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Facts
The assessee, a jewelry trader, deposited Rs.9.37 crores in cash during demonetization. The AO found abnormally high cash sales lacking proper customer details, leading to an addition of Rs.146.27 Lacs as unexplained cash u/s 68, which was partly sustained by the CIT(A).
Held
The Tribunal held that the assessee maintained regular audited books, had sufficient stock, and sales were reflected in VAT returns and offered to tax. It found no material to prove the cash sales were not genuine, and a separate addition would lead to impermissible double taxation. Therefore, the impugned addition was deleted.
Key Issues
Whether the addition on account of cash deposits during the demonetization period, arising from cash sales without complete customer details, was justified when the assessee maintained proper books of accounts and had offered the sales to tax.
Sections Cited
143(3), 68, 115BBE
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Income Tax Appellate Tribunal, “B” BENCH, CHANDIGARH
Before: HON’BLE SHRI RAJPAL YADAV & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2017- 18 arises out of an order of Ld. Commissioner of Income Tax (Appeals)-3, Gurgaon [CIT(A)] dated 26-08-2025 in the matter of an assessment framed by Ld. AO u/s 143(3) on 27-12-2019. Though the assessee has raised multiple grounds of appeal, however, the sole grievance of the assessee is confirmation of addition on account of cash deposit during demonetization period.
The Ld. AR advanced arguments supporting the case of the assessee. The Ld. Sr. DR also advanced arguments supporting the orders of lower authorities. Having heard rival submissions and upon perusal of case records, our adjudication would be as under.
The assessee being resident firm is stated to be engaged in trading of gold, diamond and silver jewellery items. The case of the assessee was scrutinized to examine the sources of cash deposits during demonetization period. It transpired that the assessee deposited cash of Rs.9,37,15,000/- during demonetization period. The assessee was subjected to survey on 28-02-2017 and the assessee offered disclosure of Rs.75 Lacs under Prime Minister Garib Kalyan Yojna and paid due taxes. The assessee stated that the cash was deposited out of cash-in-hand as available in the regular books of accounts. The cash was generated out of sale proceeds of jewellery stock. The assessee furnished books of accounts during the course of assessment proceedings. Upon perusal of cash book, it was noted by Ld. AO that the assessee reflected cash balance as on 08-11-2016 for Rs.8,81,53,798/- which was stated to be deposited in bank account post demonetization. However, the Ld. AO alleged that there was abnormal increase in sales during October, 2016 and monthly cash sale of this month constitute more than 40% of total cash sales during whole of the year. The Ld. AO also tabulated that there was abnormally high cash sales on 28-10-2016, 30-10-2016 and 08-11- 2016. The assessee conducted sales of Rs.864.89 Lacs in these three days whereas sales for Rs.737.57 Lacs were without proper name and address on the bills. After rejecting various submissions of the assessee, Ld. AO accepted sales to the extent of 70% out of improper sale of Rs.737.57 Lacs which worked out to be Rs.221.27 Lacs. After giving credit of disclosure of Rs.75 Lacs, the remaining amount of Rs.146.27 Lacs was added to the income of the assessee as unexplained cash deposit u/s 68 r.w.s. 115BBE of the Act. Upon further appeal, Ld. CIT(A) reduced the disallowance to the extent of 20%. Aggrieved, the assessee is in further appeal before us.
It clearly emerges that the assessee is a partnership firm and is engaged in trading activities. The books of the assessee are subjected to audit and sales turnover has duly been accepted by Ld. AO. The sales have duly been reflected in the VAT returns as filed by the assessee. No discrepancy has been noted in quantitative tally of trading stock. The assessee was having sufficient stock balance to carry out sales of the stated magnitude. The assessee has maintained regular books of accounts which were furnished during the course of assessment proceedings itself. No discrepancy has been noted in the same. The undisputed position is that the cash deposits have been sourced out of cash-in-hand as available with the assessee in its cash book. The reason to reject part of the sales only for three days is without any well founded logic and reasoning. The Ld. AO has merely stated that the bills did not bear proper name and address of the customers. However, there is no material to hold that these sales were not genuine. The cash sales have duly been offered to tax by way of credit in Profit & Loss Account. Making separate addition thereof would be nothing but double taxation which is impermissible. Therefore, the assessee’s explanation is to be accepted as genuine, reasonable and duly supported by documentary evidences. Finding substantial merits in the argument of Ld. AR, we delete the impugned addition as sustained in the impugned order. The Ld. AO is directed to re-compute the income of the assessee.
The appeal stand allowed. Order pronounced on 18th February, 2026.