Unexplained cash credit under section 68 fails where cash sales were recorded, books were intact, and double taxation was avoided.

Cash deposited during demonetisation could not be treated as unexplained cash credit under section 68 where the assessee maintained regular books, and no defect was found in the cash book, sales register, purchase register, bank statements, stock or trading results. The cash sales had already been credited to profit and loss account and accepted in assessment, so taxing the closing cash in hand again would amount to double taxation of the same receipt. In view of the accepted business pattern and substantial sales growth, the addition was held unsustainable and the first appellate relief was upheld.

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Issues: Whether the addition made under section 68 of the Income-tax Act, 1961 on account of cash deposited during the demonetisation period, treated as unexplained cash credit, was sustainable.

Analysis: The assessee maintained regular books of account, including cash book, sales register, purchase register, bank statements and audited financial statements, and no defect was found in the books, purchases, sales, stock or trading results. The cash sales had already been credited in the profit and loss account and accepted in assessment, so treating the closing cash in hand as unexplained cash credit would amount to taxing the same receipt again. The record also showed substantial sales growth and a business pattern consistent with cash accumulation from day-to-day transactions, particularly around the festive period preceding demonetisation.

Conclusion: The addition under section 68 was not sustainable and the relief granted by the first appellate authority was upheld in favour of the assessee.

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