Recorded cash sales can explain demonetisation deposits; section 68 addition fails where books and stock records remain accepted.

Cash deposits during demonetisation, when supported by duly recorded cash sales and regular business receipts, were held not to justify an addition under section 68 read with section 115BBE. The assessee's books, trading results, cash book, stock position and sales records were accepted, and no defect was found in purchases, sales or stock. Section 40A(3) was treated as inapplicable because the explanation concerned receipt-side inflows, not a claim for cash expenditure. On these facts, treating recorded sales again as unexplained income was unsustainable, and the deletion of the addition was affirmed.

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Issues: Whether the addition made under section 68 read with section 115BBE of the Income-tax Act, 1961 on account of cash deposits during the demonetisation period was justified, or whether the deposits were explained by cash sales and receipts from debtors.

Analysis: The assessee's books of account, trading results, cash book, stock position and sales records were accepted and were not rejected by the Assessing Officer. The appellate record showed that the cash deposits were supported by regular business receipts, including cash sales in a business where such cash generation was normal, and that no defect was found in the purchases, sales or stock records. The application of section 40A(3) was held to be misplaced because the assessee was not claiming deduction for cash expenditure but was explaining receipt-side cash inflows. On the facts, the addition under section 68 would amount to treating already recorded sales again as unexplained income.

Conclusion: The addition under section 68 read with section 115BBE was not sustainable and deletion of the addition was upheld.

Final Conclusion: The Revenue's challenge failed and the order deleting the addition was affirmed, resulting in dismissal of the appeal.

Ratio Decidendi: Where cash deposits are explained by duly recorded cash sales, supported by accepted books of account and unchallenged stock and trading results, an addition under section 68 cannot be sustained merely on suspicion or on the basis of section 40A(3).

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