Cash deposits linked to accepted sales cannot be added without adverse material, while unreconciled purchase discrepancies remain taxable.

Cash deposits during the demonetisation period were held unsustainable where the corresponding sales and purchases were accepted and the books of account were not rejected, so the addition was deleted. By contrast, a discrepancy between purchases shown in the return and the import-export data remained unreconciled, and in the absence of a credible explanation the addition on that issue was sustained. The matter therefore resulted in partial relief, with the assessee succeeding only on the cash-deposit addition and failing on the purchase-discrepancy addition.

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Issues: (i) Whether the addition made on account of cash deposits during the demonetization period was sustainable where the sales and corresponding purchases were accepted and the books were not rejected; (ii) Whether the addition made on account of difference between purchases shown in the return and the import-export data was sustainable in the absence of a credible explanation.

Issue (i): Whether the addition made on account of cash deposits during the demonetization period was sustainable where the sales and corresponding purchases were accepted and the books were not rejected.

Analysis: The cash deposits were linked to sales during the relevant period. The sales were accepted by the Revenue, the corresponding purchases were also accepted, and the books of account had not been rejected. In such circumstances, the addition could not be sustained.

Conclusion: The addition on account of cash deposits was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the addition made on account of difference between purchases shown in the return and the import-export data was sustainable in the absence of a credible explanation.

Analysis: The purchases reflected in the return and the invoice value shown in the import-export data remained unreconciled. The assessee did not furnish any credible explanation for the discrepancy.

Conclusion: The addition on account of unreconciled purchase difference was sustained and the issue was decided against the assessee.

Final Conclusion: The appeal succeeded only on the cash-deposit addition and failed on the purchase-discrepancy addition, resulting in a partial grant of relief.

Ratio Decidendi: Where sales and corresponding purchases are accepted and the books are not rejected, an addition for cash deposits cannot be sustained without further adverse material; however, an unreconciled purchase discrepancy remains taxable in the absence of a credible explanation.

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