Recorded cash deposits cannot be taxed as unexplained money where books and business receipts support the cash balance.

Cash deposited during demonetisation could not be taxed as unexplained money under section 69A where the cash balance was recorded in the cash book, supported by audited books, corroborative records and accepted opening cash balance, and where the receipts were shown as business income from pharmacy and hospital operations. The addition was deleted because the same recorded receipts could not be taxed again as undisclosed income. An estimated enhancement at 4% of the specified banknote deposits was also unsustainable, as it rested on residual doubt rather than any proved defect in the books or receipts. The deletion of both additions was upheld.

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Issues: (i) Whether cash deposited during demonetisation, being reflected in the cash book and supported by business receipts and accepted opening cash balance, could be brought to tax as unexplained money under section 69A of the Income-tax Act, 1961; (ii) whether the estimate of business income at 4% of the SBN deposits could be sustained as an enhancement.

Issue (i): Whether cash deposited during demonetisation, being reflected in the cash book and supported by business receipts and accepted opening cash balance, could be brought to tax as unexplained money under section 69A of the Income-tax Act, 1961.

Analysis: The cash balance as on the demonetisation date was found to be supported by the cash book, books of account, audited records and corroborative material. The opening cash balance had already been accepted in the assessment for the preceding year, and the receipts during the year were recorded business receipts from pharmacy and hospital operations. Section 69A applies to unexplained money not recorded in the books, and the factual record did not justify treating the recorded cash balance as undisclosed income. The addition would also amount to taxing the same business receipts twice.

Conclusion: The addition made under section 69A was rightly deleted and the Revenue's challenge failed.

Issue (ii): Whether the estimate of business income at 4% of the SBN deposits could be sustained as an enhancement.

Analysis: The estimated addition was made despite the assessee having explained the source of deposits through recorded business receipts and despite the alleged discrepancies having been clarified from the material on record. The enhancement was founded on residual doubt rather than a proved defect in the books or receipts. On the facts, the further addition was unwarranted and not sustainable.

Conclusion: The estimated addition of Rs. 13,32,000/- was deleted and the assessee's objection succeeded.

Final Conclusion: The deletion of the cash-in-hand addition was upheld and the enhancement made by estimation was set aside, leaving the assessee fully successful in the combined proceedings.

Ratio Decidendi: Amounts recorded in the books of account and supported by accepted business receipts cannot be treated as unexplained money under section 69A, and an estimated enhancement cannot stand absent a proved defect or legally sustainable basis.

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