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Facts
The assessee, an HUF engaged in gold and silver trading, deposited Rs. 45,60,000 in cash during the demonetization period. The Assessing Officer treated Rs. 33,00,923 as unexplained cash credit under Section 68, read with Section 115BBE, despite the assessee explaining the deposits were from recorded cash sales and opening cash balance in audited books. The CIT(A) upheld the addition.
Held
The Tribunal held that since the assessee's books of account were not rejected, and no defects were found in purchases, sales, or stock records, the cash sales could not be disbelieved on mere suspicion. Treating recorded cash sales as unexplained cash credit under Section 68 would amount to double taxation. Therefore, the addition was deleted.
Key Issues
The key legal issue was whether cash deposits made during demonetization, originating from duly recorded cash sales in audited books, could be treated as unexplained cash credits under Section 68 of the Income-tax Act.
Sections Cited
Section 68, Section 115BBE, Section 143(1), Section 143(2), Section 142(1), Section 143(3), Section 250, Section 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SHRI S. RIFAUR RAHMAN & SHRI SUNIL KUMAR SINGH
ORDER
PER : SUNIL KUMAR SINGH, JUDICIAL MEMBER:
This appeal has been preferred by assessee against the impugned order dated 01.08.2025 passed in Appeal No. CIT(Appeal) 2, Agra/10647/2019-20 by learned CIT(Appeals), NFAC, Delhi u/s. 250 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2017-18, wherein learned CIT(A) has dismissed assessee’s first appeal.
Brief facts state that the assessee is a Hindu Undivided Family (HUF) engaged in the business of trading in silver and gold ornaments under the name and style/proprietorship of M/s R.P.J. Jewellers, Kinari Bazar, Agra. The assessee e-filed its return of income for the assessment year 2017–18 on 31.10.2017, declaring total income of Rs.36,36,270/-. The return was processed u/s. 143(1) of the Act. Subsequently, the case was selected for complete scrutiny under the CASS. Though in the assessment order, the Assessing Officer nowhere mentions the amount of cash deposited during demonetization period in demonetized currency, the facts recorded in the impugned order of the learned CIT(A) indicate that the assessee had deposited cash of Rs.45,60,000/- in its bank account No. 3515725807 with the Central Bank of India during the demonetization period from 09.11.2016 to 30.12.2016. During the course of assessment proceedings, statutory notices u/s. 143(2) and 142(1) of the Act, along with a show cause notice, were issued to the assessee. In response, the assessee explained that the cash deposits were made out of the closing cash balance in hand as on 08.11.2016, which had arisen from regular cash sales and opening cash balance, all of which were properly recorded in the audited books of account maintained in the regular course of business. The Assessing Officer, however, did not accept the explanation furnished by assessee and proceeded to complete the assessment by treating a sum of Rs.33,00,923/- as unexplained cash credits under section 68, read with section 115BBE of the Act and added 2 | P a g e the same to the total income declared by the assessee, vide assessment order dated 29.12.2019 passed under section 143(3) of the Act.
Aggrieved, assessee preferred first appeal before learned CIT(A), who dismissed assessee’s first appeal, confirming the additions made by the Ld. Assessing Officer.
The appellant assessee has raised following grounds under this second appeal:
1. That having regard to facts and circumstances of the case, learned authorities below have been arbitrary, wrong, and illegal in making addition of Rs. 33,00,923 under section 68 read with section 115BBE of the I.T. Act, 1961 considering the cash deposited during demonetization period is out of unexplained sources.
2. That having regard to facts & circumstances of the case, the learned authorities below have erred both in law and on facts in ignoring the books of account of the proprietary concern of the appellant M/s RPJ Jewellers explaining the availability of cash in hand out of disclosed sales supported with sale invoice recorded in the books, reported in VAT returns, stock records and other documentary evidences maintained in the regular course of business.
3. That having regard to facts & circumstances of the case, the learned authorities below have erred both in law and on facts in ignoring that the business of the proprietary concern of the appellant M/s RPJ Jewellers commenced on 04.01.2016, having a business period in F.Y. 2015-16 of merely three months and hence cannot be taken towards for comparison of sales in the month of October and November 2016.
4. That having regard to facts & circumstances of the case the learned CIT(A) NFAC, upon the admission of additional evidences under Rule 46A of the I.T. Rules and during pendency of their examination by the Assessing Officer, evident from the notice issued to the appellant fixing the date for compliance on 08.08.2025,passed the impugned order dated 01.08.2025 dismissing the appeal is arbitrary, unjust and in violation of principles of natural justice. 3 | P a g e
That having regard to facts & circumstances of the case having accepted the sales recorded in the books of the appellant and included in the total sales credited to the Trading, Profit & Loss Account offered to tax, the addition made under section 68 of the I.T. Act, 1961 is bad in law.
That alternatively, the ratio of the decision of the Honourable Madras High Court in the case of S.M.I.L.E. Microfinance Limited W.P. (MD) No. 2078 of 2020 dated 18.11.2024, having held that the rate of tax of 60% under the provisions of section 115BBE of the I.T. Act, 1961 was applicable for transactions from 01.04.2017 onwards and not prior to the said cut off date where the tax imposition could only be at 30% rate of tax, is applicable to the facts of the appellants case. ................................” 5. Perused the records and heard learned representative for appellant assessee and learned Sr. DR for respondent revenue. 6. The main point for determination under instant appeal is as to whether Ld. CIT(Appeals) has erred in sustaining the addition of Rs.33,00,923/- u/s. 68 r/w section 115BBE of the Act made on account of cash deposit during demonetization period ? 7. Learned representative for assessee has submitted that the learned CIT(A) has erred in sustaining the addition of Rs.33,00,923/- made by the Assessing Officer u/s. 68 r.w.s. 115BBE of the Act without properly considering assessee’s detailed submissions and documentary evidences in right perspective. Ld. AR has filed a written synopsis before us, which reads as under : “The appellant is an HUF and engaged in the business of trading of gold jewellery under the proprietorship business M/s R. P.J 4 | P a g e Jewelers having its principal place of business at 1/101, Ground Floor, Kinari Bazar, Agra. The business was commenced by the assessee on 04.01.2016 i.e. during the F.Y. 2015-16 relevant to the A.Y. 2016-17 and the certificate of VAT registration No 09400129382C dated 06.01.2016 evidencing the above fact is placed on record. (PB Page No. 1) The assessee has declared all the cash sales in the books of accounts and the same are duly audited (PB Page Nos. 107- 120) The learned authorities have not rejected the books and it is not the case of Revenue that these are not recorded in the books of account. The relevant documents submitted by the assessee contain VAT returns (PB Page Nos. 7-25); Sale Register (PB Page Nos. 30- 81); Purchase Register (PB Page Nos. 82-89); quantitative details of stock inventories with value (PB Page Nos. 90-104); Stock registers (PB Page Nos. 237-298); Ledger of Purchase account (PB Page Nos. 151-157); Ledger of sales Account (PB Page Nos. 158-236); Cash Book for the Period 01.10.2016 to 31.12.2016 (PB Page Nos. 121-150); Copies of Cash Memo / Bill for period 01.10.2016 to 30.11.2016 (PB Page Nos. 299-410) No discrepancy was recorded with regard to purchases. The books of accounts of the assessee have not been rejected by the learned AO It is also fact on record that all the sales were recorded in the books, cash deposits are booked by cash book. The tax authorities had proceeded to make additions on the basis of presumption without there being any material. The learned AO ignored the evidences on record and proceeded to pass the order by making an addition on account of cash deposits by holding the cash sales were bogus sales. This action of the Ld. AO stood upheld by the Ld. CIT(A). The following points are undisputed and undisputable a. The assessee has shown cash sales as part of total sales disclosed by him in the sum of Rs. 7.07 Cr. in the profit and loss account.
5 | P a g e b. The purchases made by the assessee has not been doubted by the revenue. c. The total sales made by the assessee credited to the Profit and Loss Account has not been doubted by the revenue. d. The assessee had sufficient stocks to effect the said cash sales and generate cash as an independent source to prove the cash deposits. e. To the extent of sales made by the assessee, corresponding reduction in stock had been duly made. f. Sales made by the assessee both cash as well as credit had been duly subjected to VAT and VAT authorities have accepted the turnover declared by the assessee. g. The assessee has furnished month wise, purchase and sale, both cash as well as credit for the year under consideration as well as for immediately preceding year. (PB Page Nos. 26-29) h. The assessee furnished his cash book for the period 01.10.2016 to 31.12.2016, as required by the learned AO. i. No mistake in the stock or purchases have been identified by the learned AO to show manipulation of sales in October 2016. The learned AO has failed to pinpoint any mismatch in stock or purchase to demonstrate that the cash sales as claimed by the assessee could not be effected. The cash deposited during demonetization was pursuant to the cash sales made by the assessee, which has been duly recorded in the books of account and accepted by the learned AO and nothing has been brought on record to dispute the cash sales effected during the year. Hence it is to be kindly appreciated that all the transactions of sale(s) have been duly declared in the books of accounts, which have been accepted and not rejected. There is also no allegation of any sale being made outside regular books of account which could have resulted in generation of unaccounted cash deposited in the bank account. Once cash sales stood accepted, stock stood accepted andthere is not allegation of any sale being made outside the regular books of account, the appellant fails to understand where is the question of doubting the cash deposited in the bank account of the assessee. The addition has been made solely on basis of suspicion and surmises without there being any material to justify the same, as no specific defect has been pointed out in the books of account 6 | P a g e maintained by the assessee which were submitted before the learned AO. Therefore, the addition made solely on the basis of suspicion and surmises is liable to be quashed and it is a settled law that suspicion howsoever big cannot take place of evidence (Dhakeshwari Cotton Mills Ltd v CIT (1954) 26 ITR 775 (SC)) In the present case, the assessee has furnished all the details and documentary evidences. The assessing officer has not rebutted the details / evidences filed by the assessee. He has made the addition in an arbitrary manner as if he was predetermined to make addition. The action of the A.O. is not sustainable under law. The learned AO accepted the return of income by the assessee which included the cash sale also, however making an addition on account of cash deposits to the tune of Rs. 33,00,923 resulting in double addition, Hence the addition made on account of cash deposits r.w.s 115BBE deserves to be deleted on that count itself. It is further submitted that the Hon'ble Madras High Court in SMILE Microfinance Ltd. vs. ACIT has held that the provisions of section 115BBE of the Act which enhance the rate of tax could be made applicable only from 01.04.2017, relevant to A.Y. 2018-19 and not earlier year.”
In support, learned AR for assessee has placed reliance on the decisions of coordinate Benches of Delhi Tribunal in Ankit Garg vs. ITO (ITA No.5507/Del/2024 (A.Y. 2017-18) – order dated 14.11.2025) and in Kanchan Chopra vs. ITO (ITA No. 4205/Del/2024 (A.Y. 2017-18) – order dated 19.11.2025) and various other decisions of ITAT.
Learned Sr. DR for revenue has supported the orders of the authorities below.
10. In the instant case, it is an undisputed fact that the entire cash sales in question were duly recorded in the regular books of account, which were audited, and the corresponding revenue receipts and profits 7 | P a g e thereon were offered to tax in the return of income. The Assessing Officer has not rejected the books of account u/s 145(3) of the Act, nor has he pointed out any defect in purchases, sales, quantitative stock records, or closing stock, the details of which were furnished by the assessee. Once the books of account are accepted as correct and complete, individual entries therein cannot be selectively disbelieved on mere suspicion or conjecture. The addition u/s. 68 of the Act has been made solely on the basis of a comparison of cash-sale figures of earlier months and an assumption that the increase during the month of October and November 2016 is unrealistic. Once the assessee started business w.e.f. Jan., 2016 as per VAT registration, the finding of the Assessing Officer that the assessee had no cash sales during F.Y. 2014- 15 and 2015-16 stands dissipated. It is not disputed that the assessee deals in gold and silver ornaments and in such business, the business fluctuations, seasonal demand, market behaviour on festive and marriage season etc. are such factors, which may lead to sharp variations in sales, and the Income-tax Act does not authorize the Assessing Officer to substitute actual recorded sales with hypothetical or estimated figures based on perception of business trends, that too without rejecting the books of account. It is well settled that section 68 of the Act applies to unexplained cash credits, not to sales receipts 8 | P a g e recorded in the trading account. Cash sales, when duly entered in the books and supported by corresponding stock movement cannot be treated as unexplained cash credit merely because the Assessing Officer considers the declared volume of sales to be excessive. It is not established that the sales were fictitious. Nothing has been brought on record to show that the cash in question has been generated from any undisclosed source. The entire cash sales were credited in the sale account and the profit derived there from has been included in the income declared by the assessee in its return, there was no justification to treat the cash sales as unexplained cash credit and no such addition could be made u/s. 68, which would amount to double taxation in the hands of assessee. The cash sales, being part of regular business transactions recorded in audited books of account, were offered to tax, and no defect or falsity has been proved by the Assessing Officer.
11. In the identical factual situation, the coordinate Bench of ITAT Delhi in the above referred Ankit Garg (supra), has deleted such additions holding as under :
“9. Considered the rival submissions and material placed on record. We observe from the record that the assessee had declared all the cash sales in the books of account, same was duly audited. The tax authorities have not rejected the books and it is not the case of Revenue that these are not recorded in the books of account. The relevant 9 | P a g e documents submitted by the assessee contain stock reconciliation, stock movements, VAT records and no discrepancies were recorded by the authorities below. No discrepancies were recorded with regard to purchases. All the purchases and stock movements were accepted by the authorities below.
The Assessing Officer sent an Inspector to verify one of the creditors and because of negative report, he completed the assessment with the belief that all the cash sales relevant for cash deposits are non-genuine and proceeded to make the addition u/s 68 of the Act. The Assessing Officer had not even bothered to give opportunity to the assessee to report such negative findings by the Inspector.
It is also fact on record that all the sales were recorded in the books, cash deposits are booked by cash book. The tax authorities had proceeded to make addition on the basis of presumption without there being any material.
12. On similar issues, we find force from the following case laws :- • The Hon'ble Delhi High Court in the case of CIT v. Kailash Jewellery House in (Delhi High Court): The Delhi High Court held that "cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same." under similar circumstances, deleted the addition made u/s 68 on account of cash deposit during the demonetization into bank by making following observations: "In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,4001/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its 10 | P a g e return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon'ble High Court dismissed the appeal filed by the Department." • ITAT (Delhi) in S. Balaji Mech-Tech Private Ltd Vs. ITO, Ward 22(1) (ITA No. 556IDeV2024): The Tribunal held that "the AO/CIT(A) cannot invoke the provisions of section 68 or 69A when the assessee already declared the source for cash deposits in the books of accounts and the lower authorities without their being any material to support on their contrary view, the provisions of section 68 or 69A cannot be invoked." under similar circumstances, deleted the addition made u/s 68 on account of cash deposit during the demonetization into bank by making following observations: "18. "Coming to the issue of stock movement and excess sales, we observed that the assessee has submitted relevant stock reconciliation and auditors report of stock movements and there is no negative stock movement which will indicate that the assessee has booked excess sales without there being proper purchases.
In our considered view, there are chances that during the demonetization period the regular customers may have choose to buy the spare parts and bearing by making payment by cash so that their excess SBN is transferred. We noticed that the credit sales has come down during this period and the sales of the assessee is more or less maintained during this period. Therefore, it shows that the changes in the patterns recorded in the sales are not abnormal.
Whether the recording of cash sales which is already declared in the books of account will attract the deeming provisions of sec. 68 or 69A of Act. We observed that the assessee has declared all the cash transactions in its books of account and merely because the cash deposits are more during the demonetization period, whether the CIT(A) can invoke the provisions of section 69A of the Act. As per provisions of the section, it is necessary that the assessee be found with the money, the same is not recorded in the books accounts maintained by it for any source and not offers any explanation or such explanations are not found to be satisfactory to the 11 | P a g e AO. In this case, the assessee has already declared the cash sales in its books of account and offers the explanation as cash sales, which the lower authorities has accepted it as regular business transactions because they have not rejected the book results and brought to tax the total sales declared by the assessee in its books. Since the cash were already recorded and explanation is already part of the book results, there is no avenue for the CIT(A) to reject such explanations. This expression "explanation is found not satisfactory to the AO" is purely relates to the money found with the assessee which are not recorded in the books of account. In this case, the above expression has no relevance since the assessee had already declared the cash sales in its books. In the similar situation, the coordinate bench has held in the case of J.R. Rice India (P) Ltd as under: ''At the cost of repetition, to the extent of sales made, the stock position is also correspondingly reduced by the assessee which goes to prove the genuineness of the claim of the assessee. On examination of the cash book of the assessee, it is found that the assessee had cash balance of Rs. 55.94 lakhs as on 8-11-2016, i.e., the date on which demonetization was announced, which sufficiently explains the source of deposit of Rs. 52.60 lakhs in specified bank notes. Apart from this, the assessee had duly furnished the month wise details of sales, month wise details of purchase, corresponding freight charges incurred month wise, month wise power and fuel expenses and month wise selling expenses in the form of rebate and discount. The assessee also furnished the quantitative details of goods month wise for rice, sugar, chana dal and wheat flour before the Assessing Officer. All these facts clearly go to prove the genuineness claim made by the assessee that cash deposits of Rs.52,60 lakhs has been made out of cash balance available with the assessee and, hence, there is absolutely no case made out by the revenue for making addition under section 68." • ITAT (Delhi) in Pilani Industrial Corporation Limited & ACIT, Circle-21(2) (ITA No. 1606IDeIl2023): The Tribunal held that "treating cash deposits as unexplained exclusively based on entries in the books without rejecting them is lawfully prohibited".
12 | P a g e "10. From perusal of above material fact especially treating the cash deposit as unexplained cash on basis of books of account without rejecting the same is legally not permissible as per ratio of judgment in Lalchand Bhagat Ambica Ram's case (supra). Therefore, the impugned orders dated 18.12.2019 and 31.03.2023 are not legal and sustainable and deserve to be set aside.”
Similar view has been taken by coordinate bench of ITAT Delhi in Kanchan Chopra (supra). The decisions relied by the ld. CIT(A) in the impugned order are distinguishable, being based on different set of facts.
In view of the above discussion and respectfully following the decisions rendered by above referred coordinate Benches, the impugned addition is liable to be deleted. The assessee’s appeal is liable to be allowed.
In the result, assessee’s appeal is allowed.