2026 (3) TMI 1121 - AT - Income Tax

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 ... Addition on account of cash deposited during the demonetization period - Recorded cash sales treated as unexplained income - books of accounts are not rejected - addition based solely on higher cash deposits during demonetisation HELD THAT: - The Tribunal held that where cash transactions are recorded in the assessee's books of account, accepted as regular business transactions (books not being rejected), and no defects in books, stocks, sales or purchases are pointed out by the Assessing Officer, the mere fact of higher cash deposits during the demonetisation period does not convert recorded cash sales into unexplained income attractable to section 68/69 Addition made under section 68 is deleted and the appeal is allowed. Final Conclusion: The Tribunal allowed the appeal, holding that recorded cash sales shown in the books (which were not rejected and where no defects were pointed out) could not be treated as unexplained income merely because of larger bank deposits during the demonetisation period, and directed deletion of the addition. 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.