Unexplained cash credits during demonetization sustained where books and evidence failed to prove source, genuineness and creditworthiness.

Cash deposits recorded during the demonetization period were treated as unexplained credits where the assessee failed to substantiate the source with credible evidence. The books, seized invoices, KYC material and forensic findings did not support the claimed generation of receipts on 08.11.2016, and the assessee's shifting explanations, including later retractions and unsupported third-party statements, did not discharge the burden under section 68 to prove identity, genuineness and creditworthiness. The attempt to treat the entries as valid sales in demonetization currency was also rejected because the alleged sale arrangement was not established and acceptance of specified bank notes in the manner claimed was contrary to the governing notification.

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Issues: Whether cash deposits recorded in the assessee's books during the demonetization period were correctly treated as unexplained cash credits under section 68 of the Income-tax Act, and whether the partial deletion made by the first appellate authority on the basis of third-party statements was sustainable.

Analysis: The record showed shifting versions by the assessee regarding the source of the cash, including the survey statement, subsequent affidavit under the amnesty scheme, later withdrawal, and a much later retraction. The contemporaneous books, seized invoices, KYC material, and forensic report indicated that the receipts claimed to have been generated on 08.11.2016 were not actually produced from the impounded systems on that date. The assessee failed to substantiate the claimed source with credible evidence and did not discharge the burden of proving the identity of the creditors, the genuineness of the transactions, and the creditworthiness of the alleged contributors. The reliance placed on statements recorded before police custody was found insufficient, while the statement recorded before the Enforcement Directorate supported the Revenue's version only to a limited extent. The attempt to characterize the transactions as valid sales during the demonetization period was also rejected on the footing that the alleged sale arrangement was not established on the facts and that acceptance of specified bank notes in the manner claimed was contrary to the statutory notification governing demonetization.

Conclusion: The additions as unexplained credits were rightly sustained and the assessee's challenge failed; the relief granted by the first appellate authority was not upheld.

Ratio Decidendi: Where an assessee's books and surrounding evidence do not credibly establish the source of cash credits, and the assessee fails to prove identity, genuineness, and creditworthiness, the credits may be assessed as unexplained notwithstanding later inconsistent explanations or unsupported third-party statements.

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