Recorded business receipts and primary evidence can defeat section 68 addition for demonetisation cash deposits.

Cash deposits in specified bank notes during demonetisation were analysed under section 68 of the Income-tax Act, 1961, where the assessee claimed they were business sale proceeds. The deposits were supported by customer-wise details, bills, ledger extracts, audited accounts and VAT records, and the corresponding sales were already recorded in the books and return. As the revenue did not rebut the primary evidence or show defects in the books, stock records or turnover, the deposits could not be treated as unexplained credits. The absence of depositor PAN details and the use of specified bank notes were held insufficient, and the addition was deleted as it would amount to taxing the same trading receipt again.

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Issues: Whether the cash deposits in specified bank notes during the demonetisation period, claimed to be sale proceeds from the assessee's business, could be brought to tax as unexplained credits under section 68 of the Income-tax Act, 1961.

Analysis: The assessee explained that the deposits represented trade receipts from sale of fireworks and furnished customer-wise details, bills, ledger extracts, audited accounts and VAT records. The explanation was supported by primary evidence and the revenue did not rebut the material or point out any infirmity in the books, sales, stock position or turnover. The sales corresponding to the deposits were already reflected in the books and in the return of income, so the addition would amount to taxing the same trading receipt again. The mere absence of PAN details of depositors and the fact that specified bank notes were withdrawn from circulation were held insufficient to sustain the addition, especially as there was no legal prohibition on transactions in such notes up to 31 December 2016.

Conclusion: The addition under section 68 was not sustainable and was deleted in favour of the assessee.

Final Conclusion: The assessee's explanation of the deposits as recorded business sales was accepted, and the assessed addition was set aside.

Ratio Decidendi: Where an assessee substantiates cash deposits with primary evidence showing them to be recorded business receipts, and the revenue fails to rebut that material, the amount cannot be treated as unexplained cash credit under section 68 of the Income-tax Act, 1961.

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