Books rejection and demonetisation cash deposits need specific defects or unexplained sources before taxation can stand.

Books of account may not be rejected under section 145 merely because of perceived cash mismatch or the absence of customer particulars where retail sales and purchases are otherwise accepted, VAT returns and regular records support the cash sales, and no specific defect in the accounts is shown. Cash deposits during demonetisation also cannot be taxed under section 68 as unexplained cash credit when they are explained as recorded retail sale proceeds supported by sales tax, VAT and stock records, and the corresponding receipts have already been offered to tax in the trading account. The commentary emphasises that unsupported surmise is insufficient and that the same income cannot be assessed twice on the same factual receipt.

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Issues: (i) Whether the Assessing Officer was justified in rejecting the assessee's books of account under section 145 of the Income-tax Act, 1961; (ii) Whether cash deposits made during the demonetisation period could be taxed as unexplained cash credit under section 68 of the Income-tax Act, 1961.

Issue (i): Whether the Assessing Officer was justified in rejecting the assessee's books of account under section 145 of the Income-tax Act, 1961.

Analysis: The books were rejected on the basis of perceived mismatch in cash availability, timing of deposits, and the absence of customer names, addresses and PAN in respect of retail sales. The appellate authority found that the assessee was engaged in retail garment sales, that the sales and purchases were not doubted, that VAT returns and regular books supported the cash sales, and that no specific defect, omission or discrepancy in the accounts was pointed out. The gross profit and net profit ratios remained consistent with earlier years, and the rejection rested on surmises rather than on demonstrable defects in the accounts.

Conclusion: The rejection of the books of account under section 145 was not sustainable and was rightly deleted, in favour of the assessee.

Issue (ii): Whether cash deposits made during the demonetisation period could be taxed as unexplained cash credit under section 68 of the Income-tax Act, 1961.

Analysis: The deposits were explained as proceeds of regular retail cash sales recorded in the books, supported by sales tax and VAT returns, stock records and comparative cash-flow data. The appellate authority found that the sales corresponding to the deposits had already been offered to tax in the trading and profit and loss account, and that making a separate addition for the same receipts would amount to taxing the same income twice. The Revenue failed to dislodge the factual findings or show any specific infirmity in the source of the deposits.

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

Final Conclusion: The appeal failed on both issues and the deletion of the rejection of books and the cash-deposit addition was affirmed.

Ratio Decidendi: Books of account cannot be rejected in the absence of specific defects or discrepancies, and cash deposits explained as duly recorded sales receipts cannot be again assessed as unexplained cash credits when the corresponding sales have already been accepted to tax.

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