Demonetisation cash deposits supported by stock, records and tax returns cannot be treated as unexplained cash credits.

Cash deposits of specified bank notes recorded as sales during demonetisation cannot be treated as unexplained credits merely because the cash-deposit-to-sales ratio increased. The notes state that sales below the buyer-identification threshold under Rule 114B were supported by available stock, banking-channel purchases, quantitative and cash records, and indirect-tax returns. No defects were identified in purchases, stock records, business income, gross-profit ratio, or supporting evidence. The rejection of books and unexplained cash-credit addition were therefore unsustainable, and the addition was deleted.

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Issues: Whether cash deposits of specified bank notes during demonetisation, recorded as cash sales in the books, could be treated as unexplained credits after rejection of the books of account.

Analysis: The cash sales were below the threshold requiring buyer identification under Rule 114B. The sales corresponded with available stock, purchases through banking channels, quantitative records, cash book, and indirect-tax returns. Increased sales in October and November were consistent with the festive season and accompanied by an increase in credit sales. No defect was found in the purchases, stock records, business income, gross-profit ratio, or evidence produced by the assessee. Mere higher cash-deposit-to-sales ratio during demonetisation did not establish that the recorded cash sales represented undisclosed income.

Conclusion: The rejection of books and the addition of Rs. 3,16,97,000 as unexplained cash credit were unsustainable; the addition was deleted in favour of the assessee.

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