Cash deposits during demonetization alleged as unexplained sales can be accepted as sales where stock availability and past sales are comparable, outcome: appeal allowed

Addition under section 68 concerned cash deposits during demonetization alleged to be unexplained sales; where cash sales are comparable to earlier years and the Revenue does not dispute existence or sufficiency of stock, receipts from sale of goods cannot be treated as unexplained. The legal effect is that unexplained cash deposits asserted as sales will not be treated as income if the taxpayer demonstrates consistent sales patterns and availability of goods, and the Revenue fails to prove insufficiency of stock; consequently the assessment addition was set aside and the appeal allowed.

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Issues: (i) Whether the addition of Rs. 22,00,000 made under Section 68 of the Income-tax Act, 1961 in respect of cash deposits during the demonetisation period is sustainable.

Analysis: The matter concerned large cash deposits during the demonetisation period alleged to be unexplained credits. Relevant legal framework includes Section 68 placing a burden on the assessee to satisfactorily explain the nature and source of cash credits and the power of the assessing officer to make additions by drawing reasonable inferences where explanation is not satisfactory. Evidentiary material on record comprised month-wise cash sales, cash-deposit details, purchase bills, stock registers and cash books. The cash receipts were comparable with cash sales and the availability of stock was not disputed by the revenue. The revenue did not establish that sufficient stock was absent or that the deposited amounts could not have arisen from genuine sales; reliance on circumstantial patterns alone was insufficient where the existence of goods and supporting records were produced. Prior administrative action under Section 263 addressing the remaining balance was noted as a separate remedial step.

Conclusion: The addition of Rs. 22,00,000 under Section 68 is not sustained and the appeal is allowed in favour of the assessee.

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