Unexplained cash deposits during demonetization: addition as deemed income deleted after books and supporting evidence accepted

Addition treated as deemed income from unexplained cash deposits during the demonetization period was challenged on the basis that sales were duly recorded and evidenced in books of account; appellate authority accepted evidentiary material and remand report led to deletion of the addition because the assessing officer failed to contradict the factual findings that books were reliable and sales supported, thereby negating the condition precedent for invoking unexplained income provisions. The result favored the assessee with deletion of the addition.

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Issues: (i) Whether the addition of Rs. 71,49,000/- made under section 69A r/w section 115BBE/115BE of the Income-tax Act, 1961 on account of cash deposits during the demonetization period was sustainable where the assessee had recorded corresponding cash sales in books of account and the Assessing Officer had accepted the books.

Analysis: The facts decided on record show that the assessee's sales for the year were recorded in audited books of account, VAT returns were filed, and various supporting documents (tax audit report, cash book, month-wise sale and deposit charts, DVAT returns, item-wise stock details, customer affidavits and acknowledgments, and identification documents) were placed before the appellate authority. The Assessing Officer did not point out defects in the sales register, stock register, purchase register or cash book and the books were accepted in arriving at the assessed income. The appellate authority obtained and considered the remand report and applied authorities addressing treatment of cash sales recorded in books where no contradiction or defect was identified by the Assessing Officer. The condition precedent for invoking section 69A (that the money is not recorded in books or no satisfactory explanation is offered) was examined against the admitted recording of cash sales and supporting material.

Conclusion: The addition under section 69A r/w section 115BBE/115BE is not sustainable where cash sales are recorded in books of account and accepted by the Assessing Officer and supporting evidence was furnished; the deletion of the addition by the Commissioner (Appeals) is upheld and the Revenue's grounds are dismissed.

Final Conclusion: The appellate order deleting the addition made under section 69A is affirmed and the Revenue's appeal is dismissed, leaving the assessment as computed on the basis of accepted books of account intact.

Ratio Decidendi: Where cash sales are duly recorded in audited books of account, accepted by the Assessing Officer, and supported by contemporaneous documentary evidence, the conditions for treating corresponding bank deposits as unexplained money under section 69A are not satisfied and additions under that section cannot be sustained.

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