Explained cash deposits during demonetisation were not unexplained income where audited records and sales evidence supported the source.

Cash deposits made during the demonetisation period could not be treated as unexplained income under section 68 where the assessee's audited books were not rejected, the cash book recorded the deposits, and the corresponding cash sales were supported by the stock register and sales tax records. As no defect was found in the accounts or stock records, and the record showed a pattern of substantial cash sales in the relevant festival months, the deposits were held to have an explained source. The addition under section 68 was deleted, and the assessee succeeded.

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Issues: Whether cash deposits made during the demonetisation period could be treated as unexplained income under section 68 when the assessee's audited books, cash book, stock register and sales records supported the source of deposits.

Analysis: The assessee's books of account were audited and were not rejected or found defective. The cash deposits in question were recorded in the cash book, and the corresponding cash sales were supported by the daily stock register and the sales tax records. No deficiency was pointed out in the books, cash book, or stock records. The material on record also showed a pattern of substantial cash sales in the relevant festival months, and the finding that there were no cash sales after demonetisation was not accepted. In these circumstances, mere deposits in bank account during the demonetisation period could not be characterised as unexplained when the source stood explained by contemporaneous records.

Conclusion: The addition made under section 68 was deleted and the issue was decided in favour of the assessee.

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