Demonetisation cash deposits traced to recorded sales were not unexplained income; rejection of books also failed.

Cash deposits made during the demonetisation period were traced to recorded business receipts supported by cash sales bills, cash book balances, stock registers, customer confirmations and VAT records, so they were not treated as unexplained income and the sales were not regarded as bogus. The rejection of books of account was also unsupported because no specific defect in the maintained, audited records was established; accordingly, the consequential addition could not survive. The note states that where deposits are fully linked to recorded sales and consistent books and stock records, they cannot be characterised as unexplained merely because they were deposited during demonetisation.

---

---

Issues: (i) Whether cash deposits made during the demonetisation period could be treated as unexplained income under section 69A, and whether the cash sales were bogus; (ii) whether the rejection of books of account and the consequent addition were justified.

Issue (i): Whether cash deposits made during the demonetisation period could be treated as unexplained income under section 69A, and whether the cash sales were bogus.

Analysis: The assessee produced cash sales bills, sale register, purchase register, item-wise stock register, cash book, bank statements, confirmations from customers, and VAT records. The cash book showed sufficient available cash balance to cover the deposits, and the stock register reflected corresponding reduction against the sales. The sales were also supported by contemporaneous business records and accepted VAT filings. On these facts, the deposits were shown to have emanated from recorded business receipts and there was no basis to characterise the cash sales as bogus or to invoke section 69A.

Conclusion: The addition treating the cash deposits as unexplained income was not sustainable and was deleted in favour of the assessee.

Issue (ii): Whether the rejection of books of account and the consequent addition were justified.

Analysis: Though section 145(3) was invoked, no specific defect in the books was established. The assessee had maintained regular books, supported by audit, quantitative stock records, and documentary evidence of purchases and sales. The return was not shown to be inconsistent with the recorded cash balance or business transactions, and the rejection of books was therefore unsupported by material defects. The consequential addition based on rejection of books also could not survive.

Conclusion: The rejection of books of account and the consequential addition were unjustified and were deleted in favour of the assessee.

Final Conclusion: The appeal succeeded and the assessed addition on account of demonetisation-period cash deposits was set aside on the basis of the assessee's recorded business receipts and supporting books of account.

Ratio Decidendi: Where cash deposits are fully traceable to recorded business sales and cash book balances, and the corresponding stock and supporting records are consistent, they cannot be treated as unexplained income merely because they were deposited during demonetisation.

---