Cash deposits backed by regular business sales were not treated as unexplained, while cash expense claims needed fresh verification.

Cash deposits made during demonetisation were not treated as unexplained income where the assessee showed regular jewellery-business cash sales, month-wise sales data and no contrary evidence discrediting those receipts; the addition was deleted. Disallowance under section 40A(3) for cash expenses required fresh verification because the vouchers reflected clubbed payments to different persons, with each individual payment below the statutory limit, but the vouchers lacked complete recipient details and the genuineness of the expenditure remained in doubt; the matter was remitted for examination of supporting evidence.

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Issues: (i) Whether the cash deposits of Rs. 63,00,000 made during the demonetisation period could be treated as unexplained income; (ii) Whether the disallowance of Rs. 14,96,530 under section 40A(3) required deletion or fresh verification.

Issue (i): Whether the cash deposits of Rs. 63,00,000 made during the demonetisation period could be treated as unexplained income.

Analysis: The assessee maintained that cash sales were a regular feature of its jewellery business and produced month-wise cash sales figures for the current year and the preceding year. The cash sales in the relevant year were substantially lower than those in the preceding year, and the higher sales in October were consistent with the festive season pattern in the business. No independent evidence was brought to discredit the cash sales or to show that the deposits were unsupported by business receipts.

Conclusion: The addition of Rs. 63,00,000 was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the disallowance of Rs. 14,96,530 under section 40A(3) required deletion or fresh verification.

Analysis: The cash vouchers reflected clubbed entries for payments made to different persons on the same day, and the individual payments under each voucher were below the statutory limit. At the same time, the vouchers did not contain complete particulars of the recipients or the nature of expenditure, and the authenticity of the expenses had also been doubted. Fresh verification was therefore necessary on genuineness and supporting evidence.

Conclusion: The matter was set aside to the Assessing Officer for fresh examination and the issue was allowed for statistical purposes.

Final Conclusion: The appeal succeeded on the cash-deposit addition and was restored for verification on the cash-expense disallowance, resulting in a partly favourable outcome for the assessee.

Ratio Decidendi: Where cash deposits are supported by regular business cash sales and no contrary evidence discredits the sales, the deposits cannot be treated as unexplained; and where cash payments are made to multiple persons under a common voucher, the applicability of section 40A(3) depends on the individual payments and the genuineness of the underlying expenditure.

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