Cash deposits during the demonetization period cannot be treated as unexplained cash credits under Section 69A if they are duly recorded in the books of account, reflected in the profit and loss account, and the books of account have not been rejected by the Assessing Officer.

O R D E R

PER S.RIFAURRAHMAN,AM:

1. This appeal is filed by the Revenue against the order passed by the ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC) dated 04.11.2025 for the Assessment Years 2017-18 raising following grounds of appeal :-

“1. Whether on facts and circumstances. the CIT(A) has erred in deleting the addition ofRs.3,32,04,698/- made by the AO.

2. Whether on facts and circumstances of the case, the CIT(A) has erred in inferring from assessment proceedings and appellant succeeded in this appeal since the assessee was having cash in hand for Rs.21,95,500/- as on 01.11.2016 whereas the assessee had shown cash in hand for Rs.4,02,66,058/- as on 09.11.2016 in his books of accounts. Thus, the AO found abnormal cash in hand as on 09.11.2016 comparative to the cash in hand as on 01.11.2016. The assessee was given due benefit of sales/cash made/deposited on record-in the assessment order of the firm as the firm was having cash available with it for Rs.1,58,05,302/- (Rs.1,35,48,057/- plus Rs.21,95,500/- plus Rs.61745/- for additional sale). Thus difference' came out for Rs.3,32,04,698/- which remained unexplained and was treated as unexplained cash credit by the then A.O. and addition of Rs.3,32,04,698/- was made u/s 69A of the income tax act to the total income of the assessee. Version of the A.O has been discarded completely.”

2. Brief facts of the case are, assessee filed its return of income for the A.Y. 2017-18 on 09.09.2017 declaring total income of Rs.32,220/-. The return of income of the assessee was selected for Complete Scrutiny under CASS with the reason ‘large value cash deposit during demonetization period’. Accordingly, the AO issued notice u/s. 143(2) of the Income-tax Act, 1961 to the assessee on 24.09.2018.

3. During the course of assessment proceedings, the AO found that the assessee had deposited cash of Rs.4,90,10,000/- in its bank account during the demonetisation period. On perusal of submission made by the assessee, during the course of assessment proceedings, the AO found that it had made cash sales amounting to Rs.1,35,48,057/- during this period.

4. Further, the AO found that the cash in hand with the assessee as on 01.11.2016 was Rs.21,95,500/-. The AO observed that in the absence of exact cash in hand as on 08.11.2016, the cash in hand shown as on 01.11.2016 i.e. Rs.21,95,500/- can be accepted as a source of cash deposit along with sale proceeds from 09.11.2016 to 30.12.2016 i.e. Rs.1,35,48,057/-.

5. Furthermore, on perusal of the bank account statement, the AO found that cash deposits during the period 01.11.2016 to 08.11.2016 was Rs.11,00,000/-. The assessee had shown cash sales from the period 01.04.2016 to 08.11.2016 at Rs.3,22,38,449/-. On the basis of cash sales of Rs.3,22,38,449/- shown by the assessee pre-demonetisation period, the AO computed the average per day cash sale at Rs.1,45,218/- and for 8 days i.e. from 01.11.2016 to 08.11.2016, the cash sales was computed at Rs.11,61,745/-. In this way, the AO re-computed the total cash available with the assessee at Rs.1,58,05,302/- (Rs.1,35,48,057/- + Rs. 21,95,500/- + Rs.61,745/-). Therefore, the AO held that the difference of Rs.4,90,10,000/- - Rs.1,58,05,302/- i.e. Rs.3,32,04,698/- remained unexplained and accordingly, he treated the said amount of Rs.3,