Cheque discounting income should be estimated on reasonable commission basis, and explained bank credits need contrary evidence to be taxed.

Where business receipts arise from cheque and draft discounting, income should be assessed on a reasonable commission or net profit basis, supported by the assessee's accepted past results; the article notes adoption of 0.35% after earlier-year treatment at that rate. It also states that a bank transaction explained as cheque discounting cannot be treated as a loan or unexplained income without contrary evidence. On these facts, the disputed additions were reduced or deleted, and taxable income was determined on the footing that only commission income was earned.

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Issues: (i) Whether the addition made by estimating commission income from cheque and draft discounting at 1% of total credits was sustainable; (ii) Whether the addition of Rs. 43,00,000 said to relate to transactions with Madan Overseas was justified.

Issue (i): Whether the addition made by estimating commission income from cheque and draft discounting at 1% of total credits was sustainable.

Analysis: The assessee's business was found to be cheque and draft discounting, and the Tribunal noted that in the assessee's own case for an earlier year the net profit margin had been adopted at 0.35%. The estimate of 1% on total credits was therefore reduced to the lower rate applied in the earlier year.

Conclusion: The addition was restricted by adopting a 0.35% net profit rate and the ground was allowed in favour of the assessee.

Issue (ii): Whether the addition of Rs. 43,00,000 said to relate to transactions with Madan Overseas was justified.

Analysis: The record showed cheque discounting transactions through the bank account and did not support the view that the amount represented a loan. The Tribunal accepted the explanation that the amount related to cheque discounting and that the assessee earned only commission income.

Conclusion: The addition of Rs. 43,00,000 was deleted and the ground was allowed in favour of the assessee.

Final Conclusion: Both appeals succeeded, with the disputed additions substantially reduced or deleted on the footing that the assessee was engaged in cheque discounting and taxable income had to be determined on a reasonable commission basis.

Ratio Decidendi: Where the nature of business is cheque discounting, income should be estimated on a reasonable net profit basis supported by the assessee's own accepted results, and a transaction explained as cheque discounting cannot be treated as unexplained income absent contrary evidence.

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