Explained cash deposits and unsupported net profit adjustment: additions deleted where business records and past trends were unrebutted.

Cash deposits during the demonetisation period were treated as explained when supported by audited accounts, VAT and sales records, cash-flow details, cash-in-hand figures and bank certificates, and the Department failed to rebut that evidence; the addition under section 68 was therefore deleted. An estimated addition for lower net profit was also unsustainable because the profit rate was not shown to be abnormally lower than earlier years and no material justified further estimation. The first appellate deletion was upheld, and the Revenue's challenge failed on the merits.

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Issues: (i) Whether the addition under section 68 of the Income-tax Act, 1961, on account of cash deposits during the demonetisation period was sustainable. (ii) Whether the addition on account of lower net profit was justified.

Issue (i): Whether the addition under section 68 of the Income-tax Act, 1961, on account of cash deposits during the demonetisation period was sustainable.

Analysis: The assessee explained that the cash deposits formed part of regular trading receipts from business activity, supported by audited financial statements, VAT/sales records, cash flow details, cash-in-hand figures, and bank certificates. The explanation was consistent with the level of turnover and with earlier years' cash-deposit pattern. The departmental material did not rebut the explanation or establish that the deposits were unexplained credits.

Conclusion: The addition under section 68 was rightly deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the addition on account of lower net profit was justified.

Analysis: The net profit rate for the year was not abnormally lower than the immediately preceding years, and no material was shown to justify an estimated addition on that account.

Conclusion: The addition for lower net profit was not sustainable and the issue was decided in favour of the assessee.

Final Conclusion: The Revenue's challenge failed on the merits and the assessment additions deleted by the first appellate authority were upheld.

Ratio Decidendi: Where cash deposits during the demonetisation period are supported by contemporaneous business records and the explanation remains unrebutted, an addition for unexplained cash credits cannot be sustained; likewise, a lower net profit addition requires material showing abnormal fall or other justification.

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