08 March 2012
this depends on the nature of business of proprietorship business. if there are genuine reasons for which busines requires huge amount of cash, then it may keep such amount of cash. One of the business which requires more cash is trading of grains where many suppliers are farmers which do not have bank account.
Ultimately there should be a bonafied reason of keeping huge cash on hand in business
08 March 2012
Dark side of keeping huge cash in hand is, in case you have borrowed funds and paying interest, proportionate interest could be disallowed in assessment proceedings, more-over, an intelligent assessing officer would conclude that the extra cash in hand is being used for purposes other than the current business and earnings out of it are not routed through books of accounts.
CAclubindia
