Demonetization cash deposits explained by accepted business sales could not be treated as unexplained money under section 69A.

Cash deposits made during the demonetization period were explained as receipts from a cash-intensive liquor business, supported by sales records and bank statements, and the revenue did not dispute the underlying sales. The Tribunal noted that although old notes ceased to be legal tender from 08.11.2016, the statutory regime governing specified bank notes allowed holding or receiving such notes until the appointed day, 31.12.2016. On that footing, the explanation for the deposits was accepted and the treatment of the sums as unexplained money under section 69A was found unsustainable, with the consequential tax under section 115BB also deleted.

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Issues: Whether the addition made under section 69A of the Income-tax Act, 1961 towards cash deposits in the demonetization period was sustainable when the assessee explained the source as cash sales from liquor business and relied on the statutory regime governing specified bank notes.

Analysis: The assessee's business was a cash-intensive liquor trade, the sales records and bank statements were produced, and the revenue authorities did not dispute the underlying sales transactions. The Tribunal held that although legal tender status of old notes had ceased from 08.11.2016, the statutory scheme under the Specified Bank Notes (Cessation of Liabilities) Act, 2017 and the related notification showed that holding or receiving specified bank notes was not barred up to the appointed day, namely 31.12.2016. On that basis, the explanation for cash deposits was accepted and the basis for treating the deposits as unexplained money was found unsustainable.

Conclusion: The addition under section 69A and the consequential tax under section 115BB were deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded and the assessed addition relating to demonetization-period cash deposits was set aside.

Ratio Decidendi: Where cash deposits during the demonetization period are duly explained through accepted business receipts and the statutory prohibition on holding or receiving specified bank notes had not yet taken effect up to the appointed day, an addition under section 69A cannot be sustained.

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