Cash deposits during demonetisation from recorded sales and stock, not "unexplained" under s. 69A; addition deleted.
Where the AO treated substantial cash deposits during the demonetisation period as unexplained money under s. 69A and taxed them under s. 115BBE after rejecting books under s. 145(3), the Tribunal held that regularly maintained books must be accepted unless shown unreliable, incorrect, or incomplete. As all purchases and sales were recorded, no defects in the accounting method or declared profits were established, and stock records were accepted, the statutory preconditions for invoking s. 145(3) were not met; sales out of available stock could not be disregarded as non-genuine. The cash deposits were held explained as arising from disclosed sales, and the addition under s. 69A read with s. 115BBE was deleted; the appeal was allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the statutory conditions for rejection of the assessee's books of account under section 145(3) were satisfied, so as to justify disregarding the book results and treating part of the recorded cash deposits as unexplained.
(ii) Whether the cash deposited in the bank during the demonetisation period, to the extent treated as unexplained, was liable to be added as unexplained money under section 69A and consequently taxed under section 115BBE, despite the assessee's explanation that the deposits arose from disclosed sales recorded in regularly maintained books supported by stock and other records.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Validity of rejection of books of account under section 145(3)
Legal framework (as discussed by the Court): The Court applied the principle that accounts regularly maintained in the regular course of business are to be accepted unless there are sufficient reasons to show they are unreliable, incorrect, or incomplete, and that rejection under section 145(3) requires satisfaction of its conditions.
Interpretation and reasoning: The Court found that the record did not show omission of purchases or sales; rather, purchases and sales were found recorded. The assessing authority did not challenge the method of accounting, did not establish that income could not be deduced from the accounts, and did not bring evidence to disprove the genuineness of the entries. The Court held that book results cannot be rejected arbitrarily on "preponderance of probabilities" in the absence of evidence showing the accounts to be unreliable or incomplete. It further reasoned that where the stock register was accepted and stock availability was not disputed, sales out of such stock could not be disregarded as ingenuine.
Conclusion: The Court held that the conditions of section 145(3) were not satisfied; consequently, rejection of the book results (and rejection of the cash book) was unjustified on the material available.
Issue (ii): Addition of demonetisation-period cash deposits as unexplained money under section 69A and taxation under section 115BBE
Legal framework (as applied by the Court): The Court proceeded on the basis that where the source of cash deposits is explained through disclosed business receipts recorded in regular books supported by contemporaneous records, section 69A cannot be invoked merely on suspicion or probability-based reasoning; section 115BBE would apply only if the addition under section 69A is otherwise sustainable.
Interpretation and reasoning: The Court accepted the assessee's explanation that the bank deposits arose from recorded cash sales, supported by day-to-day stock register (showing availability of stock), recorded purchases (not disputed), sales records, and related documentary material. The Court emphasized that there was no adverse evidence disproving the sales or the entries, and that when stock in trade reflected in an accepted stock register is available, sales of goods out of such stock cannot be treated as ingenuine. The Court also noted that the assessee's business volume in the relevant year matched the business volume reflected in the immediately succeeding year placed as a comparative reference, reinforcing the plausibility of the sales and deposits in the year under appeal. Since the deposits were held explained as arising from disclosed sales in the books, the addition as unexplained money could not stand, and the consequential application of section 115BBE was not sustainable.
Conclusion: The Court held that the cash deposits treated as unexplained were in fact explained as arising from disclosed sales recorded in the books, and therefore the addition under section 69A was liable to be deleted, with the result that taxation under section 115BBE did not survive.
TaxTMI 
AI Drafter ✕
TaxTMI 
TaxTMI 
