Unexplained cash deposit addition cannot rest on suspicion when audited books and cash records explain the source.

Addition under section 68 for alleged unexplained cash deposits during demonetisation was held unsustainable where the assessee maintained audited books, stock register, cash book, sales records, bills and invoices, and the books were not rejected under section 145(3). The sales were reflected in the profit and loss account and VAT returns, and the available cash-in-hand explained the deposits. In the absence of any adverse material disproving the genuineness of the sales or the cash source, an estimate based only on a statistical formula and suspicion was held impermissible. The addition was deleted and the assessee succeeded.

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Issues: Whether the addition made under section 68 on account of alleged unexplained cash deposits during demonetisation, computed by estimating excess cash sales on a statistical formula, was sustainable.

Analysis: The assessee had maintained audited books of account, stock register, cash book, sales ledger, bills and invoices, and the books were not rejected under section 145(3). The sales were reflected in the profit and loss account and VAT returns, and the available cash-in-hand was sufficient to explain the deposits. The revenue did not bring any adverse material to disprove the genuineness of the sales or the source of the cash. The estimated addition based only on a mathematical formula and suspicion was held to be impermissible.

Conclusion: The addition under section 68 was unsustainable and was deleted. The revenue's appeal failed and the assessee succeeded.

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