Cash deposits and unsecured loans explained by primary evidence; section 68 additions were not sustainable without contrary enquiry.

Cash deposits made during demonetisation were not treated as unexplained where the assessee produced books of account, cash book, purchase register, VAT returns, stock records, bills and audited accounts, and the purchases were accepted without any specific defect; in the absence of contrary material, the corresponding sales could not be added merely because the deposits were made during demonetisation. Unsecured loan additions under section 68 were also deleted where the assessee furnished PAN, confirmations, bank statements and income-tax returns of the lenders, and the loans and interest were routed through banking channels with TDS support; as no independent enquiry was made to rebut the primary evidence, the additions could not be sustained.

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Issues: (i) Whether the deletion of the addition made on account of cash deposits during the demonetisation period was justified; (ii) Whether the deletion of the addition made under section 68 in respect of unsecured loans was justified.

Issue (i): Whether the deletion of the addition made on account of cash deposits during the demonetisation period was justified.

Analysis: The assessee produced books of account, cash book, purchase register, VAT returns, stock records, bills and audited accounts to explain the cash deposits. The purchases were accepted and no specific defect or discrepancy in the books was pointed out. In the absence of contrary material, the corresponding sales could not be treated as unexplained merely because the deposits were made during demonetisation.

Conclusion: The deletion of the addition of Rs. 22,74,893/- was upheld and the issue was decided in favour of the assessee.

Issue (ii): Whether the deletion of the addition made under section 68 in respect of unsecured loans was justified.

Analysis: The assessee furnished PAN, confirmations, bank statements and income-tax returns of the lenders to establish identity, creditworthiness and genuineness. The loans were received through banking channels and the interest component was also supported by TDS deduction. No independent enquiry was undertaken by the Assessing Officer to rebut the material produced by the assessee or to dislodge the primary burden discharged by the assessee.

Conclusion: The deletion of the addition of Rs. 63,15,000/- was upheld and the issue was decided in favour of the assessee.

Final Conclusion: The Revenue failed on both substantive grounds, and the additions deleted by the first appellate authority were sustained.

Ratio Decidendi: Where the assessee substantiates cash deposits and unsecured loans with complete primary evidence, and the department does not bring contrary material or conduct meaningful enquiry, additions under section 68 cannot be sustained.

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