Recorded cash sales during demonetisation cannot be treated as unexplained income when books and stock records support them.

Audited books, stock records, cash book, VAT returns and sales registers supported the assessee's cash sales, and no specific defect was found in purchases, inventory, accounting method or quantitative records. Rejection of books and treatment of sales as bogus on the basis of suspicion, abnormal cash pattern, or absence of PAN and address of cash buyers was held unsustainable. Cash deposits in demonetized currency, being traceable to recorded sale proceeds, could not be taxed again as unexplained cash credit or unexplained money under sections 68 or 69A, and the consequential levy under section 115BBE also failed. The addition was deleted.

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Issues: (i) Whether the books of account could be rejected and the sales treated as bogus so as to justify addition on the basis of alleged defects and abnormal cash sales; (ii) Whether cash deposits in demonetized currency, shown as sale proceeds in the audited books, could be taxed as unexplained cash credit or unexplained money under sections 68 or 69A and subjected to section 115BBE.

Issue (i): Whether the books of account could be rejected and the sales treated as bogus so as to justify addition on the basis of alleged defects and abnormal cash sales.

Analysis: The assessee had produced audited books, cash book, stock register, purchase and sales registers, VAT records, and other supporting material. No specific defect was found in purchases, stock, accounting method, or quantitative records, and the survey did not reveal any incriminating material, excess stock, or unaccounted business activity. The conclusion that the books were unreliable rested mainly on suspicion, abnormality in cash pattern, and absence of PAN or address of cash buyers. Such factors, by themselves, were not sufficient to reject the books or to hold the sales bogus.

Conclusion: The rejection of books of account and the finding of bogus sales were not sustainable and were set aside in favour of the assessee.

Issue (ii): Whether cash deposits in demonetized currency, shown as sale proceeds in the audited books, could be taxed as unexplained cash credit or unexplained money under sections 68 or 69A and subjected to section 115BBE.

Analysis: The cash deposits were traced to recorded cash sales reflected in the trading account, and the corresponding stock position, invoices, and VAT returns supported the transactions. Once the sales were accepted as part of the disclosed turnover and no material established that the cash represented income from an undisclosed source, the same amount could not be taxed again as unexplained credit or money. The attempt to shift the addition from section 68 to section 69A did not cure the defect, as the underlying receipt remained a disclosed trading receipt. Application of section 115BBE also fell with the substantive addition.

Conclusion: The addition of Rs. 6,76,59,000 as unexplained income and the consequential levy under section 115BBE were deleted in favour of the assessee.

Final Conclusion: The appeal succeeded and the impugned addition based on demonetized cash deposits was deleted because the receipts were found to be supported by regular books, stock records, and sale documentation, without any reliable evidence of bogus sales or unexplained source.

Ratio Decidendi: Where cash deposits during demonetization are demonstrably linked to recorded cash sales supported by audited books, stock records, and corroborative tax records, and no specific defect or incriminating material is found, the deposits cannot be treated as unexplained income under sections 68 or 69A, nor can the books be rejected merely on suspicion or abnormality in cash flow.

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