Recorded cash sales cannot become unexplained credits solely due to demonetisation when purchases and stock remain undisputed.
Cash sales already recorded and offered as income cannot be added again as unexplained cash credits under Section 68 solely because they occurred during demonetisation, where purchases and physical stock remain undisputed and the sales explanation is accepted. Reconciliation of physical and book stock, including previously omitted jewellery, reduced the excess-stock addition under Section 69B; the unaccounted-sale component was telescoped against the excess-stock investment. The survey cash difference was reconciled through cash purchases disallowed under Section 40A(3) and partners' withdrawals, both subsequently recorded in the books, leading to deletion of the cash addition. The concurrent factual findings were not shown to be perverse and raised no substantial question of law under Section 260A.
Issues: (i) Whether demonetisation-period sales already recorded in the books could be treated as bogus sales and added as unexplained cash credit under Section 68; (ii) Whether the excess-stock addition could be restricted after reconciliation of physical stock and book stock; (iii) Whether the cash-difference addition arising from survey could be deleted on accepted reconciliation.
Issue (i): Whether demonetisation-period sales already recorded in the books could be treated as bogus sales and added as unexplained cash credit under Section 68.
Analysis: Section 68 permits an addition where a credited sum remains unexplained; its character could not be changed merely because the cash sales occurred during demonetisation. The sales had already been offered as income, while the recorded purchases and availability of physical stock remained undisputed. No corresponding bogus purchases, negative stock, or excess stock commensurate with the alleged bogus sales was found. The concurrent factual findings accepted the explanation for the exceptional sales rush and for the sequencing anomalies in the accounting software. Rejection of the books had already resulted in a gross-profit addition of Rs. 96 lakhs.
Conclusion: The recorded sales could not be added again as unexplained cash credit under Section 68. In favour of the assessee.
Issue (ii): Whether the excess-stock addition could be restricted after reconciliation of physical stock and book stock.
Analysis: Section 69B concerns investments not fully disclosed in the accounts. The registered valuer's physical inventory included 1,510.210 grams of 18-carat gold jewellery that had not been considered in the Assessing Officer's computation of stock shortage. On reconciling this stock with the book figures, only 447.157 grams remained as excess stock. The related addition was accordingly recomputed at Rs. 95,41,057, with the unaccounted-sale component telescoped against the excess-stock investment. No perversity in these concurrent factual findings was established.
Conclusion: Restriction of the excess-stock addition to Rs. 95,41,057 was sustained. In favour of the assessee.
Issue (iii): Whether the cash-difference addition arising from survey could be deleted on accepted reconciliation.
Analysis: The physical cash found during survey was lower than the cash balance recorded in the books. The difference was reconciled through cash purchases subsequently recorded and disallowed under Section 40A(3), and withdrawals by partners subsequently entered in the books. The factual reconciliation accepted in the appellate proceedings was not shown to be perverse.
Conclusion: The cash-difference addition was rightly deleted. In favour of the assessee.
Final Conclusion: The concurrent factual findings were free from perversity and raised no substantial question of law under Section 260A.
Ratio Decidendi: Recorded sales cannot be recharacterised as unexplained cash credit solely on suspicious circumstances where purchases and stock remain undisputed and concurrent factual findings disclose no perversity.