Recorded Cash Sales supported by audited books and stock reconciliation negate treatment of deposits as unexplained income; addition deleted.

Whether cash deposits during demonetisation can be taxed as unexplained income where corresponding cash sales appear in books was resolved by applying the principle that deeming provisions for unexplained money operate only if the amount is not recorded or explanations are unsatisfactory. The Tribunal held that audited books, unchallenged stock records, VAT/CST returns, date wise sales/purchase charts, stock reconciliation and confirmations established recorded cash sales and no specific defect was pointed out by the AO; accordingly the addition treating deposits as unexplained income was deleted and the appeal allowed for the assessee.

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Issues: Whether the addition of Rs.47,50,000 made by the Assessing Officer under section 68/69/69A of the Income-tax Act, 1961 on account of cash deposits during the demonetization period can be sustained where the assessee had recorded corresponding cash sales in its books of account which were not rejected by the revenue.

Analysis: The Tribunal examined whether the AO or appellate authority pointed out defects in the books of account, stock records, purchases or other documentary discrepancies that would render recorded cash sales bogus or unexplained. The Tribunal considered the legal requirement that deeming provisions under section 68/69/69A apply where money is found with the assessee which is not recorded in the books or where explanations are not satisfactory. The Tribunal noted that the books were audited and not rejected, that the assessee furnished cash book, VAT/CST returns, datewise sales and purchase charts, stock reconciliations and confirmations, and that there was corresponding reduction in stock consistent with declared sales. The Tribunal also relied on precedents holding that sales recorded in books and reflected in stock movements cannot be treated as undisclosed income unless proved bogus by reliable evidence. The Tribunal found no specific defect identified by the AO in the accounts or stock position and accepted the explanation that deposits represented recorded cash sales.

Conclusion: The addition of Rs.47,50,000 as unexplained income is deleted and the appeal is allowed in favour of the assessee.

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