Demonetisation cash deposits traced to business receipts cannot be taxed as unexplained income when records support presumptive turnover computation.

Cash deposits made during the demonetisation period were not liable to be treated as unexplained income under section 69A where VAT returns, bank statements and cash flow material showed that the deposits formed part of regular business receipts and the record contained no contrary evidence. For an assessee eligible for presumptive taxation, income had to be computed on the total turnover under section 44AD rather than by estimating profit on isolated cash deposits, as partial attribution would duplicate the same receipts. Chapter VI-A deduction for LIC premium could be allowed subject to proof of payment and verification. The assessment was therefore modified accordingly.

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Issues: (i) Whether cash deposits made during the demonetisation period were liable to be treated as unexplained income under section 69A; (ii) whether income could be estimated at 8% of isolated cash deposits instead of applying presumptive taxation on the total turnover under section 44AD; (iii) whether deduction under section 80C in respect of LIC premium was allowable subject to verification.

Issue (i): Whether cash deposits made during the demonetisation period were liable to be treated as unexplained income under section 69A.

Analysis: The assessee produced VAT returns, bank statements, cash flow material and other supporting evidence to show that the deposits formed part of regular business receipts and available cash balance. The turnover reflected in the VAT returns was not disputed, and the remand report did not bring adverse material to disprove the explanation. Where deposits are traceable to recorded business receipts and no contrary evidence is produced, the deeming fiction under section 69A cannot be applied merely on suspicion.

Conclusion: The addition under section 69A was unsustainable and was deleted in favour of the assessee.

Issue (ii): Whether income could be estimated at 8% of isolated cash deposits instead of applying presumptive taxation on the total turnover under section 44AD.

Analysis: Once the business activity and turnover were accepted and the assessee was found eligible for presumptive taxation, income had to be computed on the total turnover and not on selected bank credits. Estimating profit on only a portion of the deposits was inconsistent with the scheme of section 44AD and created duplication by taxing the same receipts in different forms.

Conclusion: The income was directed to be computed at 8% of the total turnover under section 44AD, in favour of the assessee.

Issue (iii): Whether deduction under section 80C in respect of LIC premium was allowable subject to verification.

Analysis: Since income was to be computed under section 44AD, the assessee remained entitled to claim Chapter VI-A deduction from gross total income, subject to proof of payment and verification of the claim.

Conclusion: The deduction claim was allowed to be examined and granted in accordance with law subject to verification, in favour of the assessee.

Final Conclusion: The assessment was modified by deleting the addition for unexplained cash deposits, directing computation of business income on presumptive basis for the full turnover, and permitting verification-based Chapter VI-A relief.

Ratio Decidendi: Where cash deposits are supported by accepted business turnover and surrounding records, section 69A cannot be invoked absent contrary material, and income of an eligible assessee must be computed on the basis of total turnover under the presumptive taxation scheme.

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