Cash deposits during demonetisation were traced to book cash balance, defeating an unexplained income addition.

Cash deposits made during the demonetisation period were not liable to be assessed as unexplained income where audited accounts and a cash book showed sufficient prior cash availability. The enquiry turned on the genuineness of the cash book and whether the deposits were supported by the recorded book balance, not on a mistaken assumption that the financial statements were unaudited or unreliable. On the record, the deposits were traced to cash already available in the assessee's books, so the section 68 addition was held unsustainable and deleted.

---

---

Issues: Whether cash deposits made during the demonetisation period could be assessed as unexplained income under section 68 of the Income-tax Act, 1961, when the assessee claimed that the deposits were made out of cash balance reflected in the books of account.

Analysis: The assessee produced audited accounts and a cash book summary showing prior cash withdrawals and cash availability. The rejection by the tax authorities was based on an incorrect assumption that the financial statements were unaudited or unreliable. The relevant enquiry was the genuineness of the cash book and whether the deposits were supported by available book balance. On the record, the deposits were found to have been made from cash already available with the assessee in its books, and the accepted books of account did not justify a contrary inference.

Conclusion: The addition under section 68 was not sustainable and was directed to be deleted, in favour of the assessee.

---