Recorded business sales support demonetisation cash deposits; unexplained-credit treatment risks impermissible double taxation without contrary evidence.

Cash deposits made during the demonetisation period should not be treated as unexplained cash credits under Sections 68 and 115BBE where the assessee demonstrates that they arose from recorded business sales. The relevant sales were entered in audited books, credited to the profit and loss account, reported in VAT returns, and supported by sufficient cash balance. In the absence of defects in the books, discrepancies in specific sale bills, or evidence that the sales were bogus, statistical comparisons with earlier-year sales were insufficient to displace the records. Because the sales receipts had already been offered to tax, assessing the corresponding deposits again as unexplained cash would result in impermissible double taxation. The addition was therefore described as unsustainable.

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Issues: Whether cash deposits made during the demonetisation period could be added as unexplained cash credits under Section 68 of the Income-tax Act, 1961 read with Section 115BBE, despite the assessee showing that the deposits came from recorded cash sales reflected in audited books and VAT returns.

Analysis: The deposits were linked by the assessee to cash sales arising from its regular business. The cash sales were recorded in the cash book, credited in the profit and loss account, and reflected in VAT returns. The books had been audited under Section 44AB of the Income-tax Act, 1961 and no defect in the books or in any specific sale bill was identified. The assessee also had sufficient cash balance as on 08.11.2016 to support the deposits. The addition was made only by comparing the volume of sales with the earlier year and drawing statistical inferences that the sales were not genuine. Since the recorded sales had already been offered to tax, treating the same cash receipts again as unexplained would result in impermissible double addition.

Conclusion: The addition under Section 68 of the Income-tax Act, 1961 read with Section 115BBE was not sustainable; the issue was decided in favour of the assessee and against the revenue.

Ratio Decidendi: Cash deposits during the demonetisation period cannot be assessed again as unexplained cash credits where they are shown to arise from recorded business sales reflected in audited books and tax records, in the absence of defects in the books or evidence that the sales are bogus, since such treatment would amount to double taxation of the same receipts.

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