1. AO had made two additions: ₹26,57,500 – cash deposits during demonetisation, treated as unexplained u/s 69A & ₹11,11,800 – net profit estimated @ 8% of turnover.

2. CIT(A) partly allowed appeal, sustaining ₹26.57 lakh addition as unexplained, while estimating NP @ 6% on other business income.

1. Cash deposits during demonetisation were from regular business sales; identical deposits before & after demonetisation were accepted as business receipts taxable u/s 44AD.

2. CIT(A) adopted a “pick & choose” approach by treating only demonetisation deposits as unexplained.

3. Alternatively, even if deposits are taxed, they should be assessed as business income @ 8% u/s 44AD, not at maximum marginal rate u/s 115BBE.

4. NP estimation of 6% was arbitrary; past year NP was around 2.46%.

1. Noted that assessee carried on consistent business activities, with similar pattern of deposits throughout the year.

2. CIT(A) erred in taxing demonetisation deposits differently from other cash deposits. Once sales & purchases were accepted, cash deposits could not be wholly treated as unexplained.

3. However, profits must be estimated reasonably based on past records. Tribunal directed NP to be estimated at 4% of turnover, instead of 6%, subject to verification of figures in CIT(A)’s order.

4. Addition u/s 69A was not sustainable; deposits to be treated as business income

Outcome:

1. Addition of ₹26.57 lakh u/s 69A deleted.

2. Deposits & other income to be taxed as business receipts, with NP estimated @ 4%.

3. Appeal allowed for statistical purposes

The copy of the order is as under:

1756970869-MHySjN-1-TO