Cash deposits during demonetisation may not be unexplained money when accepted books trace the source and cash balance.

Cash deposits of specified bank notes during demonetisation were examined under section 69A, with the text stating that where the cash book and regular books of account recorded prior cash availability and the deposits were traceable from those records, the deposits could not be treated as unexplained merely because they were made during demonetisation. The commentary also notes that incomplete supporting evidence, such as missing agreements and purchase bills, may justify only partial relief rather than full acceptance. It further states that the sustained addition was not to be taxed under section 115BBE but at the normal rate, on the basis that the amount was treated as business receipts rather than unexplained income.

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Issues: (i) whether cash deposits in specified bank notes during the demonetisation period could be added as unexplained money under section 69A of the Income-tax Act, 1961; (ii) whether the resultant addition, if any, could be subjected to tax under section 115BBE of the Income-tax Act, 1961.

Issue (i): whether cash deposits in specified bank notes during the demonetisation period could be added as unexplained money under section 69A of the Income-tax Act, 1961.

Analysis: The assessee's cash book and regular books of account recorded the cash availability before demonetisation and the corresponding bank deposits. Once the books were accepted and the cash balance was traceable from the cash book, the source of the deposits could not be treated as unexplained merely on the basis of the bank deposits. At the same time, the absence of supporting agreements and purchase bills left gaps in the explanation, warranting only partial relief.

Conclusion: The addition under section 69A was not sustainable in full and was reduced to 10% of the amount considered by the Assessing Officer.

Issue (ii): whether the resultant addition, if any, could be subjected to tax under section 115BBE of the Income-tax Act, 1961.

Analysis: The amount was treated as arising from the assessee's business receipts and not as income attracting the special rate for unexplained income. The direction was therefore to assess only the sustained portion at the normal rate of tax.

Conclusion: The sustained addition was directed to be taxed at the normal rate and not under section 115BBE.

Final Conclusion: The appeal succeeded only in part, with the impugned addition substantially reduced and the remaining amount directed to be assessed under the regular tax provisions.

Ratio Decidendi: Where cash deposits are duly reflected in accepted books of account and the cash balance is supported by the cash book, they cannot be treated as unexplained money under section 69A solely because they were deposited during demonetisation; any adverse addition must rest on a legally sustainable rejection of the books and explanation.

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