Cash sales supported by books and stock records cannot be treated as unexplained credits absent specific defects in evidence.

Cash sales deposited during the demonetisation period were treated as explained business receipts where the assessee substantiated them with cash book entries, sales register, stock records, VAT returns, sale invoices and audited accounts. The ITAT found no defect in the books or supporting records, and held that unusual timing or volume of sales, by itself, was insufficient to reject documented transactions on the human probability test. As the Department failed to establish any specific infirmity in the evidence, the addition as unexplained cash credits under section 68 was deleted.

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Issues: Whether cash sales and the corresponding cash deposits during the demonetisation period were unexplained cash credits liable to addition under section 68.

Analysis: The assessee produced cash book, sales register, stock records, VAT returns, sale invoices and audited accounts to show that the cash deposits arose from recorded cash sales in the ordinary course of business. The books were not shown to be defective, and the sales were supported by stock movement and tax returns. Mere reliance on unusual timing, volume of sales and human probabilities was found insufficient to discard otherwise documented transactions, especially where the Department did not establish any specific defect in the books or supporting records.

Conclusion: The cash sales were accepted as explained business receipts, and the addition under section 68 was deleted in favour of the assessee.

Ratio Decidendi: Where cash sales are supported by regular books, stock records, VAT returns and audited accounts, and no defect in those records is established, an addition as unexplained cash credits cannot be sustained merely on suspicion or the human probability test.

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