Section 68 and demonetisation cash sales: unexplained income addition failed where books and stock records remained unchallenged.

Cash sales deposited during the demonetisation period could not be treated as unexplained credit under section 68 where the assessee produced books of account, stock details, sales records and cash book, and the Assessing Officer did not identify any defect, stock shortage or evidence of fictitious sales. The reported stock movement, monthly purchases and sales supported the cash receipts, and the addition could not rest only on suspicion arising from an unusual rise in cash sales or possible timing issues around VAT returns. In the absence of contrary enquiry rebutting the recorded stock availability and depletion, the addition was deleted and the assessee's explanation accepted.

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Issues: Whether the addition made under section 68 on account of cash sales deposited during the demonetization period was sustainable where the assessee had produced books of account, stock details, sales records and cash book and the Assessing Officer had not shown any defect in the records or that stock was unavailable.

Analysis: The assessee's business showed a steady expanding sales trend over the relevant and succeeding years. The stock position, monthly purchases, sales and cash book were furnished before the Assessing Officer and no discrepancy was pointed out in those records. The addition rested mainly on suspicion arising from an abnormal rise in cash sales during a limited period and on the possibility of manipulation around the VAT return timeline. However, without a finding that the stock was not available or that the sales were fictitious, the credits recorded as cash sales could not be treated as unexplained merely on surmise. The assessee had shown stock availability and depletion corresponding to sales, and the receipts remained reflected in the books without rebuttal by any contrary enquiry.

Conclusion: The addition under section 68 was not justified and the deletion of the addition was /confirmed in favour of the assessee.

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