Cash deposit addition under section 68 fails where business records and cash flow explain demonetisation-period deposits.

Cash deposits during the demonetisation period were found satisfactorily explained through opening cash balance, bank withdrawals and supporting books, so the addition under section 68 was not warranted. The assessee had produced cash books, bank statements and comparative records showing substantial cash balances carried forward from the earlier year and a consistent pattern of withdrawals and deposits in the ordinary course of business. The impounded site cash figures were not assessed in isolation because the main cash book, supporting books and returns filed before demonetisation established availability of cash. On that documentary trail and business-probability test, the Revenue's objection failed and the unexplained cash deposit addition was deleted.

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Issues: Whether the addition made under section 68 of the Income-tax Act, 1961 on account of cash deposits during the demonetisation period was sustainable, or whether the assessee had satisfactorily explained the source of the deposits through available cash balances and bank withdrawals.

Analysis: The assessee produced cash books, bank statements and comparative charts for the relevant years to show that the deposits were supported by an opening cash balance carried forward from the earlier year and by subsequent cash withdrawals from bank accounts. The record showed that the assessee had maintained substantial cash balances in the ordinary course of business even in the preceding year, and the pattern of withdrawals and deposits was consistent with prior practice. The appellate finding also noted that the impounded site cash figures could not be viewed in isolation and that the main cash book, together with supporting books and returns filed before demonetisation, explained the availability of cash. In these circumstances, the explanation was accepted on the test of business probability and the Revenue's objections did not dislodge the documentary trail.

Conclusion: The addition under section 68 was not warranted, and the deletion of the unexplained cash deposit addition was .

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