Cash deposits traced to recorded cash sales and cash-book balance under s. 69A/68, addition set aside after books accepted.

The dominant issue was whether cash deposits in a bank account could be treated as unexplained under s. 69A (and allied s. 68) by reducing declared cash sales/turnover despite acceptance of the books. The ITAT held that once the AO accepted the audited books and did not dispute recorded cash sales, the AO could not selectively disregard trading results or reduce turnover without identifying defects in the cash book or stock records; cash deposits traceable to cash balance in the cash book could not be characterised as unexplained. Reliance was placed on HC precedent affirming this approach, and VAT-accepted pre-demonetisation turnover and sufficient recorded stock supported genuineness. The addition was set aside and the appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether cash deposits made during the demonetization period could be assessed as unexplained money under section 69A when the deposits were claimed to be out of cash-in-hand reflected in the regularly maintained cash book and supported by recorded cash sales, and when no defect in the books was found.

(ii) Whether, after accepting the assessee's books of account and not disputing the recorded turnover/cash sales, the assessing authority could disregard only the cash-sales component of the trading results and treat the corresponding bank deposits as unexplained.

(iii) Whether the contemporaneous business records relied upon by the assessee (cash book, stock records, invoices) together with acceptance of turnover in indirect-tax records and audit-backed inventory records, conclusively established the explained source of cash deposits so as to warrant deletion of the addition.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Taxability of demonetization-period cash deposits as unexplained money (section 69A) despite cash book and recorded cash sales

Legal framework: The Tribunal examined the application of section 69A in the context of cash deposits, specifically whether deposits can be treated as unexplained where the assessee asserts they are out of cash-in-hand available in the cash book and generated from recorded sales.

Interpretation and reasoning: The Tribunal found that the addition was made without bringing any concrete evidence on record to show that the cash deposited was other than the cash-in-hand reflected in the assessee's books. It noted that the assessee maintained regular books of account (including cash book and stock register) and that the assessing authority had accepted these books. In such circumstances, the Tribunal held that cash deposits made out of the cash balance available as per the cash book could not be characterized as unexplained money merely on suspicion.

Conclusion: The cash deposits, being referable to cash-in-hand available in the accepted books and linked to recorded trading receipts, could not be assessed as unexplained under section 69A.

Issue (ii): Permissibility of discarding only cash sales/part of trading results after accepting books and not disputing turnover

Legal framework: The Tribunal addressed the principle arising from the assessment approach adopted-acceptance of the books of account on the one hand, while rejecting a part of the trading results (cash sales) to make an unexplained-cash deposit addition on the other.

Interpretation and reasoning: The Tribunal held that once the assessing authority accepted the books of account and did not dispute the existence of cash sales, it could not selectively discard the cash-sales portion of the trading account to treat corresponding deposits as unexplained. It emphasized that, in the absence of any defect in the books maintained by the assessee, there was no basis to disregard the recorded cash sales while otherwise proceeding on the footing that the accounts were acceptable. The Tribunal also noted that the assessing authority did not reduce the declared turnover, reinforcing that the cash sales were not treated as non-genuine for trading/turnover purposes.

Conclusion: The assessing authority could not, after accepting the books and not disputing turnover/cash sales, discard only the cash-sales element and sustain an unexplained-deposit addition on that basis.

Issue (iii): Evidentiary sufficiency of business records, stock availability, and acceptance in indirect-tax records to explain deposits

Legal framework: The Tribunal evaluated whether the assessee's documentary record and surrounding accepted facts sufficiently explained the deposits, making the addition unsustainable.

Interpretation and reasoning: The Tribunal relied on findings that (a) sales and purchases prior to demonetization were declared in indirect-tax returns, (b) the turnover was accepted by the indirect-tax authority through an order referred to in the record, (c) there was no dispute regarding sufficiency of stock available for sale, and (d) inventory/records were subject to audit under applicable audit regimes and no discrepancies were noted. These factors collectively supported the assessee's explanation that deposits corresponded to business receipts already recorded in the regular books. On this foundation, the Tribunal held the addition to be illegal as it lacked evidentiary support contrary to the accepted accounting and inventory position.

Conclusion: The Tribunal accepted that the cash deposits were explained by recorded cash sales supported by regular books, stock position, and accepted turnover records; the addition was therefore set aside and the appeal was allowed on all the grounds pressed.

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