Case Law Details
DCIT Vs Bharatji Designer Jewellery Pvt. Ltd. (ITAT Ahmedabad)
Addition Under Section 69A Cannot Be Made on Mere Suspicion During Demonetisation; ITAT Deletes ₹2.35 Crore Addition Because Jeweller’s Books Showed Proper Stock and Sales Records; ITAT Upholds Deletion of Demonetisation Addition Due to Lack of Specific Defects in Books; Abnormal Sales Increase During Demonetisation Alone Not Enough for Section 69A Addition.
The ITAT Ahmedabad dismissed the Department’s appeal and upheld the deletion of addition of ₹2.35 crore made under Section 69A in respect of cash deposits made by a jewellery business during the demonetisation period.
The assessee, engaged in retail trading of diamond, pearl, coloured stone and gold jewellery, had filed its return for AY 2017-18 declaring nil income after set-off of brought forward losses. During scrutiny assessment proceedings under Section 143(3), the Assessing Officer (AO) noted that cash deposits aggregating to ₹2.35 crore were made between 09.11.2016 and 30.12.2016 in the assessee’s Kotak Mahindra Bank account.
The assessee explained that the deposits represented sale proceeds from jewellery sales recorded in regular books of account and supported by sales invoices, stock registers, cash book, bank book, VAT records and audited financial statements. The assessee also stated that anniversary offers, promotional schemes and festive demand during October and November 2016 had increased customer footfall and sales. It was further explained that sales were made out of existing stock with complete quantitative reconciliation of purchases, sales and closing stock.
The AO, however, doubted the genuineness of the cash sales, citing abnormal increase in sales during demonetisation and incomplete customer details in certain invoices. The AO rejected the books under Section 145(3) and treated the entire cash deposits as unexplained money under Section 69A taxable under Section 115BBE.
The CIT(A) deleted the addition after observing that the AO had rejected the books merely on suspicion without identifying any specific defect in the accounting method, stock records, vouchers or quantitative tally. The CIT(A) found that the assessee had maintained audited books of account and no discrepancy was found in purchases, sales or stock records. It was also noted that the AO failed to disprove the documentary evidence furnished by the assessee or establish that the sales were bogus.
The Tribunal upheld the findings of the CIT(A). It observed that the assessee had furnished complete documentary evidence including audited books, sales register, stock register, purchase register, cash book, VAT records and quantitative stock details. No discrepancy was found in stock reconciliation and the AO had substantially accepted the trading results and financial statements.
The Tribunal held that once sales were recorded in regular books and corresponding profits were already offered to tax, the same sale proceeds could not again be treated as unexplained money under Section 69A, as it would amount to double taxation. It further held that mere abnormal increase in sales during demonetisation could not justify addition under Section 69A without concrete evidence showing that the sales were fictitious or manipulated.
The Tribunal also accepted that there was no statutory requirement during the relevant year to obtain PAN or identity proof for cash sales below the prescribed limit. Finding no infirmity in the CIT(A)’s order, the Tribunal dismissed the Department’s appeal.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT(A), Panaji vide order dated 29.09.2025 passed for A.Y. 2017-18.
2. The Department has raised the following grounds of appeal:
“1. Whether on the facts and circumstances of the case and in law, the ld.CIT(A) has erred in deleting addition made of Rs.2,35,35,000/-, u/s 69A and taxed u/s 115BBE of the Act, without appreciating the fact that the assessee has made cash deposits amounting to Rs.2,35,35,000/-, without providing details of cash sales proving that the assessee has just shown the bogus cash sales to justify the cash deposit made during the demonetization period?
2. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.
3. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored.”
3. The brief facts of the case are that the assessee company, namely Bharatji Designer Jewellery Private Limited, is engaged in the business of retail trading of diamond, coloured stone, pearl and gold jewellery. For the Assessment Year 2017-18, the assessee filed its return of income declaring total income at Nil after set off of brought forward losses. During the course of scrutiny assessment proceedings conducted under section 143(3) of the Income-tax Act (“the Act”), the Assessing Officer observed that during the demonetisation period from 09.11.2016 to 30.12.2016, the assessee had deposited cash aggregating to Rs.2,35,35,000/- in its bank account maintained with Kotak Mahindra Bank. The assessee explained that the said cash deposits were from sale proceeds received against jewellery and the sales were duly recorded in the regular books of account and supported by sales invoices, stock registers, cash book, bank book, VAT records and audited financial statements. The assessee further submitted that during October and November 2016 the assessee had introduced promotional and anniversary offers as October was the anniversary month of the concern and there was increased customer footfall on account of festive and tactical collaborations relating to jewellery and solitaire sales. It was also explained that the sales were out of existing stock and there was complete quantitative tally of purchases, opening stock, sales and closing stock.
4. During the assessment proceedings, the Assessing Officer issued several notices calling for details such as purchase registers, sales registers, stock statements, cash book, bank statements, party confirmations, promotional offer documents and other supporting records. The assessee furnished the details called for and also uploaded various documentary evidences on the income tax portal. However, the Assessing Officer was not satisfied with the explanation furnished by the assessee.
According to the Assessing Officer, the assessee had shown abnormal cash sales during the demonetisation period and many sales invoices did not contain complete details of customers. The Assessing Officer further doubted the genuineness of the sales by observing that there was unusual increase in cash deposits during the demonetisation period as compared to earlier periods. The Assessing Officer also questioned the purchases from certain suppliers and was of the view that the assessee failed to satisfactorily explain the nature of such transactions. The Assessing Officer rejected the books of account of the assessee under section 145(3) of the Act and the entire amount of cash deposits of Rs.2,35,35,000/- was treated as unexplained money under section 69A of the Act. Consequently, the same was brought to tax under section 115BBE of the Act.
5. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(Appeals). The CIT(Appeals) examined the assessment order, submissions of the assessee and the documentary evidences placed on record. The CIT(Appeals) observed that the Assessing Officer had rejected the books of account merely on suspicion without pointing out any specific defect in the method of accounting, stock register, quantitative tally, vouchers or bills maintained by the assessee. The CIT(Appeals) noted that the assessee had maintained regular books of account which were duly audited and no discrepancy had been found in the purchases, sales or stock records. The CIT(Appeals) held that rejection of books under section 145(3) of the Act requires identification of specific defects and cannot be based merely on suspicion arising out of demonetisation related cash deposits. The CIT(Appeals) placed reliance on judicial precedents viz. CIT v. Om Overseas (315 ITR 185), CIT v. Poonam Rani (326 ITR 223) and St. Teresa’s Oil Mills v. State of Kerala (76 ITR 365) for the proposition that suspicion cannot substitute evidence.
6. The CIT(Appeals) further observed that the assessee had duly explained that the cash deposits were from sale proceeds already recorded in the books of account. Sales invoices, ledger extracts, stock registers, reconciled bank statements and quantitative details were furnished before the Assessing Officer. The CIT(Appeals) observed that the Assessing Officer had not disproved any of these records nor brought any material on record to establish that the sales were bogus. The CIT(Appeals) held that that once sales are recorded in the books and corresponding profits are already offered to tax, the same amount cannot again be treated as unexplained money under section 69A of the Act as it would amount to double taxation. The CIT(Appeals) placed reliance on the judgment of the Hon’ble Gujarat High Court in CIT v. President Industries (258 ITR 654), wherein it was held that sales proceeds cannot be added in entirety and only profit element, if any, can be considered. He also placed reliance on CIT v. Kailash Jewellery House (328 ITR 349) and CIT v. N. Swamy (241 ITR 363) for the proposition that once entries are recorded in regular books of account, corresponding cash deposits cannot be separately taxed as unexplained income unless proved otherwise.
7. The CIT(Appeals) also examined the stock records and observed that the movement of stock, purchases, sales and closing stock stood reconciled and no discrepancy was pointed out by the Assessing Officer in quantitative details. The assessee had demonstrated that the sales were made out of existing stock and there was no evidence of fictitious purchases or fictitious sales. It was further observed that the purchases from regular suppliers were supported by ledger accounts and confirmations and no independent enquiry was conducted by the Assessing Officer to establish that such purchases were bogus. The CIT(Appeals) accepted the explanation of the assessee that purchases were made on normal credit terms prevailing in jewellery trade and there was nothing abnormal in such transactions. The CIT(Appeals) placed reliance on CIT v. Daulat Ram Rawatmull (87 ITR 349) and CIT v. Nangalia Fabrics Pvt. Ltd. to hold that once the assessee discharges the initial burden by furnishing supporting records, the onus shifts upon the Revenue to disprove the transactions.
8. The CIT(Appeals) also accepted the explanation regarding increase in sales during October and November 2016 on account of promotional schemes, anniversary offers and festive demand. The CIT(Appeals) held that such increase in sales was duly corroborated by sales registers, stock records and bank deposits and no contrary material was brought by the Assessing Officer. The contention of the Assessing Officer regarding absence of customer details was also rejected by observing that there was no statutory requirement during the relevant year to collect PAN or identity details for cash sales below Rs.2 lakhs. The CIT(Appeals) further held that the Assessing Officer had proceeded mainly on departmental SOPs and presumptions arising from demonetisation rather than on concrete evidence. Accordingly, the entire addition of Rs.2,35,35,000/-made under section 69A of the Act was deleted and the appeal of the assessee was allowed.
9. The Department is in appeal before us against the order passed by CIT(Appeals) allowing the appeal of the assessee.
10. We have heard the rival submissions and perused the material available on record. It is observed that the sole grievance of the Revenue is against deletion of the addition of Rs.2,35,35,000/- made by the Assessing Officer under section 69A of the Act in respect of cash deposits made during the demonetisation period. On careful consideration of the facts of the case, we find no infirmity in the order passed by the CIT(Appeals).
11. It is an undisputed fact that the assessee is engaged in the jewellery business and the impugned cash deposits were claimed to be arising from cash sales duly recorded in the regular books of account. The assessee had furnished complete documentary evidences before the Assessing Officer including audited books of account, sales register, stock register, purchase register, cash book, bank statements, VAT records and quantitative details of stock movement. The Assessing Officer has not pointed out any discrepancy in the quantitative tally of stock nor has he established that the purchases or sales recorded by the assessee were fictitious. Even the trading results and audited financial statements of the assessee have substantially been accepted by the Assessing Officer. Once the sales are recorded in the regular books and corresponding profit element has already been offered to tax, the entire sale proceeds cannot again be treated as unexplained money under section 69A of the Act.
12. We further find that the CIT(Appeals) has rightly observed that the rejection of books of account under section 145(3) of the Act was made merely on suspicion without identifying any specific defect in the books maintained by the assessee. The stock registers, sales invoices and quantitative details were available on record and no material inconsistency was found therein. The Revenue has also failed to bring any cogent material before us to demonstrate that the sales recorded by the assessee were bogus or manipulated. Mere abnormal increase in sales during the demonetisation period cannot by itself justify an addition under section 69A of the Act when the assessee has duly explained the source of cash deposits with supporting evidences.
13. We also find merit in the contention of the assessee that addition of the same amount once again under section 69A of the Act would amount to double taxation because the sale proceeds already form part of the turnover reflected in the profit and loss account. The legal position on this issue stands settled by various judicial precedents including the decision of the Hon’ble Gujarat High Court in CIT v. President Industries (258 ITR 654), wherein it has been held that sale proceeds cannot be treated as unexplained income in entirety. Similar view has been taken in several decisions relied upon before the CIT(Appeals) as well as in the written submissions filed before the Tribunal. We also find support from the decision of the Coordinate Bench of the Tribunal in the case of ITO v. Ankit Gold Ltd. in ITA Number 429/Ahd/2024 vide order dated 23-062025, wherein under similar circumstances relating to demonetisation cash deposits in jewellery business, the Tribunal upheld the deletion of addition by observing that once sales are duly recorded in the books and supported by stock records and documentary evidences, separate addition under section 68 or section 69A of the Act is not sustainable.
14. The assessee has also satisfactorily explained the increase in sales during October and November 2016 by placing on record evidence of promotional schemes, anniversary offers and festive season demand. Such explanation has not been disproved by the Revenue through any independent enquiry. Further, there was no statutory requirement during the relevant assessment year to obtain PAN or identity proof from customers for cash sales below the prescribed threshold. Therefore, adverse inference drawn by the Assessing Officer on this count was also not justified.
15. In view of the entirety of facts and circumstances of the case, we are of the considered opinion that the CIT(Appeals) was justified in deleting the addition made under section 69A of the Act. We do not find any reason to interfere with the well-reasoned findings recorded by the CIT(Appeals).
16. Accordingly, the appeal filed by the Department is dismissed.
This Order pronounced in Open Court on 15/05/2026
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