Recorded cash sales cannot be taxed as unexplained credits when books and stock records support the explanation, ITAT Delhi said.

Cash deposits made during demonetization, when fully explained by recorded cash sales supported by regular books, cash book, stock register, VAT returns and audited records, could not be added under section 68 in the absence of defects in the accounts or contrary evidence; the addition was deleted. A direction to verify deductions claimed under sections 80C and 80G and allow them in accordance with law was also upheld as a proper exercise of appellate power under section 250(6), with no demonstrated prejudice to the assessee.

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Issues: (i) Whether cash deposits made during the demonetization period, explained as cash sales recorded in regular books, could be brought to tax as unexplained credits under section 68 of the Income-tax Act, 1961. (ii) Whether the direction to verify the deductions claimed under sections 80C and 80G and allow the same in accordance with law was sustainable.

Issue (i): Whether cash deposits made during the demonetization period, explained as cash sales recorded in regular books, could be brought to tax as unexplained credits under section 68 of the Income-tax Act, 1961.

Analysis: The cash deposits were supported by books of account, cash book, stock register, VAT returns and audited records. No defect in the books was pointed out and the trading results were not rejected under section 145(3). The sales were found to be recorded and supported by stock movement, and the explanation of cash availability from sales was not rebutted by contrary material. In such circumstances, recorded cash sales cannot again be treated as unexplained cash credit merely because the deposits were made during the demonetization period.

Conclusion: The addition under section 68 was deleted and this issue was decided in favour of the assessee.

Issue (ii): Whether the direction to verify the deductions claimed under sections 80C and 80G and allow the same in accordance with law was sustainable.

Analysis: The relevant evidences, including repayment schedule and donation receipts, were stated to be on record. The appellate direction was only for verification and consequential allowance of the claim as per law. No prejudice to the assessee was shown from such direction, and the direction was found consistent with the appellate powers under section 250(6).

Conclusion: The direction was upheld and this issue was decided against the assessee.

Final Conclusion: The addition made on account of cash deposits was removed, while the remand direction concerning deduction claims was sustained, resulting in a partial allowance of the appeal.

Ratio Decidendi: Where cash deposits are fully explained by recorded cash sales supported by regular books, stock records and accepted trading results, section 68 cannot be invoked in the absence of defects in the accounts or contrary evidence.

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