Cash deposit explanation during demonetisation accepted where business closure, debtor realisation and cash flow substantiated the source.

Cash deposits made during the demonetisation period were explained through business closure records showing realisation of debtors, settlement of creditors and liquidation of stock. The deposits were also correlated with cash sales and collections from debtors, and the cash flow statement showed sufficient available cash balance to cover the deposits. On that basis, the source of the cash deposits was treated as fully substantiated and the corresponding addition was deleted as unsustainable.

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Issues: Whether the addition made towards cash deposited in the bank account during the demonetisation period was sustainable.

Analysis: The assessee had closed its business operations on 31-10-2016 and placed material showing that its outstanding debtors were realised, creditors were settled and stock was liquidated. The cash deposits were correlated with cash sales and realisation from debtors, and the cash flow reflected sufficient available cash balance to explain the deposits.

Conclusion: The source of the cash deposits stood fully substantiated and the addition could not be sustained. The deletion of the addition was justified, in favour of the assessee.

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