Genuine cash sales during demonetisation cannot be treated as unexplained cash credit when audited records and business evidence support turnover.

Cash sales and deposits made during the demonetisation period were examined under section 68 of the Income-tax Act, 1961, and the addition could not be sustained because the assessee's long-standing manufacturing business maintained audited books, VAT audit records, regular sale bills, purchase records, and evidence of debtor recovery. The purchases were not disputed and no independent defect was found in the books apart from suspicion over the cash sales pattern. On the surrounding business history and contemporaneous records, the cash sales were treated as genuine, so the unexplained cash credit addition was deleted.

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Issues: Whether cash sales and related cash deposits made during the demonetisation period could be treated as unexplained cash credit under section 68 of the Income-tax Act, 1961.

Analysis: The assessee carried on long-standing manufacturing business with audited accounts, regular cash sales, VAT audit records, and books audited under section 44AB of the Income-tax Act, 1961. The cash deposits during the demonetisation window were supported by month-wise cash receipts, sale bills, purchase records, and evidence of recovery from debtors. The purchases were not disputed, no independent defect was found in the books apart from doubt about cash sales during the relevant period, and the pattern of increased receipts was consistent with the business history and the exceptional market conditions during demonetisation. On this material, the cash sales were found to be genuine and the addition could not be sustained.

Conclusion: The addition under section 68 of the Income-tax Act, 1961 was deleted and the assessee succeeded on the substantive issue.

Final Conclusion: The appellate order was reversed on the sole controversy, and the impugned cash-credit addition was set aside.

Ratio Decidendi: Where cash sales are supported by audited books, contemporaneous business records, and surrounding circumstances showing genuine turnover and debtor recovery, a mere spike in deposits during demonetisation does not by itself justify an addition as unexplained cash credit.

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