ItemCode    TransactionDate OnHandAfter rn
Item-123    10/1/2018       960         1
Item-123    9/28/2018       985         1
Item-123    9/27/2018       1085        1
Item-123    9/26/2018       1485        1
Item-123    9/24/2018       1835        1
Item-123    9/20/2018       2035        1
Item-123    9/18/2018       2185        1
Item-123    9/14/2018       2305        1
Item-123    9/13/2018       2605        1

with cte as
(
Select TOP 1 * from
(
    Select
         ItemCode
        ,convert(Date,TransactionDate) TransactionDate
        ,TransactionType
        ,TransactionQuantity
        ,OnHandBefore
        ,OnHandAfter
        ,ROW_NUMBER() over (partition by ItemCode, CONVERT(Date, TransactionDate) order by TransactionDate DESC) as rn
    from InventoryTransaction
    where TransactionType in (1,2,4,8)
) as ss
where rn = 1
order by TransactionDate DESC
)
SELECT
     ab.ExternalId
    ,abdc.[Date]
    ,cte.TransactionDate
     From ABItems ab CROSS JOIN ABDailyCalendar abdc
     FULL OUTER JOIN cte on cte.ItemCode = ab.ExternalId --and cte.TransactionDate <= abdc.[Date]
Where ab.ExternalID = 'Item-123'
order by abdc.[Date] DESC

ExternalId  Date        TransactionDate
Item-123    9/30/2018   NULL
Item-123    9/29/2018   NULL
Item-123    9/28/2018   NULL
Item-123    9/27/2018   NULL
Item-123    9/26/2018   NULL
Item-123    9/25/2018   NULL
Item-123    9/24/2018   NULL

ExternalId  Date        TransactionDate
Item-123    9/30/2018   9/28/2018
Item-123    9/29/2018   9/28/2018
Item-123    9/28/2018   9/28/2018
Item-123    9/27/2018   9/27/2018
Item-123    9/26/2018   9/26/2018
Item-123    9/25/2018   9/24/2018
Item-123    9/24/2018   9/24/2018

SELECT
  itemcode,
  caldate,
  case when caldate = transactiondate then onhandafter else prev_onhandafter end as onhandat,
  case when caldate = transactiondate then 'tran occurred today, using current onhandafter' else 'no tran today, using previous onhandafter' end as reasoning,
  transactiondate,
  onhandafter,
  prev_onhandafter

FROM
(
  SELECT
    itemcode,
    transactiondate,
    LAG(transactiondate) over(partition by itemcode order by transactiondate) as prev_transactiondate,
    onhandafter,
    LAG(onhandafter) over(partition by itemcode order by transactiondate) as prev_onhandafter
  FROM
    t
) t2
  INNER JOIN
  c
  ON
    c.caldate > t2.prev_transactiondate and c.caldate <= t2.transactiondate
ORDER BY itemcode, transactiondate