Cash deposit additions fail when audited records and stock reconciliation support sales despite demonetisation-period suspicion.

Cash deposits during the demonetisation period were examined under Section 68 against audited books, stock records, purchase vouchers, sales invoices and VAT returns. Quantitative stock reconciliation, continuity of the fabric-trading business, accepted gross profit results and an available cash balance exceeding the deposits supported the cash sales. A sudden increase in cash sales and the human-probability test could not displace coherent documentary evidence where no independent inquiry established fictitious sales and the books were not rejected. The article states that the Section 68 addition was unsustainable and deleted.

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Issues: Whether the addition under Section 68 of the Income-tax Act, 1961 in respect of cash deposits made during the demonetisation period was sustainable.

Analysis: The assessee maintained audited books of account, detailed stock records, purchase vouchers, sales invoices and VAT returns. The cash sales were supported by quantitative stock reconciliation, continuity of the fabric-trading business and accepted gross profit results. The cash balance established as on 08.11.2016 exceeded the disputed deposits, and the sales corresponding to the deposits were not shown to be fictitious through any independent inquiry or rejection of the books. Although the tax authorities relied on the sudden increase in cash sales and the human-probability test, suspicion arising from the pattern of deposits could not override coherent documentary and quantitative evidence or substitute proof for the assessee's discharged burden under Section 68.

Conclusion: The addition of Rs. 54,03,000 under Section 68 of the Income-tax Act, 1961 was unsustainable and was deleted.

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