Recorded cash sales cannot be taxed as unexplained credit without adverse material or defects in books and stock records.

Cash receipts recorded as sales in the books, supported by stock reconciliation, party particulars and banking evidence, could not be treated as unexplained cash credits merely because they arose during demonetisation or because some purchasers were not produced. The governing principle is that recorded sales cannot be rejected under section 68 without adverse material showing a different source of funds or concrete defects in the books or stock records; on that basis, the larger addition was held unsustainable. A separate amount described as a cash advance returned through banking channels depended on verification of the linked sales and repayment entries, so factual examination of the books and bank records remained necessary.

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Issues: (i) Whether cash deposits of Rs. 10,72,20,000 made during the demonetisation period could be assessed as unexplained cash credit under section 68 when the receipts were recorded as cash sales in the books and supported by stock reconciliation and party details. (ii) Whether the addition of Rs. 92,00,000, stated to be an advance returned through banking channels, could be sustained without verification of the linked cash-sale and repayment entries.

Issue (i): Whether cash deposits of Rs. 10,72,20,000 made during the demonetisation period could be assessed as unexplained cash credit under section 68 when the receipts were recorded as cash sales in the books and supported by stock reconciliation and party details.

Analysis: The assessee had recorded the impugned cash receipts as sales in its books, produced stock records and reconciliation, and furnished names, PAN and addresses for transactions above the prescribed threshold under the income-tax rules. The revenue did not bring material to show that the cash deposits came from a source other than the disclosed sales, nor did it establish any concrete defect in the books or stock position sufficient to dislodge the recorded sales. In these circumstances, the receipts could not be treated as unexplained cash credits merely because they occurred during the demonetisation period or because some purchasers were not produced.

Conclusion: The addition of Rs. 10,72,20,000 under section 68 was not sustainable and the relief granted by the first appellate authority was upheld.

Issue (ii): Whether the addition of Rs. 92,00,000, stated to be an advance returned through banking channels, could be sustained without verification of the linked cash-sale and repayment entries.

Analysis: The assessee explained that the amount was given as cash advance for purchases, formed part of recorded sales proceeds, and was later returned through banking channels. Since this explanation turned on a factual linkage between the cash sales, the advance and the subsequent repayment, the matter required verification of the books and bank entries at the assessment stage before a final conclusion could be reached.

Conclusion: The issue concerning Rs. 92,00,000 was restored to the Assessing Officer for verification, and the addition was not finally sustained.

Final Conclusion: The revenue's challenge to the deletion of the larger cash-credit addition failed, while the assessee obtained a remand on the smaller addition for factual verification, leaving the matter only partly concluded in the assessee's favour.

Ratio Decidendi: Where cash receipts are duly recorded as sales in the books and the supporting stock and banking records are not contradicted by adverse material, they cannot be treated as unexplained cash credits under section 68 solely on suspicion or improbability.

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