Unexplained cash deposits: demonetisation-period bank deposits reflected in accounts are not taxable additions; special tax treatment inapplicable.

Rejection of books of account was upheld where manual books were not produced and expenditures lacked support, permitting the AO's income estimation. Addition of large demonetisation-period cash deposits as unexplained was deleted because bank deposits were reflected in the assessee's accounting records, matched with business receipts and utilisation, and thus did not satisfy the test for unexplained money. Disallowance of a claimed deduction under the investment deduction provision was confirmed for want of documentary proof. Overall effect: books rejection and deduction disallowance sustained; unexplained-deposits addition deleted.

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Issues: (i) Whether the rejection of the assessee's books of account by the Assessing Officer under Section 145(3) is sustainable; (ii) Whether the addition of Rs.72,45,860 made as unexplained cash deposits during the demonetisation period under Section 69A (and consequential treatment under Section 115BBE) is sustainable; (iii) Whether the disallowance of deduction claimed under Section 80C for Rs.30,000 is sustainable.

Issue (i): Whether the rejection of books of account by the Assessing Officer under Section 145(3) is sustainable.

Analysis: The Assessing Officer recorded that the assessee maintained manual books but could not produce them because the business was closed, and no bills/vouchers were furnished; the AO estimated business profits at 3% of stock put to sale under Section 143(3). The Tribunal examined the assessment record, the profit & loss account and balance sheet produced, and the assessment sheet noting that books were not produced and expenditures were unsupported. The Tribunal considered whether the facts justified rejection of book results and whether the AO's estimation was reasonable in the circumstances.

Conclusion: The rejection of the books of account and the AO's estimation of income are upheld; this issue is decided against the assessee.

Issue (ii): Whether the addition of Rs.72,45,860 as unexplained cash deposits during the demonetisation period under Section 69A (with tax treatment under Section 115BBE) is sustainable.

Analysis: The AO treated the deposits in Specified Bank Notes as unexplained when the assessee did not produce documentary evidence to substantiate source. The Tribunal examined bank statements showing regular daily cash deposits and corresponding utilisation for purchases of liquor, and noted that the AO had already accepted the assessee's retail liquor business and estimated income from stock/sales. The Tribunal observed that the bank balance at year end matched the balance sheet and that the deposits were reflected in the assessee's records produced (profit & loss and balance sheet). Applying the legal test under Section 69A-whether money is unrecorded in books and the assessee offers no satisfactory explanation-the Tribunal found that the deposits were part of recorded business transactions and were utilised for purchases.

Conclusion: The addition under Section 69A (and consequential invocation of Section 115BBE) is not sustainable and is deleted; this issue is decided in favour of the assessee.

Issue (iii): Whether the disallowance of deduction of Rs.30,000 claimed under Section 80C is sustainable.

Analysis: The Assessing Officer disallowed the deduction for lack of documentary proof of payment; the assessee did not produce supporting evidence before the AO or during appellate proceedings. The Tribunal reviewed the record and found no documentary proof to substantiate the claim.

Conclusion: The disallowance of the Section 80C claim is confirmed; this issue is decided against the assessee.

Final Conclusion: The Tribunal confirmed the rejection of books and the disallowance of the 80C deduction, but deleted the large addition made under Section 69A after finding the deposits were recorded and accounted for in the business transactions.

Ratio Decidendi: Section 69A can be invoked only where the money is not recorded in the assessee's books and the assessee fails to offer a satisfactory explanation; where deposits are reflected in the accounting records and reasonably matched with business receipts and utilisation, additions under Section 69A are not sustainable.

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