Cash deposits during demonetisation cannot be treated as unexplained income when sales records and opening cash balance are supported.

Cash deposits made during the demonetisation period could not be treated as unexplained income where the assessee, a petrol pump operator, had disclosed cash sales, maintained sales vouchers and filed VAT returns. The Revenue failed to produce material showing that the declared cash sales or opening cash in hand were fictitious. The cash flow prepared by the Assessing Officer was unsound because it ignored opening cash balance and selectively treated only the November 2016 negative balance as unexplained. In the absence of evidence disproving the cash sales and opening cash balance, the addition under section 69A of the Income-tax Act, 1961 was deleted.

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Issues: Whether the addition made on account of cash deposits during the demonetization period as unexplained income was justified.

Analysis: The assessee, running a petrol pump, had disclosed cash sales, maintained sales vouchers and VAT returns, and the Revenue did not place material to show that the declared cash sales or opening cash in hand were fictitious. The cash flow prepared by the Assessing Officer was found to be unsound because it did not give credit for opening cash in hand and treated only the November 2016 negative balance as unexplained while ignoring the other months. In the absence of evidence disproving the cash sales and opening cash balance, the addition based on cash deposits during the demonetization period could not be sustained.

Conclusion: The addition under section 69A of the Income-tax Act, 1961 was held to be untenable and was deleted, resulting in relief to the assessee.

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