Section 68 addition on demonetised cash collections deleted where the source was explained and records supported the receipts.

Cash collections from members recorded in the books and linked to an identified business source could not be treated as unexplained under section 68 merely because they consisted of specified bank notes collected during demonetisation. The Tribunal accepted the assessee's explanation that the deposits arose in the ordinary course of business, followed its earlier decision on identical facts, and held that use of demonetised notes alone did not make the receipts unexplained. The objection based on RBI restrictions also failed on the facts, as the collections were made before the appointed date under the Specified Bank Notes (Cessation of Liabilities) Act, 2017, so the addition was deleted.

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Issues: Whether the addition made under section 68 of the Income-tax Act, 1961, in respect of deposits made out of specified bank notes collected from members during the demonetisation period was sustainable.

Analysis: The assessee explained that the impugned deposits represented collections from members in the ordinary course of business and that the transactions were recorded in the books of account. The underlying source of the cash was thus identified, and the Tribunal followed its earlier decision on identical facts to hold that mere use of demonetised notes did not by itself render the receipts unexplained. The objection based on alleged contravention of RBI restrictions was also rejected in the facts of the case, since the collections were made before the appointed date under section 5 of the Specified Bank Notes (Cessation of Liabilities) Act, 2017.

Conclusion: The addition under section 68 was not justified and was directed to be deleted.

Ratio Decidendi: Where an assessee satisfactorily explains the nature and source of cash collections and the transactions are duly recorded, such receipts cannot be treated as unexplained merely because they involve specified bank notes collected during the demonetisation period.

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