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Issues: Whether cash deposits made in specified bank notes before the appointed day could be treated as unexplained income under section 69A merely because the notes had lost legal tender character, and whether the matter required fresh examination of the source of the deposits.
Analysis: The addition was made and sustained only on the premise that acceptance of specified bank notes after demonetisation was impermissible. The material on record showed that the assessee explained the deposits as sale realisations and debtor recoveries, and the legal bar under the Specified Bank Notes (Cessation of Liabilities) Act, 2017 operated from the appointed day, namely 31.12.2016. On that footing, acceptance of specified bank notes prior to the appointed day could not by itself justify an addition under section 69A. At the same time, the factual source of the deposits had not been independently verified by the lower authorities.
Conclusion: The addition under section 69A could not be upheld solely on the ground that the deposits were in demonetised currency, but the source of the deposits had to be examined by the Assessing Officer.
Ratio Decidendi: Receipt of specified bank notes before the appointed day is not, by itself, a ground to treat the corresponding bank deposits as unexplained income without examining the actual source of the receipts.
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