Unexplained cash deposits during demonetization not treated as undisclosed income where audited books and recorded cash sales were accepted.

Additions treating bank deposits during demonetization as unexplained income were rejected where the assessee's audited books under audit rule were accepted and cash sales were recorded and considered in assessed income; the assessing officer made no finding that stock, purchases, or sales invoices were bogus, and overthecounter customers cannot be compelled to produce identification within lawful transaction limits. The tribunal upheld the CIT(A)'s view that deposits reflecting recorded cash sales do not automatically constitute undisclosed income, and thus the revenue's grounds for addition were dismissed.

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Issues: Whether the addition made under section 68 (read with section 115BBE) on account of cash deposits in bank during the demonetization period can be sustained where the assessee explained the deposits as cash sales recorded in its books and supported by sales invoices, audited accounts, stock records and VAT returns.

Analysis: The issue concerns the application of section 68 where sums credited in the books are alleged to be unexplained. The authorities below examined month-wise cash expenses, turnover, cash sales figures, VAT filings, audit reports under section 44AB and stock-purchase-sale linkages. The assessee produced sales bills, trading account, profit and loss statements and evidence of reduction in stock consistent with recorded sales. The Assessing Officer and DDIT (Inv.) conducted surveys but did not identify defects in stock registers, purchase registers, sales registers or cash books, nor did they demonstrate that purchases or sales were bogus or invoices back-dated. Judicial authorities addressing similar demonetization-period deposits were considered and applied. Where books of account are accepted, sales are recorded as revenue receipts and there is demonstrable matching of stock outflow with recorded sales, suspicion alone without tangible evidence to disprove the sales is insufficient to treat deposits as unexplained credits chargeable under section 68 or to re-tax under section 115BBE.

Conclusion: The addition of Rs. 4,58,00,000/- made by the Assessing Officer under section 68 read with section 115BBE on account of cash deposits during the demonetization period is deleted; the assessee's explanation that the deposits represent recorded cash sales is accepted and the appeal filed by the Revenue is dismissed.

Ratio Decidendi: Where recorded sales are supported by invoices, audited accounts and matching stock movement and the revenue fails to disprove those records with tangible evidence, cash deposits arising from such recorded sales cannot be treated as unexplained credits under section 68.

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