Explained cash deposits in accepted books cannot be taxed as unexplained income merely because they arose during demonetisation.

Cash deposits during the demonetisation period were held to be explainable where they were fully traceable to sales and debtor collections recorded in accepted books of account. On those facts, section 69A could not be used to treat the same receipts as unexplained income, because the assessee had discharged the burden of proving source and the department produced no contrary evidence. The objection based solely on the legal status of specified bank notes also failed, as dealings up to the appointed date were not barred in a manner that displaced a duly supported explanation. The addition under section 69A read with section 115BBE was therefore unsustainable and deleted.

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Issues: Whether the addition made under section 69A of the Income-tax Act, 1961, in respect of cash deposits during the demonetisation period was sustainable when the assessee had maintained books of account and shown the cash as arising from sales and debt collections, and whether the objection based on the legal status of specified bank notes defeated the assessee's explanation.

Analysis: The cash deposits were examined against the assessee's cash book, sales register, purchase register and bank statements. The recorded sales and collections from debtors formed part of the books of account, which were accepted by the lower authorities and were not rejected for any defect. On those facts, the same receipts could not be treated again as unexplained income, since taxing them once more would amount to double taxation. The assessee was found to have discharged the burden of showing the source of the cash deposits, and the adverse inference drawn by the department was not supported by rebutting evidence. On the legal tender objection, the relevant specified bank notes legislation was read as permitting dealings up to the appointed date, and therefore the objection founded on the mere existence of demonetisation did not justify the addition.

Conclusion: The addition under section 69A, read with section 115BBE, was held to be unsustainable and was deleted.

Final Conclusion: The assessee succeeded in full and the disputed addition relating to demonetisation-period cash deposits was set aside.

Ratio Decidendi: Where cash deposits are fully traceable to sales and debtor collections recorded in accepted books of account, section 69A cannot be invoked to treat the same receipts as unexplained income absent contrary evidence, and demonetisation alone does not displace a duly explained source up to the appointed date under the specified bank notes legislation.

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