Aditya Ornaments Vs ITO (ITAT Rajkot)
Summary: The appeal was filed by Aditya Ornaments, a partnership firm, against the order of the National Faceless Appeal Centre, Delhi, dated 27.02.2026, arising from the assessment order passed under section 143(3) of the Income-tax Act, 1961 dated 24.12.2019 for AY 2017-18. The dispute concerned an addition of Rs. 2,65,59,500/- under section 69A in respect of cash deposited during the demonetisation period. The assessee had filed its return on 17.10.2017 declaring income of Rs. 3,33,800/-. Its case was selected for complete scrutiny and notices under sections 143(2) and 142(1) were issued.
During assessment, the Assessing Officer noticed cash deposits aggregating to Rs. 3,02,80,000/- in ICICI Bank, IDBI Bank and HDFC Bank accounts. The assessee explained that the deposits represented cash sales made during October 2016 and the Diwali period. It pointed to an opening cash balance of Rs. 3,10,08,913.15 as on 31.10.2016 and Rs. 3,09,03,828.15 as on 08.11.2016 and submitted its audited cash book. The assessee also referred to CBDT Instruction No. 246/151/2017-A & PAC-1 dated 10.01.2018 and furnished purchase and sales registers, job-work details, interest details and other records.
The Assessing Officer rejected the explanation and treated the cash deposited in old specified bank notes as unexplained cash under section 69A read with section 115BBE. Against total deposits of Rs. 3,02,80,000/-, credit of Rs. 37,20,500/- representing cash on hand as on 04.10.2016 was allowed and the balance Rs. 2,65,59,500/- was added to total income. The assessee challenged the addition before the CIT(A), contending, among other things, that the sales had already been recorded and offered to tax, that the books were audited under section 44AB, and that the Assessing Officer had not invoked section 145(3). The CIT(A), however, upheld the addition.
Before the Tribunal, the assessee submitted that its business had materially changed from job work in the preceding year to manufacturing and selling gold and silver ornaments and trading in bullion during the year under appeal. Consequently, comparison of current-year sales with the preceding year’s job-work receipts was not meaningful. The assessee relied on its bank statements, cash book, purchase book, sales book, stock details, audited books and VAT returns. It submitted that the Assessing Officer had not found any defect in those documents or rejected the books. The assessee also explained the increase in turnover from 2.22 crores with a gross profit rate of 25.62% in the preceding year to 11.54 crores with a gross profit rate of 6.94% in the year under appeal, attributing the change to machine-made “Turkey design” jewellery introduced from September 2016 and festival demand during Navratri and Diwali.
The Revenue argued that sales had increased substantially compared with the preceding year, that the assessee had not furnished comparable cases demonstrating the level of Diwali sales, and that the Assessing Officer had already granted credit for cash-in-hand of Rs. 37,20,500/-. The Tribunal examined the rival submissions, documentary material and findings of the lower authorities. It noted that the assessee’s books were audited under section 44AB and that the bank statements, cash book, purchase and sales books, stock details, sales bills, VAT returns and complete audited books had been produced. The Tribunal found that the Assessing Officer had neither refuted nor discredited those documents nor explained why they were unacceptable.
The Tribunal further found that the books had not been rejected, purchases were from registered PAN-identified dealers, and no discrepancy had been identified in the cash book, stock register or purchase and sales registers. No independent verification under sections 133(6) or 131 had been undertaken with purchasers, nor had physical stock verification or reference to VAT authorities been made. It held that the addition rested on statistical comparison and subjective assessment of probability without any positive finding that a particular sale or purchase was bogus.
On the legal issue, the Tribunal held that section 69A applies to money not recorded in the books and unsatisfactorily explained. In the present case, the cash was recorded in the cash book, generated from entries in the sales register, and the resultant profit had already been offered to tax. The Tribunal considered the dispute, at its highest, to concern the genuineness of book entries governed by section 145(3), but found that the Assessing Officer had not rejected the books or pointed out any specific defect. It relied on CIT v. British Paints India Ltd. and CIT v. Flexi Pack for the principle concerning rejection of book results where section 145 is not invoked.
The Tribunal also considered six decisions involving demonetisation-period cash deposits explained through recorded cash sales: DCIT v. Bharatji Designer Jewellery (P.) Ltd.; Damodar Prasad Agarwal v. ITO; R.M. Sales Corporation v. ITO; DCIT v. Viswa and Devji Diamonds (P.) Ltd.; Smt. Charu Aggarwal v. DCIT; and ACIT v. Hirapanna Jewellers. The decisions were relied upon for propositions including that unexplained additions cannot rest merely on abnormal sales, suspicion, conjectures or presumptions where books, VAT returns, stock and sales records support the cash deposits, and that recorded sales already offered to tax cannot again be treated as unexplained money.
The Tribunal concluded that the cash deposits were fully explained as proceeds of genuine festival-season cash sales recorded in audited books and corroborated by stock and sales registers and VAT returns. It held that section 69A had no application to money already recorded in unrejected books and that taxing the same receipts once as sales and again as unexplained money would amount to impermissible double taxation. The addition of Rs. 2,65,59,500/- was therefore deleted and the assessee’s grounds were allowed. The appeal was allowed in full.
Cases Discussed
- DCIT v. Bharatji Designer Jewellery (P.) Ltd., ITA No. 2306/Ahd/2025, AY 2017-18, order dated 15.05.2026.
- Damodar Prasad Agarwal v. ITO, ITA No. 1204(JPR)/2025, AY 2017-18, order dated 31.12.2025.
- R.M. Sales Corporation v. ITO, [2024] 167 taxmann.com 679, AY 2017-18.
- DCIT v. Viswa and Devji Diamonds (P.) Ltd., [2025] 171 taxmann.com 474, AY 2017-18.
- Smt. Charu Aggarwal v. DCIT, [2022] 140 taxmann.com 588, AY 2017-18.
- ACIT v. Hirapanna Jewellers, [2021] 128 taxmann.com 291, AY 2017-18.
- CIT v. British Paints India Ltd., 188 ITR 44 (SC).
- CIT v. Flexi Pack, SLP dismissed, 319 ITR 3 (St.) (SC).
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2017-18, is directed against the order under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the National Faceless Appeal Centre (NAC) Delhi/Commissioner of Income-tax (Appeals) [in short ‘NFAC/Ld.CIT(A)’], dated 27.02.2026, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Act, dated 24.12.2019.
2. The grounds of appeal raised by the assessee are as follows:
1. The grounds of appeal mentioned hereunder are without prejudice to one another.
2. Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as the “CIT(A)”] erred on facts as also in law in confirming addition of Rs. 2,65,59,500/- u/s 69A of the Act on the alleged ground that assessee failed to explained source of the cash deposit of Rs. 2,65,59,500/- during the demonetization period. The addition confirmed is totally unjustified and uncalled for and deserves to be deleted and may kindly be deleted.
3. Your Honour’s assessee craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.
3. Succinctly, the factual panorama of the case is that assessee before us is a partnership- firm. The assessee has filed its return of income on 17.10.2017 showing therein income of Rs. 3,33,800/-. The assessee’s case was selected for Complete Scrutiny through Computer Aided Scrutiny Selection. Therefore, a digitally signed notice u/s 143(2) was issued on 25.9.2018 which was duly served upon the assessee through e-assessment system on e-mail. Thereafter, a fresh notice u/s 142(1) of the I.T. Act was issued on 20.08.2019, 17.09.2019, 27.11.2018. Finally a show cause notice was issued on 09.12.2019.
4. During the assessment proceedings, the assessing officer, on perusal of the records noticed that the assessee had deposited Rs. 92,00,000/- in ICICI Bank account NO. 015305500729; Rs. 1,40,00,000/-, in IDBI Bank A/c NO. 1642102000001083; Rs. 70,80,000/-, and in HDFC Bank account NO. 50200004900352. The total of the same works out to Rs. 3,02,80,000/-. The assessee was requested to explain the same.
5. In response to the notice of the assessing officer, the assessee submitted its explanation and source of the cash deposit in the bank account, as follows:
(a) In compliance to the point No. 19 of the notice of the assessing officer, the assessee submitted that the large cash deposits made during demonetization period i.e. 08/11/2016 to 30/12/2016 in Bank accounts. The shocking and surprising demonetization of currency notes of Rs. 500/- and Rs. 1000/- notes announced by the Govt. of India had created havoc and fear amongst the all class of people of our country, and it is a basic human characteristic to be under pressure by fear of loss of the amount. The firm has cash sale of the goods during the month of October and Diwali days. And diwali was on 30/10/2016-that is, on Sunday. In this area of Rajkot almost all markets remain closed for almost seven days due to Diwali festivals. Thereafter cash sale have been deposited. The opening balance of cash on hand, as per audited books of accounts, as on 31/10/2016 is Rs. 3,10,08,913.15 (Rupees Three Crores Ten Lacs Eight Thousand Nine Hundred Thirteen and paise Fifteen only) and opening balance of cash on hand as on 08/11/2016 is Rs. 3,09,03,828.15 (Rupees Three Crores Nine Lacs Three Thousand Eight Hundred Twenty Eight and Paise Fifteen only). The assessee submitted audited cash book, before the assessing officer during the assessment proceedings.
(b) Cash book balance for November 2016. The firm has cash sale of the goods during the month of October and Diwali. Thus, the sources of the cash deposits are attributed to cash sales. In this connection, on behalf of the assessee firm, we submit point wise compliance as under. In connection with substantial cash deposits made during demonetization period, a reference may be made to INSTRUCTION NO. 246/151/2017-A & PAC-1 DATED 10/01/2018 ISSUED BY CBDT. We request you to consider the earlier submission made online regarding corroborative evidences against the compliance of your Notice No. ITBA/AST/F/142 (1)/2019-20/10211204324 (1) dated 27/11/2019.
(i) In compliance to Point No. 2, of notice of assessing officer, the purchase register with details are submitted before the assessing officer.
(ii) In compliance to Point No. 3, of notice of assessing officer, the sales register with details are submitted before the assessing officer.
(iii) In compliance to Point No. 4, the job work income with details are submitted before the assessing officer.
(iv) In compliance to Point No. 5, the details of job work expenditure are submitted before the assessing officer.
(v) In compliance to Point No. 6, the details of interest expenditure, though submitted earlier also, and interest income are attached. The various amounts as per details are obtained for the requirement of working capital for easy running of the business of the firm, submitted before the assessing officer.
(vi) In compliance to Point No. 5, assessee submitted, that they have not admitted any income under PMGKY. Hence, it is not applicable to the assessee.
6. However, assessing officer rejected the above reply of the assessee and observed that the assessee was having unaccounted cash, which has been deposited during the demonetization period under the guise of cash sales. The assessing officer further noted that assessee has not submitted sufficient evidences in support of his claim. The cash deposited in old SBN just after the start of cash sales from 4.10.2016, was therefore treated as unexplained cash within the meaning of section 69A of the I.T. Act, r.w.s. 115BBE of the I.T. Act. The total cash deposited in old SBN was Rs. 3,02,80,000/- out of which the cash on hand as on 04.10.2016 was given credit viz., Rs. 37,20,500/-. Hence, the balance sum of Rs. 2,65,59,500/- ( Rs. 3,02,80,000- Rs. 37,20,500) was added to the total income of the assessee. Therefore, assessing officer has given part relief to the assessee, on account of cash on hand and balance amount of Rs. 2,65,59,500/- , was added in the hands of the assessee.
7. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the learned CIT(A), who has confirmed the action of the assessing officer.The assessee submitted before the ld.CIT(A) that there is double taxation that once sales are recorded and offered to tax, addition of corresponding cash deposits results in taxing the same income twice. The assessee has contended that since the books of account were duly audited under section 44AB of the Act and the Assessing Officer did not invoke section 145(3), the addition is bad in law. However, the ld.CIT(A) rejected the above contention of the assessee and held that assessee has failed to satisfactorily discharge the burden cast upon it under section 69A of the Act.
8. Aggrieved by the order of the learned CIT(A), the assessee is in further appeal before this Tribunal.
9. Learned Counsel for the assessee, vehemently argued that during the previous year, the assessee was engaged only in Job Work, and in the current year, that is, the assessment year under consideration, the assessee is engaged in own manufacturing activities of gold and silver ornaments, and selling the gold and bullion and ornaments, therefore, sale of the current assessment year cannot be compared with job work income of the previous year. In the previous year, the assessee was engaged only in job work and has income by way of job work. However, in the assessment year under consideration, the assessee is engaged in manufacturing and selling of gold ornaments. Hence comparison of the previous year job work income with current year sales is not required, as it will not give any meaningful result. There should be Apple to Apple comparison, however, the assessing officer has failed to do so.
10. The Learned Counsel for the assessee, further submitted that during the assessment proceedings, the assessee submitted bank statement, cash book, purchase book, Sales book, details of closing stock, details of opening stock, and complete audited books of accounts, before the assessing officer. The assessing officer did not find any mistake in these documents and evidences. Besides, the books of accounts of the assessee were not rejected by the assessing officer. That is, invocation of section 145(3) is a sine qua non for making an addition under section 69A of the Act, however, assessing officer has failed to do so. The assessing officer has himself observed that during the immediately preceding assessment year, the assessee had declared turnover of 2.22 crores with a gross profit rate of 25.62%, predominantly from job work. In the year under appeal, the turnover increased to 11.54 crores while the gross profit rate fell sharply to 6.94%, with a substantial shift from job work to bullion and jewellery sales. The assessee has attributed this change to introduction of machine-made “Turkey design” jewellery from September 2016 onwards and festival demand during Navratri and Diwali. Therefore, it is abundantly clear that during the previous year, the assessee was engaged only in Job Work activity, however, in the assessment year under consideration, the assessee is engaged in manufacturing and sailing of gold and silver ornaments, and trading in bullion.
11. Learned DR for the revenue argued that in the assessment year, under consideration, the sale of the assessee has increased as compared to the previous year, where in assessee was doing job work activity. The assessee has failed to file the comparable cases to demonstrate the Sales on the occasion of Deepali festival. The assessing officer, granted credit for cash-in-hand of Rs. 37,20,500/- as on 3.10.2016 and made a reasonable addition in the hands of the assessee, therefore, the assessee does not deserve further relief.
12. The Ld. DR for the Revenue also has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
13. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that assessee, a partnership- firm and engaged in trading and manufacturing gold/silver ornaments and doing job-work. The books of accounts of the assessee are audited u/s 44AB of the Income Tax Act, 1961.During the previous year, the assessee was engaged only in Job Work, and in the current year, that is, the assessment year under consideration, the assessee is engaged in own manufacturing activities of gold and silver ornaments, and selling the gold and bullion and ornaments, therefore, sale of the current assessment year cannot be compared with job work income of the previous year. During the assessment proceedings, the assessee submitted bank statement, cash book, purchase book, Sales book, details of closing stock, details of opening stock, sales bills and VAT returns and complete audited books of accounts, before the assessing officer. We note that assessing officer has not refuted or discredited these evidences and documents. The assessing officer does not mention why he is not accepting these evidences. On the contrary, the assessing officer has just brushed aside these evidences without even a word on why they are not acceptable. It is a well settled Law that when an assessee has all the possible evidence in support of its claim, they cannot be brushed aside based on surmises.
14. We note that the books of accounts of the assessee were not rejected by the assessing officer, and the assessing officer has himself observed that during the immediately preceding assessment year, the assessee had declared turnover of 2.22 crores with a gross profit rate of 25.62%, predominantly from job work. In the year under appeal, the turnover increased to 11.54 crores while the gross profit rate fell sharply to 6.94%, with a substantial shift from job work to bullion and jewellery sales. The assessee has attributed this change to introduction of machine-made “Turkey design” jewellery from September 2016 onwards and festival demand during Navratri and Diwali. Therefore, it is abundantly clear that during the previous year, the assessee was engaged only in Job Work activity, however, in the assessment year under consideration, the assessee is engaged in manufacturing and selling of gold and silver ornaments, and trading in bullion. The assessee also explained before the assessing officer, about turnover rise and Gross Profit fall, which is not “abnormal”. From September 2016, the assessee introduced a new, lighter-weight, lower-margin “Turkey design” jewellery line timed for the Navratri-Diwali season corroborated by the genuine purchase register, stock records, sales bills and VAT returns. A shift from job-work to retail trading of lower-margin jewellery naturally yields higher turnover at lower Gross Profit, it is ordinary commercial arithmetic, not manipulation.
15. The assessee also explained before the assessing officer about the absence of earlier cash sales, and location advantages stating that the new jewellery line and bullion purchases from 01.09.2016 as the Markets in Saurashtra/Rajkot conventionally reopen only after Labh Pancham, explaining the concentration of receipts/deposits in the narrow window before demonetisation. Equally, an established manufacturing reputation and wholesale/retail customer base not showroom location drives sales in the bullion trade, and the assessing officer brought no material (site inspection, neighbour enquiry) to show the business premises of the assessee could not support the claimed volume.
16. No defect found in books, stock, purchases or sales and no independent enquiry was conducted by the assessing officer. We note that the assessing officer never invoked section 145(3), nor found any discrepancy in the cash book, stock register, or purchase/sales registers, nor disputed that purchases were from registered, PAN-identified dealers. Once purchases and resultant stock are undisputed, sales out of that stock recorded, VAT-paid, and reflected in the audited trading account cannot be treated as non-genuine. The staggered dates of deposit are equally consistent with ordinary banking practice. Neither the assessing officer nor the CIT(A) issued any independent verification (section 133(6))/131 of the Act to purchasers, physical stock verification, or reference to VAT authorities) the entire addition rests on statistical comparison and subjective assessment of “probability”, without any positive finding that a specific sale or purchase was bogus.
17. We note that Section 69A of the Act, inapplicable where cash is duly recorded in the books of accounts. Section 69A applies only to money not recorded in the books and unsatisfactorily explained. Here, the cash stood recorded in the cash book, generated from entries in the sales register, with the resultant profit already offered to tax. This is, at worst, a dispute about the genuineness of a book entry governed by section 145(3), not section 69A of the Act, and the jurisdictional pre-condition for section 69A of the Act that the money is unrecorded, is not satisfied.Where the assessing officer does not reject the books u/s 145(3) or pointed out to any specific defect, he cannot selectively disbelieve the cash-sales entries while accepting the rest of the same books that is, profit, stock, purchases, sales, as correct. In this connection reliance is placed on decisions of Hon’ble Supreme court in cases of CIT v. British Paints India Ltd. 188 ITR 44 (SC) and CIT v. Flexi Pack (SLP dismissed, 319 ITR 3 (St.) SC) -where section 145 of the Act is not invoked, there is no justification for rejecting the book results, a principle consistently applied to identical demonetisation fact patterns.
18. We note that the cash sales already stand credited to the Profit &Loss account and taxed as profit; taxing the corresponding cash realisation again u/s 69A of the Act, results in impermissible double taxation of the identical income. We note that full documentary chain, such as, audited books, quantity-reconciled stock registers, VAT returns accepted by the assessing officer.The following decisions, on materially identical facts involving cash deposits during demonetisation period, explained as recorded cash sales, support the assessee’s case:
(i) Hon’ble ITAT Ahmedabad Bench has in case of DCIT v. Bharatji Designer Jewellery (P.) Ltd. ITA No. 2306/Ahd/2025, A.Y. 2017-18, order dated 15.05.2026 held 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 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.”
(ii) Hon’ble ITAT Jaipur Bench has in case of Damodar Prasad Agarwal v. ITO ITA No. 1204(JPR)/2025, Α.Υ. 2017-18, order dated 31.12.2025 held that:
“The assessee had explained the source of cash deposit in bank during demonetization period as being out of its cash sales and had substantiated the same by producing its Books of accounts and VAT returns declaring the said sales, in which no infirmity was found by the Revenue authorities and which was not rejected also. The entire addition made was without any valid basis and was merely based on assumptions and presumptions.”
(iii)Hon’ble ITAT Amritsar Bench has in case of R.M. Sales Corporation v. ITO [2024] 167 taxmann.com 679, A.Y. 2017-18, held that:
“The Books of accounts of the assessee have been audited and tax audit report has been filed with the Income Tax department. The Sales made by the assessee have been declared in VAT returns with payment of VAT, where the sales declared have been accepted by the Sales Tax Department. Further inference u/s 69A of the Act was unwarranted based on assumptions and presumptions, surmises and conjectures by the authorities below to treat the cash sales as unaccounted income.”
(iv) Hon’ble ITAT Chennai Bench has in case of DCIT v. Viswa and Devji Diamonds (P.) Ltd. [2025] 171 taxmann.com 474, A.Y. 2017-18, held that:
“When the sale has been reflected in the books of accounts and offered to tax, adding the same again would amount to double taxation, which is impermissible in law. The allegations/statistics relied upon by the Assessing Officer to take an adverse view is not backed up by relevant evidence/material. It is trite law that no addition could be made merely on the basis of suspicion, conjectures and surmises.”
(v) Hon’ble ITAT Chandigarh Bench has in case of Smt. Charu Aggarwal v. DCIT [2022] 140 taxmann.com 588, A.Y. 2017-18, held that:
“There was a consistent declining trend in the G.P. rate which occurred due to increase in the sales. It cannot be said that the cash sales made by the assessee during the pre-demonetization period resulted in extraordinary fall in the G.P. rate. The assessee explained that in the month of October 2016 the cash sales was on the higher side as lots of festivals fell in that period. The said explanation cannot be brushed aside considering the trend of the society in India wherein people make the purchases of jewellery during the festive season.”
(vi) Hon’ble ITAT Visakhapatnam Bench has in case of ACIT v. Hirapanna Jewellers -ITAT Visakhapatnam, [2021] 128 taxmann.com 291, A.Y. 2017-18, held that:
“Once there is no defect in the purchases and sales and the same are matching with inflow and the outflow of stock, there is no reason to disbelieve the sales. Both the authorities did not find any defects in the books of accounts and trading account, P&L account and the financial statements. Suspicion however strong it may be, it should not be decided against the assessee without disproving the sales with tangible evidence.”
19. In conclusion, we state that the addition of Rs. 2,65,59,500/- is unsustainable both on facts and in law. On facts, the cash deposited stands fully explained as proceeds of genuine, festival-season cash sales, recorded in audited books, corroborated by stock and sales registers and VAT returns, with no defect found by the Revenue in the books, stock, or purchases. The turnover rises and Gross Profit fall are natural incidents of a documented change in product-mix. In law, section 69A of the Act has no application to money already recorded in unrejected books; and taxing the same receipt as sales and again as unexplained money tantamount to double taxation. During the assessment proceedings, the assessee submitted bank statement, cash book, purchase book, Sales book, details of closing stock, details of opening stock, sales bills and VAT returns and complete audited books of accounts, before the assessing officer.No defect found in books, stock, purchases or sales. Considering this factual position and position in law, we are not inclined to accept the contention of the Assessing Officer in any manner and hence the addition so made is deleted. Hence, grounds of the assessee are allowed.
20. In the result, appeal filed by the assessee is allowed.
Order is pronounced in the open Court on 31/08/2026.
