Recorded sale proceeds during demonetisation cannot be taxed as unexplained money when books and stock records support the explanation.

Cash deposits during demonetisation were explained as recorded sale proceeds from jewellery sales supported by audited books, stock registers, purchase records, cash book, bank statements and VAT data. With no specific defect shown in the books or stock tally, rejection of accounts under section 145(3) rested only on suspicion. On that basis, the deposits could not be treated as unexplained money under section 69A, especially where the amounts had already formed part of turnover and a further addition would amount to double taxation. The assessee's explanation was accepted and the addition was deleted.

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Issues: Whether cash deposits made during the demonetisation period, claimed to be sale proceeds recorded in regular books of account, could be treated as unexplained money under section 69A of the Income-tax Act, 1961 after rejection of books under section 145(3) of the Income-tax Act, 1961.

Analysis: The assessee furnished audited books, sales register, stock register, purchase register, cash book, bank statements, VAT records and quantitative stock details to explain that the cash deposits arose from recorded jewellery sales. No discrepancy was pointed out in the stock tally, purchases or sales, and no material was brought to show that the sales were fictitious or manipulated. The rejection of books was held to be based only on suspicion, without identification of specific defects. The deposits represented sale proceeds already forming part of turnover, and their full addition again under section 69A would amount to double taxation. The increase in sales during the relevant period was also supported by promotional and festive demand, and the Revenue failed to disprove the explanation by independent enquiry.

Conclusion: The addition under section 69A of the Income-tax Act, 1961 was not sustainable, and the deletion made by the first appellate authority was upheld in favour of the assessee.

Ratio Decidendi: Where cash deposits are satisfactorily explained as duly recorded sale proceeds supported by books and stock records, the entire amount cannot be brought to tax as unexplained money merely on suspicion or on the basis of demonetisation-related abnormality.

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