Recorded cash sales can explain demonetisation deposits when books, invoices, stock records and VAT returns support the source.

Cash deposits made during the demonetisation period were treated as explained where the assessee's jewellery sales were duly recorded in books, supported by sale invoices, stock registers and VAT returns. The Tribunal found that opening stock, purchases and closing stock were not rejected, substantial deposits were linked to recorded sales and customer receipts, and the Revenue had not carried out effective third-party verification. On the touchstone of surrounding circumstances and human probabilities, the recorded cash sales were not shown to be fictitious, so the addition as unexplained cash credit was deleted.

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Issues: Whether cash deposited in the assessee's bank account during the demonetisation period could be treated as unexplained cash credit under section 68 when the assessee produced sale invoices, cash book, stock records, VAT returns and other supporting material to explain the source.

Analysis: The assessee was engaged in jewellery trading and maintained books, stock records and sale invoices. The Tribunal noted that the sales were recorded in the books and in VAT returns, the opening stock, purchases and closing stock were not rejected, and a substantial part of the cash deposits was linked to recorded sales and receipts from customers. It was also noted that the Assessing Officer did not carry out effective third-party verification under section 133(6) and that the surrounding facts did not justify treating the recorded cash sales as fictitious merely because the deposits were made during demonetisation. Applying the principle that documents and transactions must be tested on surrounding circumstances and human probabilities, the Tribunal held that the cash deposit of Rs. 70,00,000 was explained as sale proceeds.

Conclusion: The addition under section 68 was not sustainable and was directed to be deleted in favour of the assessee.

Final Conclusion: The assessee's recorded sales and attendant evidence were held sufficient to explain the impugned bank deposit, and the assessment addition was set aside.

Ratio Decidendi: Where cash deposits are shown to arise from duly recorded sales supported by books, invoices and stock/VAT records, they cannot be taxed again as unexplained cash credits unless the Revenue brings cogent material to dislodge the explanation on the touchstone of surrounding circumstances and human probabilities.

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