2026 (2) TMI 1127 - AT - Income Tax

Unexplained cash deposits disallowed where audited books and external acceptance corroborate recorded cash sales; addition deleted.

Addition of alleged unexplained cash deposits during the demonetisation period cannot be sustained where the assessee produced audited books, trading ... Addition of cash deposit during demonetization period - assessee reiterated that cash deposits were derived out of cash sales only - As submitted sales were accepted by VAT authorities - HELD THAT:- The sales turnover has duly been accepted by Ld. AO. The sales turnover is further evidenced by VAT returns of the assessee. No discrepancy in the stock has been pointed out by Ld. AO. Simply because the turnover was high in one month, the same would not be a good ground to reach a conclusion that the sales were not genuine unless evidence to that effect was brought on record. The assessee has maintained cash book and all the deposits have duly been reported therein. No shortage of cash has been noted. The assessee has furnished sales and purchase register. It is trite law that no addition can be made on mere assumptions and presumptions. On the given facts, the impugned addition is not sustainable. Finding substantial merits in the arguments and documentary evidences as furnished by Ld. AR, we delete the impugned addition. AO is directed to re-compute the income of the assessee. Issues: Whether the addition of Rs. 66,00,000 as unexplained cash deposits during the demonetisation period can be sustained against the assessee who claims the deposits were from cash sales.Analysis: The assessee is a trader whose audited books, trading account showing turnover, VAT returns, cash book entries, and sales and purchase registers were placed on record. Survey disclosed substantial stock but no adverse finding was recorded by the assessing authority against the stock. The assessing officer treated an unusually high monthly turnover and the cash deposits as indicia of unaccounted income and made an addition. On the facts, the documentary evidence showing recorded cash sales and accepted turnover, absence of any noted cash shortage, and lack of contradictory evidence by the revenue undermine making an addition based on mere assumption. The legal framework requires that additions not be made on conjecture and that unexplained deposits be established as income if not satisfactorily explained by the assessee; where supporting books and records and external acceptance (such as VAT acceptance) substantiate the claimed source, the addition is not sustainable.Conclusion: The addition of Rs. 66,00,000 as unexplained cash deposits is deleted and the assessing officer is directed to recompute the income accordingly.