Recorded cash deposits cannot be taxed as unexplained money where books are maintained and cross-examination is denied.

Section 69A could not be invoked for cash deposits recorded in the assessee's books, because the statutory condition of money not recorded in the books was absent and the Assessing Officer did not dispute the recorded transactions. Reliance on third-party statements also failed because the assessee was denied cross-examination despite requesting it, contrary to natural justice. Deposits made in specified bank notes around the demonetisation period were not treated as illegal or unexplained merely on that timing, as they were supported by records and made through the available banking channel. The assessee's explanation was accepted in law and on facts.

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Issues: (i) Whether cash deposits recorded in the assessee's books could be brought to tax as unexplained money under section 69A of the Income-tax Act, 1961. (ii) Whether the addition could be sustained on the basis of statements of certain depositors without giving the assessee an opportunity of cross-examination. (iii) Whether deposits made in specified bank notes during the relevant period could be treated as illegal or unexplained merely because they were made around the demonetisation period.

Issue (i): Whether cash deposits recorded in the assessee's books could be brought to tax as unexplained money under section 69A of the Income-tax Act, 1961.

Analysis: Section 69A applies where the assessee is found to be the owner of money not recorded in the books of account and offers no satisfactory explanation about its nature and source. The assessee had maintained books of account and had recorded the cash, along with particulars of depositors and related details. The Assessing Officer did not dispute the books or the recorded transactions. On those facts, the basic condition for invoking section 69A was not satisfied.

Conclusion: The addition under section 69A was not sustainable and was rightly deleted, in favour of the assessee.

Issue (ii): Whether the addition could be sustained on the basis of statements of certain depositors without giving the assessee an opportunity of cross-examination.

Analysis: The assessment relied on denial by two persons said to be depositors. Their statements were used against the assessee, but no opportunity of cross-examination was given despite request. Material used against a party cannot be relied upon without affording such opportunity when demanded, as it forms part of fair procedure and natural justice.

Conclusion: The addition could not be sustained on that basis, in favour of the assessee.

Issue (iii): Whether deposits made in specified bank notes during the relevant period could be treated as illegal or unexplained merely because they were made around the demonetisation period.

Analysis: The Court noted that the Specified Bank Notes (Cessation of Liabilities) Act, 2017 fixed the appointed day as 31 December 2016 and that the statutory prohibition operated from that date. The deposits were supported by the assessee's records and were made in the only available banking channel for tendering the notes. Mere proximity to the demonetisation period did not by itself make the deposits bogus or unexplained.

Conclusion: The deposits could not be treated as illegal or unexplained on that ground, in favour of the assessee.

Final Conclusion: The Revenue failed to show any infirmity in the deletion of the addition, and the assessee's explanation for the cash deposits was accepted in law and on facts.

Ratio Decidendi: Section 69A cannot be invoked where the money is recorded in the books of account and the assessee's explanation is supported by records; material collected against the assessee cannot be used without affording cross-examination when sought.

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