are incomplete.
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