Recorded cash sales explained bank deposits, so section 68 addition for unexplained cash credit was deleted.

Cash deposits arising from recorded cash sales in regularly maintained books were not liable to be treated as unexplained cash credit under section 68 because the assessee maintained a day-wise cash book, the sales were reflected in VAT returns, and no defect was found in the books or in the declared turnover. The tribunal noted that the deposits were explained as business receipts and formed only a small part of the cash generated during the year. As the basic condition for invoking section 68 was not met, the addition was deleted in favour of the assessee.

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Issues: Whether cash deposits made in the bank out of recorded cash sales could be assessed as unexplained cash credit under section 68 of the Income-tax Act, 1961.

Analysis: The assessee was engaged in grocery and maintained regular books of account, including a day-wise cash book. The cash deposits were explained as business receipts from cash sales, and the Assessing Officer did not point out any defect in the books or disbelieve the sales turnover. The declared sales were substantial, reflected in VAT returns, and the impugned deposit formed only a small part of the total cash generated during the year. On these facts, the basic condition for invoking section 68, namely a credit entry in the books with an unsatisfactory explanation as to nature and source, was not satisfied.

Conclusion: The addition treating the bank deposits as unexplained cash credit was deleted and the issue was decided in favour of the assessee.

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