Turnover-linked cash deposits cannot be separately taxed as unexplained money when business profit is estimated on disclosed turnover.

Estimated business income at a 2% net-profit rate on disclosed hardware-trading turnover was considered justified where books and supporting evidence were not produced, with credit required for income already returned because the estimate substitutes declared business income. Cash deposits treated as part of that disclosed turnover cannot be separately assessed as unexplained money under section 69A, since only the embedded profit is taxable. A separate addition of the gross deposits would result in double taxation. Taxable income is therefore computed on the estimated turnover basis after adjustment for returned income, without a separate addition for turnover-linked cash deposits.

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Issues: (i) Whether estimation of business income at 2% of the disclosed turnover was sustainable and whether credit was required for income already returned; (ii) Whether cash deposits forming part of disclosed business turnover could separately be assessed as unexplained money under section 69A.

Issue (i): Whether estimation of business income at 2% of the disclosed turnover was sustainable and whether credit was required for income already returned.

Analysis: The assessee did not produce books of account or supporting evidence despite statutory notices. Estimation of profits was therefore justified. For hardware trading, the 2% net-profit rate on the disclosed turnover was neither arbitrary nor excessive. Estimated business income substitutes the business income originally declared; consequently, credit for the returned income had to be allowed in computing taxable income.

Conclusion: Estimation at 2% of the disclosed turnover is sustained, with direction to grant credit for the income already returned. This issue is partly in favour of the assessee.

Issue (ii): Whether cash deposits forming part of disclosed business turnover could separately be assessed as unexplained money under section 69A.

Analysis: The disputed deposits were treated as part of the disclosed turnover while business income was estimated on that turnover. Receipts embedded in business turnover cannot again be taxed in gross as unexplained money; only the profit element in such receipts is assessable. A separate addition would result in impermissible double taxation.

Conclusion: The separate addition under section 69A is deleted. This issue is in favour of the assessee.

Final Conclusion: Taxable business income is to be computed on the estimated turnover basis after adjusting the income already returned, without a separate addition for the turnover-linked cash deposits.

Ratio Decidendi: Where cash deposits are accepted as part of disclosed business turnover and profits are estimated on that turnover, the gross deposits cannot additionally be assessed as unexplained money; only the embedded profit may be brought to tax.

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