When cash deposits represent business receipts, income to be estimated by applying a reasonable profit rate.
In a recent judgment, ITAT Ranchi has held that when cash deposits represent business receipts, it would be appropriate to estimate income by applying a reasonable profit rate.
ABCAUS Case Law Citation:
4955 (2025) (12) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in partly confirming the addition u/s 69A of the Income Tax Act, 1961 (the Act) towards cash deposits in savings bank account.
Based on information available, the Assessing Officer (AO) found that the assessee had deposited large amount of cash in a savings bank account during the relevant assessment year.
On account of such cash deposits, the case of the assessee was reopened under section 147 of Act after recording reasons and obtaining the necessary approval from the competent authority.
However, the assessee did not file the return of income in response to notice under section 148 nor complied with the notices issued under section 142(1) of the Act. In the absence of any compliance, the Assessing Officer completed the assessment ex parte and treated the entire cash deposit in the savings bank account as unexplained money and added the same to the total income of the assessee under section 69A of the Act.
The CIT(A) observed that Assessing Officer had not mentioned the correct bank account details in the assessment order and that the actual cash deposits made by the assessee was lesser than the amount added by the AO. On the basis of bank statements furnished by the assessee, the CIT(A) accepted the contention partly and restricted the addition, directing the Assessing Officer to consider the amount of cash deposited as per bank statement.
Before the Tribunal, the assessee inter alia contended that even assuming that cash deposits represented business turnover, only a reasonable profit element could be brought to tax. It was argued that by applying a profit rate of 20% on such turnover, would meet the ends of justice.
The Tribunal observed that there was merit in the contention of the assessee that the cash deposits represented business receipts. In such circumstances, it would be appropriate to estimate income by applying a reasonable profit rate.
Considering the facts of the case, the Tribunal opined that applying a net profit rate of 20% on the total cash deposits would be fair and reasonable.
Accordingly, the addition sustained by the CIT(A) in excess of 20% of cash deposits was set aside. The Assessing Officer was directed to compute the total income of the assessee accordingly.
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