Unexplained cash credits addition fails where cash sales are recorded in books and no adverse material supports estimation.

An ad hoc 15% addition from cash sales during the demonetisation period was held unsustainable as unexplained cash credits under section 68 where the books were not rejected and no adverse material supported estimation. The assessee had recorded the sales in regular books and reflected them in the VAT return, while the Assessing Officer relied only on suspicion about manipulation and the improbability of the sales volume. In the absence of a comparative study, stock discrepancy, or incriminating evidence, a part addition on conjecture could not be sustained. The addition was deleted and the issue went in favour of the assessee.

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Issues: Whether an ad hoc addition of 15% of cash sales credited during the demonetisation period could be sustained as unexplained cash credits when the books of account were not rejected and no adverse material was brought on record.

Analysis: The assessee had recorded the cash sales in its regular books and disclosed them in the VAT return. The Assessing Officer accepted the sales substantially but made a partial addition merely on the assumption that the cash book could have been manipulated and that the volume of sales on the relevant date was improbable. No comparative study, stock discrepancy, or incriminating evidence was brought to justify estimation. In the absence of rejection of books of account, the Assessing Officer could not make an ad hoc estimate of part of the sales and treat it as unexplained cash credits under section 68 of the Income-tax Act, 1961. The addition was held to be unsustainable as it rested only on suspicion and conjecture.

Conclusion: The addition of 15% of the cash sales was deleted and the issue was decided in favour of the assessee.

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