Accepted cash sales and unrebutted records defeated an unexplained income addition for High Denomination Notes.

Accepted cash sales and supporting books of account rebutted the addition of unexplained income from High Denomination Notes. Although the receipts were largely in High Denomination Notes, that circumstance created only suspicion and was not enough to displace the assessee's explanation in the absence of contrary material. The inability to identify individual customers or note-wise sources did not justify treating the receipts as unexplained where the sales record and surrounding circumstances supported the explanation. The addition of Rs. 4,26,000 was therefore unsustainable and stood deleted.

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Issues: Whether the addition of Rs. 4,26,000 as income from undisclosed sources on account of alleged unexplained High Denomination Notes was justified.

Analysis: The cash sales forming the source of the High Denomination Notes were accepted, the books of account were not doubted, and the surrounding circumstances showed that the assessee was carrying on substantial cash sales during the relevant period. The mere fact that a large part of the receipts was in High Denomination Notes created suspicion, but no material was brought to dislodge the assessee's explanation. The inability to identify individual customers or note-wise sources did not, by itself, justify the addition where the notes were legal tender and the sales were otherwise supported by the records.

Conclusion: The addition of Rs. 4,26,000 was not sustainable and was rightly deleted.

Final Conclusion: The Revenue failed to establish that the High Denomination Notes represented unexplained income, and the deletion of the addition stood confirmed.

Ratio Decidendi: When cash sales are accepted and the assessee's explanation is not rebutted by material evidence, a suspicious circumstance alone cannot justify treating the receipt as unexplained income.

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