Covid limitation relief and cash deposits linked to business receipts: only profit element taxed, not entire deposits.

Limitation during the Covid-19 period had to be computed by applying the Supreme Court's suo motu exclusion orders, so the first appellate authority's dismissal of the assessee's appeal as time-barred was unsustainable and was set aside. On the cash deposits issue, the deposits were linked to transport business activity and lorry operations, but the absence of reliable books meant the full deposits could not be treated as explained. Only the profit element embedded in the receipts could be taxed as business income, not the entire amount as unexplained money under section 69A, and section 115BBE did not apply once the receipts were assessed as business income.

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Issues: (i) Whether the first appellate authority was justified in dismissing the appeal as time-barred without extending the benefit of the Supreme Court's orders on limitation during the Covid-19 period; (ii) Whether the cash deposits in the bank account were liable to be treated as unexplained money under section 69A or only as business receipts with estimation of profit.

Issue (i): Whether the first appellate authority was justified in dismissing the appeal as time-barred without extending the benefit of the Supreme Court's orders on limitation during the Covid-19 period.

Analysis: The limitation period had to be computed by giving effect to the exclusion and protection granted by the Supreme Court in its suo motu limitation orders. On that basis, the appeal filed before the first appellate authority fell within the protected period, and the delay could not be treated as fatal without examining the matter on merits.

Conclusion: The dismissal of the appeal as time-barred was unsustainable and was set aside in favour of the assessee.

Issue (ii): Whether the cash deposits in the bank account were liable to be treated as unexplained money under section 69A or only as business receipts with estimation of profit.

Analysis: The assessee's transport activity and ownership of lorries were not disproved, and the surrounding circumstances indicated that the cash deposits could represent business collections. At the same time, the assessee failed to produce reliable books or supporting records, so the entire deposits could not be accepted as fully explained. In such a situation, only the profit element embedded in the receipts could be brought to tax, and not the whole of the deposits as unexplained money. The application of section 115BBE could not survive once the receipts were assessed as business income.

Conclusion: The deposits were directed to be treated as gross business receipts, and income was restricted to 15% of such deposits, with the balance deletion of the addition in favour of the assessee.

Final Conclusion: The appeal succeeded on the limitation issue and partially on the merits, with the assessment modified to tax only an estimated profit element from the cash deposits instead of treating the full amount as unexplained income.

Ratio Decidendi: Where cash deposits are found to have a nexus with business activity, the entire deposits cannot be assessed as unexplained money merely for lack of complete records; only a reasonable profit element may be taxed, and limitation orders of the Supreme Court must be applied when computing delay.

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