Cash deposits during demonetization: recorded business sales rebut unexplained income addition, resulting in deletion of assessed addition.

Addition of cash deposits during demonetization was challenged as unexplained income; reliance on contemporaneous business cash book and the fact that business was the sole source of income established that deposits represented recorded sales, which rebutted the assessment addition, and the contested addition was held unsustainable, resulting in deletion of the impugned income addition and allowing relief to the taxpayer.

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Issues: (i) Whether the addition of Rs. 3,87,718 made under section 69A as unexplained cash deposits during the demonetisation period is justified; (ii) Whether the reduction in gross profit directed by the CIT(A) should be sustained.

Analysis: The Tribunal examined the nature of the assessee's business (substantial cash sales) and the accounting records showing cash deposits during the demonetisation period. The assessee's cash book recorded the deposits and sales proceeds were deposited in bank accounts. The Assessing Officer had allowed part of the cash balance but treated deposits in Specified Bank Notes as unexplained and added Rs. 3,87,718 under section 69A. The CIT(A) confirmed the addition but made a small reduction in gross profit. The Tribunal found that recorded entries in the business cash book, together with the business being the sole source of income and predominant cash transactions, furnished a satisfactory explanation for the deposits and undermined the basis for treating them as unexplained income.

Conclusion: The addition of Rs. 3,87,718 under section 69A is deleted and the reduction in gross profit ordered by the CIT(A) is reversed; decision is in favour of the assessee.

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