Business cash deposits in demonetisation cannot be treated as unexplained when supported by audited books and records.

Cash collections from business, if duly recorded in audited books and supported by sales, purchase and bank records, cannot be treated as unexplained money merely because they were deposited during demonetisation in specified bank notes. Where the source is explained as ordinary business receipts, addition under sections 69 or 69A and consequential tax under section 115BBE is not warranted, as such treatment would amount to taxing recorded receipts twice. The statutory prohibition on specified bank notes operates only from the appointed day fixed by law, so receipt and deposit before that date cannot by itself justify rejection of the explanation.

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Issues: (i) Whether cash deposits made during the demonetisation period, being business collections recorded in the books of account, could be treated as unexplained money and brought to tax under section 69 or section 69A of the Income-tax Act, 1961 and taxed under section 115BBE of that Act. (ii) Whether receipt and deposit of specified bank notes up to the appointed day under the Specified Bank Notes (Cessation of Liabilities) Act, 2017 could be treated as impermissible for the purpose of rejecting the assessee's explanation.

Issue (i): Whether cash deposits made during the demonetisation period, being business collections recorded in the books of account, could be treated as unexplained money and brought to tax under section 69 or section 69A of the Income-tax Act, 1961 and taxed under section 115BBE of that Act.

Analysis: The cash deposits were linked to sales and collections arising in the ordinary course of the assessee's poultry business and were reflected in the regular books of account, which were audited and not rejected for any defect. The explanation for the source of the deposits was supported by cash book, sales register, purchase register and bank statements. Once the receipts were recorded in the books and the source was explained from business collections, the burden shifted to the Revenue to disprove the explanation. An addition on the footing of unexplained money in such circumstances would amount to impermissible double taxation of recorded business receipts.

Conclusion: The addition under section 69 or section 69A and the consequential tax under section 115BBE could not be sustained and the issue is decided in favour of the assessee.

Issue (ii): Whether receipt and deposit of specified bank notes up to the appointed day under the Specified Bank Notes (Cessation of Liabilities) Act, 2017 could be treated as impermissible for the purpose of rejecting the assessee's explanation.

Analysis: The statutory scheme fixes the appointed day as 31 December 2016, and the prohibition on holding, transferring or receiving specified bank notes operates from that date. Until then, the use of specified bank notes was not prohibited. The assessee's explanation could not be rejected merely on the basis that the deposits were in specified bank notes during the relevant demonetisation window, especially when the business source of the money was otherwise evidenced by the books and supporting records.

Conclusion: The statutory position did not justify rejecting the explanation on the ground that specified bank notes were received during the period before the appointed day, and this issue is also decided in favour of the assessee.

Final Conclusion: The assessment addition was deleted and the assessee obtained full relief in the appeal.

Ratio Decidendi: Cash receipts from business that are duly recorded in audited books of account cannot be treated as unexplained merely because they were deposited in specified bank notes during demonetisation, and the prohibition on specified bank notes operates only from the appointed day fixed by statute.

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