Cash deposits linked to recorded sales cannot be taxed again when books and returns support the source.

Cash deposits during the demonetisation period were treated as explained business receipts where the assessee produced cash book entries, bank statements, cash sales details, VAT returns and audited financial statements, and the books of account were not rejected. On those facts, an addition based only on the deposits was held unsustainable because the sales had already been accepted as recorded turnover, and taxing the same receipts again would amount to duplicative taxation. Reference to section 40A(3) did not displace the evidentiary value of the records supporting the source of the cash deposits.

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Issues: Whether the addition made on account of cash deposits during the demonetisation period was sustainable when the assessee produced books of account, cash book, bank statement, cash sales details, VAT returns and audited financial statements and the books were not rejected.

Analysis: The cash deposits were explained by the assessee as arising from recorded cash sales. The record showed cash book entries, bank deposit details, quarterly VAT returns reflecting sales, and audited accounts tallying with the declared turnover. No defect in the books of account was recorded and no rejection of books was made. In such a situation, an addition solely on the basis of cash deposits, while the corresponding sales were already accepted as business receipts supported by regular records, would amount to duplicative taxation. The reference to section 40A(3) did not dislodge the evidentiary value of the material produced by the assessee for explaining the source of cash deposits.

Conclusion: The addition of Rs. 37,75,000/- was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded on the sole disputed addition, while the remaining grounds, not pressed, did not survive for adjudication.

Ratio Decidendi: When cash deposits are satisfactorily linked to recorded sales supported by regular books and statutory returns, and the books are not rejected, an addition for unexplained cash deposit cannot be sustained on the same business receipts.

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