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Issues: Whether cash deposits made during the demonetization period could be treated as unexplained cash credit under section 68 when the assessee maintained audited books, recorded the cash sales, and explained the deposits as sale proceeds.
Analysis: The assessee maintained day-to-day books of account, cash book, ledger, VAT returns, stock register, bills, vouchers and bank deposit slips, and the books were audited. The authorities below themselves accepted that the deposits arose from cash sales during the demonetization period and did not dispute the recorded sales or the nexus between the sales and the bank deposits. The sole basis for the addition was that the assessee had accepted specified bank notes after 08.11.2016 in alleged violation of RBI guidelines. The statutory test under section 68 is whether the nature and source of the credit are satisfactorily explained. Once the sale proceeds were disclosed in the books and the deposits were shown to emanate from those sales, the mere fact that the currency was accepted during the demonetization period did not render the receipts unexplained for income-tax purposes. The addition also resulted in taxing the same turnover again, which was impermissible.
Conclusion: The addition under section 68 was unsustainable and was directed to be deleted; the issue was decided in favour of the assessee.
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