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 account showing turnover, VAT returns, cash book entries and sales and purchase registers that corroborate recorded cash sales; the assessing officer recorded no adverse finding on stock and produced no contradictory evidence. The legal principle applied is that unexplained deposits may be treated as income only where not satisfactorily explained, and additions cannot rest on conjecture; accordingly the contested addition was deleted and income directed to be recomputed.

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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.

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