Star Jewels Vs ITO (ITAT Mumbai)
Mumbai ITAT Deletes Demonetisation Addition – Cash Deposits from Recorded Jewellery Sales Cannot Be Taxed under Section 69A on Mere Suspicion
The ITAT Mumbai deleted the addition made under Section 69A read with Section 115BBE of the Income-tax Act, 1961 in respect of cash deposits made during the demonetisation period, holding that the deposits were supported by recorded cash sales and regular books of account. The assessee, a retail jewellery partnership firm, explained that the cash deposits arose from cash sales and available cash balance, supported by audited financial statements, cash book, cash sales register, stock register, bank statements and day-wise cash balances. The Tribunal found that neither the Assessing Officer nor the CIT(A) had rejected the books of account or identified any defects in the cash book, stock register, sales register, purchase records, quantitative details or availability of stock, and there was no finding that the sales invoices were fabricated. It held that the addition was based only on suspicion arising from higher cash sales during the demonetisation period, which could not substitute for evidence. As the CIT(A) had also accepted that the documentary evidence prima facie supported the sales, the Tribunal held that sustaining 50% of the addition without any specific defect was unsustainable, deleted the entire addition, allowed the appeal on merits, and left the legal grounds open.
The Mumbai Bench of the Income Tax Appellate Tribunal held that cash deposits made during the demonetisation period cannot be treated as unexplained money under section 69A merely because cash sales witnessed an abnormal increase, when the sales are duly recorded in the books of account and supported by documentary evidence. The Tribunal deleted the entire addition, observing that suspicion, however strong, cannot substitute evidence.
The assessee, a partnership firm engaged in the retail jewellery business, had declared a turnover of ₹6.14 crore, including cash sales of ₹69.60 lakh, and deposited ₹32.93 lakh in its bank accounts during the demonetisation period. The assessee explained that the deposits represented genuine cash sales effected in the normal course of business and produced the cash book, audited financial statements, stock register, sales register, bank statements, and day-wise cash balance to substantiate the claim.
The Assessing Officer, however, treated the cash deposits as unexplained money under section 69A read with section 115BBE, primarily on the ground that the cash sales on 8 November 2016 (₹22.53 lakh) and the overall cash sales during the demonetisation period were disproportionately higher than the corresponding period of the previous year. The CIT(A), while accepting that the documentary evidence prima facie supported the sales, sustained 50% of the addition on an ad hoc basis, granting relief for the balance amount.
The Tribunal found that neither the Assessing Officer nor the CIT(A) had rejected the books of account, nor had they pointed out any defect in the cash book, stock register, sales register, purchase records or quantitative details. There was also no finding that the assessee lacked sufficient stock to effect the sales or that any sales invoices were fabricated. The entire addition rested solely on suspicion arising from the increase in cash sales during demonetisation.
Relying on its earlier decision in Lalit R. Jagawat (HUF) and the decisions in Vishva and Devji Diamond Pvt. Ltd. and Charu Agarwal, the Tribunal reiterated that once the books of account are accepted and the cash sales are supported by contemporaneous records, corresponding cash deposits cannot be assessed as unexplained money under section 69A. The Tribunal also observed that the CIT(A), after accepting the genuineness of the books and documentary evidence, could not sustain 50% of the addition on a purely ad hoc basis without identifying any specific defect. Accordingly, the entire addition was deleted and the assessee’s appeal was allowed.
Author’s Comments:
This decision is another important addition to the growing body of demonetisation jurisprudence. The Tribunal has emphatically held that an abnormal rise in cash sales, by itself, is not sufficient to invoke section 69A. Where the Revenue accepts the books of account, finds no discrepancy in stock or sales records, and does not establish fabrication of invoices, cash deposits representing recorded business receipts cannot be branded as unexplained money merely on suspicion. Equally significant is the Tribunal’s rejection of the ad hoc approach adopted by the CIT(A), reaffirming that additions under section 69A must rest on cogent evidence rather than estimates or conjectures.
Cases Discussed
- Lalit R. Jagawat (HUF) vs. DCIT, ITA No. 634/Mum/2025, date of pronouncement 01.07.2025.
- DCIT v/s Vishva and Devji Diamond Pvt. Ltd., 171 taxmann.com 474 (Chennai Trib.) (2024).
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The instant appeal of the assessee filed against the order of NFAC, Delhi [for brevity “Ld. CIT(A)], for Assessed Year 2017-18, order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’), date of order 11.09.2025. The impugned order emanated from the order of the Ld. Income Tax Officer Ward 19(3)(4), Mumbai (for brevity ‘Ld. AO’), order passed under section 143(3), date of order 29.12.2019.
