ITAT Estimates Profit @8%, Partly Allows Appeal Against Rs. 15.66 Lakh Cash Deposit Addition

In a recent tax dispute, an addition of over Rs. 15.66 lakh towards cash deposits in a bank account was treated as unexplained cash deposit under Section 68. The assessee did not file a return in response to the notice under Section 148, resulting in a best judgment assessment under Section 144. The department assessed the entire deposit as income.

During the appellate proceedings, the assessee explained that the deposits were customer payments received in the course of a scrap trading business, an unorganised sector inherently involving cash dealings with small vendors and buyers. The bank statements also reflected transactions involving known business entities and purchases made via banking channels. It was argued that the cash deposits were business turnover, and that a profit estimation would have been more appropriate than a direct addition under Section 68.

Issue Raised: Whether the addition of 15.66 lakh as unexplained cash credit under Section 68 was justified, or whether a business-linked profit estimation was more appropriate in light of the facts and nature of trade.

Decision by the Tribunal: The Tribunal noted that the bank statement clearly showed credits consistent with business activity, including identifiable contra entries of over Rs. 13.46 lakh. It also acknowledged that the scrap trade’s cash-intensive nature makes complete banking traceability impractical. However, the assessee neither filed regular returns nor maintained proper books. The alleged cash deposits form part of the total turnover for the relevant assessment year, and accordingly, the net profit is estimated at 8% of the total turnover.

The Tribunal rejected the Section 68 addition and instead estimated total turnover at Rs. 30 lakh, applying an 8% profit rate. The resulting income of Rs. 2.4 lakh was held to be a reasonable estimation under the circumstances. Therefore, the hon’ble tribunal set aside the earlier order to this extent, and the appeal was partly allowed.

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