Section 68 limits additions where recorded sales and banking trail establish source; procedural company-law lapse alone is insufficient.
Cash deposits made during demonetisation were not liable to addition as unexplained cash credits where the books were accepted, trading results were not rejected, and sale bills, cash book entries, VAT returns, bank records and reconciliations established a direct nexus with recorded jewellery sales. Share application money received through banking channels also could not be treated as unexplained merely because shares were not allotted within the procedural time under company law, since the investor's identity, banking trail and receipt genuineness were not disputed and no adverse material showed failure of the section 68 ingredients. Both additions were therefore deleted.
Issues: (i) Whether cash deposits made during the demonetisation period, claimed to be out of recorded jewellery sales, could be added as unexplained cash credits under section 68 of the Income-tax Act, 1961. (ii) Whether share application money received through banking channels could be added under section 68 merely because the shares were not allotted in accordance with the procedural requirements under the Companies Act, 2013.
Issue (i): Whether cash deposits made during the demonetisation period, claimed to be out of recorded jewellery sales, could be added as unexplained cash credits under section 68 of the Income-tax Act, 1961.
Analysis: The books of account were not rejected and the trading results were accepted. The assessee produced sale bills, cash book entries, VAT returns, bank records and reconciliation material to show that the cash deposits had a direct nexus with disclosed business sales. Where sales are not doubted and the corresponding stock and cash records remain accepted, a separate addition on the premise of unexplained cash deposit cannot be sustained.
Conclusion: The addition under section 68 in respect of cash deposits was not sustainable and was deleted in favour of the assessee.
Issue (ii): Whether share application money received through banking channels could be added under section 68 merely because the shares were not allotted in accordance with the procedural requirements under the Companies Act, 2013.
Analysis: The investor's identity and banking trail were not disputed, and no adverse material was brought on record against its creditworthiness or the genuineness of the receipt. A procedural lapse under company law, including non-allotment within the prescribed period, may invite consequences under that law, but by itself it does not justify treating the receipt as unexplained cash credit under section 68 in the absence of material showing a failure of the statutory ingredients of that provision.
Conclusion: The addition relating to share application money was not sustainable and was deleted in favour of the assessee.
Final Conclusion: Both additions were set aside, and the assessee obtained complete relief on the issues decided.
Ratio Decidendi: A receipt cannot be taxed as unexplained cash credit under section 68 when the books are accepted and the assessee substantiates the source through regular business records, and a mere breach of company-law procedure does not, without more, establish that a share application receipt is bogus or unexplained.
TaxTMI 
AI Drafter ✕
TaxTMI 
