Explained business cash deposits cannot be taxed as unexplained income under section 69A when supported by audited records and turnover.

Cash deposits made during the demonetisation period could not be taxed as unexplained income under section 69A where the assessee substantiated the source through audited books, cash flow statement, purchase records and declared turnover. The ITAT accepted that the deposits represented trade advances received in the course of business, and held that the Revenue had already assessed the business income shown in the return. Any alleged VAT non-compliance was for the VAT authorities and did not alter the income-tax position. The addition under section 69A was therefore deleted.

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Issues: Whether the cash deposited during the demonetisation period was liable to be treated as unexplained cash under section 69A of the Income-tax Act, 1961 and taxed accordingly.

Analysis: The assessee's explanation that the cash deposits represented trade advances received from customers, supported by audited books, cash flow statement, purchase records from the bullion supplier, and declared business turnover, was accepted in substance. The Tribunal held that the Revenue had already assessed the business income shown in the return and that any alleged violation of VAT compliance was a matter for the VAT authorities and not determinative of income-tax liability. Since the source of cash deposits stood explained from the business records and cash movement reflected in the books, the statutory basis for treating the amount as unexplained income was not made out.

Conclusion: The addition under section 69A was deleted and the assessee succeeded on the merits.

Ratio Decidendi: Where cash deposits are supported by audited business records and the source is explained as part of declared business activity, the amount cannot be brought to tax as unexplained income under section 69A merely because the Revenue disputes ancillary business compliance.

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