Unexplained cash credits rejected where bank credits were not verified and books of account supported deposits.

Tribunal considered whether bank account deposits, including demonetisation-period cash, could be treated as unexplained cash credits where the assessing officer failed to verify the nature of credits. The taxpayer produced books of account, cash and bank books, sales and purchase registers, monthly sales charts and prior-year cash-sale evidence; purchases recorded were not doubted. The Tribunal found the assessing officer did not examine contra entries, internal transfers, refunds or the timing of filings and wrongly treated all credits as unexplained. Result: the addition of bank deposits as unexplained cash credits was deleted.

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Issues: Whether the deposits/credits in the assessee's bank accounts for FY 2016-17 (including cash deposits during the demonetisation period) can be treated as unexplained cash credits under Sections 68/69A and hence added to the assessee's income under Section 144.

Analysis: The Tribunal examined whether the assessing officer verified the nature of the credits before treating the entire bank deposits as unexplained. The Court noted the assessee's business of selling school uniforms and fabrics, the production of books of account (cash book, bank book, sales register, purchase register), monthly sales/purchases charts, and prior-year sales figures showing substantial cash sales. The Tribunal observed that certain entries in the bank-opening balance, internal bank transfers, refunds, and deposits from cash sales-were not considered by the assessing officer. The Tribunal further noted that the assessee had produced the cash book and related documents before the assessing officer (with physical filing dates and e-proceeding screenshots) and that purchases recorded in the books were not doubted, which supported the authenticity of corresponding sales and bank deposits. The Tribunal found that the assessing officer did not verify contra entries or internal transfers and wrongly treated all credits as unexplained.

Conclusion: The addition of the bank deposits as unexplained cash credits is deleted and the assessee's appeal is allowed.

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