Books rejection and demonetisation cash deposits fail where records are intact and cash availability is duly proved.
Regularly maintained books supported by computerised invoices, cash book, sales registers, stock records and excise records were not rejected merely because hard copies were absent, as no specific defect was identified; the 2% net profit estimate lacked any comparable or verifiable basis and was deleted. Cash deposits made during the demonetisation period were accepted as explained where they were linked to recorded cash in hand, cash book entries, cash sales and corroborative records; in the absence of a defect in the supporting material, the deposits were not treated as unexplained cash credit.
Issues: (i) Whether the rejection of books of account and consequential estimation of net profit at 2% of turnover were justified. (ii) Whether cash deposits made during the demonetisation period were liable to be treated as unexplained cash credit.
Issue (i): Whether the rejection of books of account and consequential estimation of net profit at 2% of turnover were justified.
Analysis: The assessee had produced computerised and scanned cash-sale invoices, sales registers, cash book, excise records, stock records and other supporting materials. No specific defect was pointed out in the cash book, sales register, RG-1 register or daily stock records. The objection regarding maintenance of hard copies was not accepted as a valid basis to discard the books where the same transactions were available in digital and scanned form. The estimate of net profit at 2% was also unsupported by any comparable case or verifiable basis.
Conclusion: The rejection of books of account and the estimation of net profit were not justified and were deleted in favour of the assessee.
Issue (ii): Whether cash deposits made during the demonetisation period were liable to be treated as unexplained cash credit.
Analysis: The assessee explained that the deposits came out of cash in hand available on the eve of demonetisation, supported by cash balances over preceding months, sales details, cash book entries, excise records, stock records and particulars of parties to whom cash sales were made. The deposits were not shown to be out of unaccounted sales, and no specific defect in the cash book or supporting records was identified. The addition rested on surmise rather than corroborated evidence.
Conclusion: The cash deposits were explained from available cash in hand and were not liable to be treated as unexplained cash credit, in favour of the assessee.
Final Conclusion: The additions sustained by the first appellate authority were deleted, and the assessee's appeal was allowed.
Ratio Decidendi: Where regularly maintained books and supporting records are not found defective, books cannot be rejected or profit estimated on conjecture, and a cash deposit is not unexplained when it is satisfactorily linked to recorded cash availability and corroborative evidence.