Explained demonetisation cash deposits cannot be taxed as unexplained investment when books and records support business receipts.

Cash deposits in specified bank notes during the demonetisation period are not treated as unexplained investment merely because the notes had ceased to be legal tender, if the taxpayer can explain the nature and source through books and contemporaneous records. The article states that sections 69 and 69A require a genuine unexplained source, and a breach of demonetisation instructions or banking directions alone does not justify an addition. On the facts discussed, branch-wise cash records, sales details and closing balances supported the deposits as regular business receipts, with no contrary evidence of unaccounted cash, so the proposed addition was not sustainable.

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Issues: Whether the cash deposits in specified bank notes during the demonetisation period, claimed to represent sale receipts from liquor business, could be treated as unexplained investment and brought to tax under section 69 of the Income-tax Act, 1961.

Analysis: The assessee was a government-owned liquor retailer with extensive branch-wise cash operations and produced complete details of opening cash, sales, deposits, and closing balance. The Revenue accepted the books, sales, and the overall business model, but disputed only the receipt of a part of the sale consideration in specified bank notes. The Tribunal noted that the demonetisation scheme withdrew legal tender character from the notes, but prior to the appointed date the receipt and deposit of such notes, by itself, did not make the money unexplained for income-tax purposes. The relevant enquiry under sections 69 and 69A is whether the nature and source of the money are explained; a mere violation of demonetisation notifications or banking instructions does not automatically justify an addition under those provisions. In the present case, the cash deposits were supported by branch-wise and date-wise records and were consistent with the assessee's regular business receipts, with no contrary evidence showing substitution of unaccounted cash.

Conclusion: The addition under section 69 was not sustainable, and the cash deposits in specified bank notes could not be treated as unexplained investment.

Ratio Decidendi: Where cash deposits during the demonetisation period are explained as accounted business receipts and the nature and source of the funds are supported by books and contemporaneous records, a mere breach of demonetisation instructions does not justify taxation as unexplained investment under sections 69 or 69A of the Income-tax Act, 1961.

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