Disclosed business sales explain demonetisation-era cash deposits, preventing treatment as unexplained money where the source remains undisputed

Cash deposited in specified bank notes during the demonetisation period may not be treated as unexplained money under Section 69A where the assessee maintains books and establishes that the deposits arose from disclosed business sales. The relevant legal framework permitted acceptance or dealing with specified bank notes up to 31 December 2016, supporting a bona fide belief that such transactions remained permissible during the relevant period. Where the Assessing Officer does not dispute the disclosed sales as the source of the deposits, the cash cannot be characterised as unexplained money under Section 69A, and the corresponding addition is liable to be deleted.

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Issues: Whether cash deposited in specified bank notes during the demonetisation period could be treated as unexplained money under Section 69A of the Income-tax Act, 1961, when the source was explained from disclosed business sales.

Analysis: The restriction on dealing with specified bank notes after 8 November 2016 was considered in the context of the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 and the Specified Bank Notes (Cessation of Liabilities) Act, 2017, which permitted acceptance or dealing with such notes up to 31 December 2016. The assessee had maintained books of account and explained the cash deposits as arising from sales, and that source was not disputed by the Assessing Officer. Acceptance of the notes during the relevant period was therefore found to be consistent with a bona fide belief that such transactions remained permissible.

Conclusion: The cash deposits were not unexplained money under Section 69A of the Income-tax Act, 1961, and the addition was directed to be deleted.

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