Recorded business receipts in demonetisation cash deposits were not unexplained credits where books and sales evidence supported genuineness.

Cash deposits made during demonetisation were treated as recorded business receipts, not unexplained cash credits, where the assessee maintained audited books, the books were not rejected under section 145(3), and the deposits were reflected in the cash book. The assessee supported the receipts with customer details, cash book extracts and turnover data showing genuine seasonal fireworks sales. The Revenue did not prove the sales were bogus, backdated, unsupported by stock movement, or artificially inflated. The Tribunal also noted that the CBDT demonetisation verification SOP required comparative analysis and enquiry into suspicious sales patterns, which was not adequately carried out. The section 68 addition was deleted.

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Issues: Whether cash deposits made during the demonetisation period, which were recorded in the books as sales collections and trade receipts, could be treated as unexplained cash credits under section 68 of the Income-tax Act, 1961.

Analysis: The assessee maintained regular audited books of account, the books were not rejected under section 145(3) of the Income-tax Act, 1961, and the disputed deposits were reflected in the cash book. The assessee furnished customer details, cash book extracts and comparative turnover data to show that the receipts arose from genuine business activity in a seasonal fireworks business. The Revenue did not establish that the sales were bogus, backdated, unsupported by stock movement, or accompanied by abnormal turnover inflation. The Tribunal also noted that the CBDT SOP for demonetisation-related cash verification required comparative analysis and enquiry into suspicious sales patterns, which was not effectively undertaken.

Conclusion: The cash deposits represented recorded business receipts and the statutory foundation for section 68 was not made out; the addition sustained by the first appellate authority was deleted and the assessee succeeded.

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