Recorded cash sales can explain demonetization deposits when books, stock records and VAT returns remain consistent.

Cash deposits made during demonetization could not be taxed as unexplained cash credits under section 68 where the assessee explained them as proceeds of recorded cash sales supported by books, stock records and VAT returns. The record showed cash sales were a regular business feature and moved in line with turnover, while the Assessing Officer identified no defect in the books, no inconsistency in purchases, sales or stock, and no material to show inflated sales. As the Department failed to dislodge the explanation or prove it unsatisfactory, the addition under section 68 was rightly deleted.

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Issues: Whether cash deposits made during the demonetization period could be treated as unexplained cash credits under section 68 of the Income-tax Act, 1961 despite the assessee's explanation that the deposits were out of recorded cash sales supported by books of account, stock position and VAT returns.

Analysis: The cash deposits were examined against the assessee's sales, turnover and stock movement for the relevant year and the preceding year. The record showed that cash sales were a regular feature of the business and had increased in line with the overall turnover. The Assessing Officer did not identify defects in the books of account, inconsistencies in purchases, sales or stock, or any material showing inflation of sales to explain the deposits. The assessee had furnished comparative details and supporting records, and the appellate authority found that the Department had not discharged the burden of showing why the explanation was unsatisfactory. In the absence of any concrete defect or adverse finding, the deposits could not be treated as unexplained income merely because they were made during demonetization.

Conclusion: The addition under section 68 was not sustainable and was rightly deleted; the revenue's challenge failed.

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