Higher Demonetisation Cash Sales Cannot Justify Section 68/69A Additions: ITAT Agra

Girraj Ji Jewellers Vs ITO (ITAT Agra)

Sales Soared, Suspicion Followed: ITAT Deletes ₹79.91 Lakh Demonetisation Additions

Higher Cash Deposits Do Not Establish Undisclosed Income

The Agra Tribunal deleted additions aggregating to ₹79,91,296 arising from cash sales and deposits during demonetisation. It held that a higher volume of cash transactions, without convincing evidence contradicting the assessee’s books, could not justify treating recorded business receipts as unexplained income.

The relief comprised ₹6,99,438 added under Section 68 as alleged bogus cash sales and ₹72,91,858 added under Section 69A as alleged excess sales. The Tribunal allowed the appeal, granting final relief rather than remanding the issues.

Jewellery Business Came Under Scrutiny

The assessee, a partnership firm engaged in trading and manufacturing bullion and jewellery, filed its return declaring income of ₹8,77,430. Its case was selected for scrutiny because of substantial cash deposits during demonetisation and an increase in sales accompanied by reduced profitability.

During assessment, the firm furnished audited financial statements, bank statements, cash books, sales summaries and other business records. It maintained quantitative records and was registered under the Uttar Pradesh VAT law.

The AO nevertheless questioned certain cash sales and estimated what he considered the permissible level of cash receipts during the demonetisation period.

An additional ₹15 lakh unsecured-loan addition was deleted by the CIT(A) in the second round of appellate proceedings. That deletion was not under challenge before the Tribunal.

Buyers Confirmed Purchases: Their Sources Were Not the Seller’s Burden

The AO issued notices under Section 133(6) to four purchasers whose cash purchases totalled ₹6,99,438. All four responded and confirmed the transactions. However, the AO treated the sales as bogus because supporting evidence regarding their sources of cash was not furnished.

The Tribunal rejected this approach. The sales were recorded in the assessee’s audited books, and the identified purchasers had confirmed buying the goods.

It emphasised that these receipts were neither loans nor borrowings. The requirement discussed in relation to such credits could not be mechanically extended to equate ordinary cash sales with financing transactions.

On these facts, a purchaser’s failure to furnish the source of purchase money did not make the seller’s recorded sale bogus. The addition of ₹6,99,438 was therefore deleted.

A Monthly Average Became an Artificial Sales Ceiling

The larger addition arose from an averaging exercise.

The firm had deposited ₹94,78,500 between April and October 2016. Dividing this amount by seven, the AO arrived at average monthly cash deposits of ₹13,54,071.

For the approximately two-month demonetisation period, he adopted twice that average—₹27,08,142—as the expected figure. Against actual deposits of ₹1 crore, he treated the difference of ₹72,91,858 as unexplained excess sales under Section 69A.

The Tribunal found this methodology irrational in the circumstances. Historical monthly averages could not replace actual transactions supported by audited records, stock movement and VAT returns.

A substantial rise in jewellery sales during a particular period could raise a question for examination. It did not, by itself, establish that the sales were fictitious.

CIT(A) Deleted and Confirmed the Same Addition

The appellate order contained a striking contradiction.

In paragraph 8.9, the CIT(A) observed that the books were audited and had not been rejected, sales were supported by stock records and accepted by VAT authorities, and deposits arose from recorded business receipts. The paragraph expressly concluded that the ₹72,91,858 addition was deleted.

Yet paragraph 8.10 justified and confirmed the same addition.

The Tribunal expressed its inability to understand these contradictory findings. It nevertheless examined the issue independently on the evidence, instead of deciding the appeal merely on the drafting inconsistency.

Stock Records and VAT Evidence Supported the Explanation

The Tribunal noted that the recorded sales, stated in the order at ₹11,07,31,621, were reflected in audited books and accepted by VAT authorities. Sales books, purchase records, stock registers and quantitative reconciliation had been produced.

There was no convincing contrary evidence establishing that the deposits represented money from an undisclosed source.

The Tribunal followed decisions including ACIT v. Ramlal Jewellers Private Limited, Jitendra Kumar Agrawal HUF v. DCIT, ACIT (Central Circle), Agra v. Bipin Babu Agrawal and M/s AP Jewellers v. DCIT.

Particular significance was attached to the jurisdictional Allahabad High Court’s decision in PCIT (Central) v. Bipin Babu Agarwal, Income Tax Appeal No. 71 of 2026, dated 15 May 2026. As reproduced in the order, the High Court upheld factual findings supported by invoices, stock records and VAT returns, observing that suspicion without supporting evidence was insufficient.

Author’s Comments

This decision demonstrates the value of complete transaction reconciliation in demonetisation disputes. The defence succeeded through recorded sales, corresponding stock movement, purchaser confirmations and VAT evidence.

The principle should be applied with that factual foundation. Merely entering an amount as sales does not establish genuineness where evidence shows fictitious transactions. Here, however, the Revenue relied on statistical expectations and missing purchaser-source documents, without disproving the firm’s business records.

The contradictory CIT(A) findings also underline the need for a clear, reasoned appellate conclusion. An order cannot meaningfully grant relief in one paragraph and withdraw it in the next without explanation.

Cases Discussed

• ACIT Vs Ramlal Jewellers Private Limited (ITAT Mumbai); ITA No. 1600/Mum/2023; AY 2017-18; order dated 26.07.2023 — followed on recorded cash sales, corresponding stock movement, VAT records and the insufficiency of unusually high demonetisation-period cash sales alone to establish undisclosed income.
• Jitendra Kumar Agrawal HUF Vs DCIT (ITAT Agra); ITA No. 454/Agr/2025; AY 2017-18; order dated 16.02.2026 — followed on the principle that accepted audited books and stock records cannot be displaced merely by hypothetical or estimated sales figures.
• ACIT (Central Circle), Agra Vs Bipin Babu Agrawal (ITAT Agra); ITA No. 156/Agr/2022; AY 2017-18 — relied upon regarding cash sales supported by VAT returns, audited books, stock registers and cash records.
• PCIT (Central) & Anr. Vs Bipin Babu Agarwal (Allahabad High Court); Income Tax Appeal No. 71 of 2026; order dated 15.05.2026 — jurisdictional High Court decision followed for the proposition that suspicion, without supporting evidence, cannot displace factual findings based on invoices, books, stock records and VAT returns.
• M/s AP Jewellers Vs DCIT (ITAT Agra); ITA No. 353/Agr/2026; AY 2017-18; order dated 07.08.2026 — followed on variation in jewellery sales and the impermissibility of substituting recorded sales with hypothetical estimates merely because sales volume was high.
• CIT Vs Kailash Jewellery House (Delhi High Court); ITA No. 613/2010 — referred to for the principle that cash sales already recorded and included in disclosed profits cannot again be treated as undisclosed income.
• Ankit Garg Vs ITO (ITAT Delhi) — reproduced in the order for the principle that cash sales reflected in audited books, stock reconciliation and VAT records cannot be rejected merely on presumption.
• S. Balaji Mech-Tech Private Ltd Vs ITO (ITAT Delhi); ITA No. 556/Del/2024 — referred to on Sections 68 and 69A where the source of cash deposits was already reflected in the books.
• J.R. Rice India (P) Ltd. — referred to in the reproduced reasoning concerning cash deposits supported by cash balance, sales, purchases and quantitative records.
• Pilani Industrial Corporation Limited Vs ACIT (ITAT Delhi); ITA No. 1606/Del/2023 — relied upon regarding treatment of cash deposits as unexplained without rejecting the books of account.
• Lalchand Bhagat Ambica Ram — referred to in the reproduced Pilani Industrial Corporation reasoning on unexplained cash treatment based on accepted books.
• CIT Vs Anandha Metal Corp.; 152 Taxman 300 — referred to in the reproduced Bipin Babu Agrawal reasoning concerning sales accepted by the commercial tax department.

FULL TEXT OF THE ORDER OF ITAT AGRA

1. This appeal is directed against the impugned order dated 25.03.2026 passed in appeal No NFAC/2016-17/10396007 by the ld. Commissioner of Income Tax/ NFAC(Delhi) [(hereinafter referred to as the “CIT(A)] u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2017-18, wherein ld CIT(A) has partly allowed assessee’s appeal by part deletion of Rs. 15,00,000/- as unsecured loan and by confirming part addition of Rs. 79,91,296/- (Rs. 6,99,438/- as bogus cash sales and Rs. 72,91,858/- as excess cash sales).

2. At the very outset, we notice that this appeal is time barred by 2 days. Appellant has moved delay condonation application stating to be under bonfide belief and wrongful impression that the subject appeal was to be filed within a period of three months from the date of impugned order. The application is supported with affidavit of Shri Rajat Gupta, the partner of the assessee firm. The cause of delay is treated as sufficient and the delay of 2 days stands condoned.

3.(i) The brief facts state that appellant assessee is a partnership firm, engaged in the business of trading and manufacturing bullion and jewellery. Assessee filed return of income on 29.09.2017, declaring total income of Rs. 8,77,430/- for A.Y. 2017-18. The case was subsequently selected for scrutiny under CASS due to large cash deposit during demonetization period from 09.11.2016 to 30.12.2016 and abnormal increase in sales with decrease in profitability compared to preceding year. Statutory notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee, seeking assessee’s response. Assessee filed reply and furnished copy of ITR, computation of income, audited report, trading and P&L account, balance sheet, details of unsecured loans and advances, bank account statements, ledger accounts, copy of partnership deed, comparative chart of GP/NP, declaration copy of cash transaction 2016 and Form No. 24Q along with cash book and monthly summary of sales register. The statement of assessee firm’s partner Mr. Rakesh Kumar Gupta was also recorded on 13.12.2019. After analyzing assessee’s response, the assessing officer noticed that assessee had made sale in cash and taken unsecured loans/ advances from the parties/ persons during F.Y. 2016-17. Notices u/s 133(6) of the Act were issued to the persons who purchased in cash and given advances/unsecured loans to assessee. Details of persons who purchased in cash from assessee is tabulated in the assessment order as under:-

The assessing officer concluded that the above cash sale amounting to Rs. 6,99,438/- is bogus for want of documentary evidence and added in the income of the assessee as unexplained cash sales u/s 68 of the Act.

(ii) The assessing officer further added in the income of assessee Rs. 15,00,000/- as unsecured loan/unexplained credit u/s 68 of the Act. However this addition was deleted by ld CIT(A), and is not under challenge in this appeal.

(iii) On the basis of sale details depicted at page no. 3 and 4 of the assessment order, the ld Assessing Officer observed that the assessee had deposited cash of Rs. 94,78,500/- during April 2016 to October 2016 (pre-demonetisation period in seven months), hence calculated the average rate of cash deposit @ Rs. 13,54,071/- per month. The assessing officer further noticed that assessee had deposited cash of Rs. 1,00,00,000/- during demonetization period and observed that the assessee had excess sales during the said period and calculated the sales during the demonetization period for 2 months on average basis at Rs. 27,08,142/- (13,54,071 x 2) and observed that the assessee had made excess sales of Rs. 72,91,858/- (Rs. 1,00,00,000 – Rs. 27,08,142) for the year under consideration and added in the income of the assessee as excess sale u/s 69A of the Act.

4. Aggrieved, assessee initially preferred an appeal before ld CIT(A), who, vide order dated 09.08.2023 passed in Appeal No. CIT(Appeals) 1, Agra/10480/2019-20 dismissed assessee’s first appeal. In the earlier assessee’s second appeal ITA No. 198/Agr/2023, this tribunal, vide order dated 27.05.2024 set aside the first appellate order and restored the matter to ld CIT(A) for deciding the matter a fresh. Ld CIT(A), has in this second round partly allowed assessee’s appeal by deleting the part addition of Rs. 15,00,000/- added by the assessing officer as unexplained cash credit u/s 68 of the Act, however, confirmed the remaining additions of Rs. 6,99,438/- as bogus cash sales added u/s 68 and Rs. 72,91,858/- as excess cash sales added u/s 69A of the Act.

5. Assessee has preferred this second appeal against the confirmation of above referred two additions on the following grounds:

“1. Because, in the facts and circumstance of the case, learned ‘CIT (Appeals)’ has erred in confirming addition of Rs. 699,438 made by the ‘AO’ as bogus sales under section 68 of the ‘Act’ although the persons to whom such sales were made had confirmed the purchases.

2. Because while confirming the addition, learned ‘CIT (Appeals)’ has erred in holding that: –

“(i) However, during the appellate proceedings, the appellant failed to submit any corroborative documentary evidences such as sale bills, stock records, bank statements, income details of the purchasers, or any other material to substantiate the genuineness of the transactions

(ii) Further, the appellant was specifically asked to furnish details such as monthly sales and purchases, bank statements, and month-wise summary of cash deposits for the relevant as well as surrounding periods. The appellant failed to comply with these requisitions.”

and failing to appreciate that there was no requirement of submitting documents referred to (i) in view of admitted facts and in any case such documents were never required by learned ‘CIT (Appeals)’ and details referred to in (ii) were required to filed by learned ‘CIT (Appeals)’ were filed before him by submission filed on 15.03.2026

3. Because, in the facts and circumstances of the case, learned ‘CIT (Appeals)’ has erred in confirming addition of Rs. 72,91,858 by holding that:-

“8.10 Therefore, the AO was justified in treating the excess cash deposits of 72,91,858/- as unexplained and making the addition under section 69A of the Act. In view of the above facts and circumstances, the addition of 72,91,858/- made by the AO is hereby confirmed. Accordingly, the ground of appeal raised by the appellant on this issue is dismissed.”

Which is contrary to the undisputed fact and observation made by him in para 8.9 of appellate order that: –

“8.9 It is observed that the books of accounts are audited and not rejected by the AO. Sales are supported by stock records and accepted by VAT authorities. Cash deposits are duly recorded in books and arise from business receipts. The method adopted by the AO based on average sales is arbitrary and not supported by law Once sales are accepted, corresponding cash cannot be treated as unexplained u/s 69A. Further, taxing the same amount again results in double taxation, which is impermissible. Accordingly, the addition of 72,91,858/-is deleted.”

4. Because, in the facts and circumstances of the case and material on record, submissions and precedents cited the addition of Rs. 72,91,858 made by the ‘AO’ u/s 69A was not warranted and justified more particularly in view of undisputed fact that entire cash deposited was recorded in the regular and audited books of accounts and the addition made was arbitrary, illegal and unjustified.

5. Because, without prejudice to foregoing grounds, learned ‘CIT (Appeals)’ failed to appreciate that the ‘AO’ had erred, while making addition of Rs. 7,291,858 in not allowing set off towards addition of Rs. 699,438 made by him towards alleged bogus sales.

6. Because, without prejudice to foregoing grounds, learned ‘CIT (Appeals)’ failed to appreciate that the ‘AO’ had erred, while making addition of Rs. 7,291,858 and Rs. 699,438 in not making corresponding adjustment to the income declared as sales in the books of accounts and return of income.

7. Because, in the facts and circumstances of the case, learned ‘CIT (Appeals)’ failed to appreciate that section 115BBE of the ‘Act’ was not applicable to assessment year 2017-18.

8. Because, the order impugned is based on conjectures, surmises and opposed to principles of natural justice.

9. Because, in relation to the grounds of appeal, the ‘Appellant’ refers and relies upon the facts stated in the Statement of Facts.

……..”

6. Perused the records and heard ld representative for the appellant assessee and ld Sr DR for the respondent revenue.

7. The main point for determination under appeal on the basis of the aforesaid grounds is as to whether ld CIT(A) has erred in confirming the addition of Rs. 6,99,438/- on account of bogus sales u/s 68 of the Act and addition of Rs. 72,91,858/- on account of unexplained excess cash sales added u/s 69A of the Act?

8. Ld representative for the appellant assessee has submitted that the appellant is a registered dealer under UP VAT. Regular and complete books of accounts including quantitative records were maintained by the appellant and were audited under section 44AB of the Act and under UP VAT Act, 2008 as well. Appellant produced books of accounts along with entire details called from the assessing officer, who accepted assessee’s books of account, however, made the aforesaid additions. Ld CIT(A), despite making positive observation in para 8.9 of the impugned order, arbitrarily confirmed the addition of Rs. 72,91,858/- by making contradictory and adverse observation in para 8.10 of the impugned order. The addition of Rs. 6,99,438/- as bogus sale has also wrongly been made despite confirmation by the purchase parties, ignoring the fact that the entire sales of Rs. 11,07,31,621/- (for F.Y. 2016-17) were supported by stock records and were accepted by VAT authorities.

9. Ld AR has referred (i) order dated 26.07.2023 passed in ITA No. 1600/Mum/2023 (A.Y. 2017-18), ACIT vs. M/s Ramlal Jewellers Pvt. Ltd, (ii) order dated 16.02.2026 passed in ITA No. 454/Agr/2025 (A.Y. 2017-18), Jitendra Kumar Agrawal HUF v. DCIT, (iii) order dated 28.03.2015 passed in ITA No. 156/Agr/2022 (A.Y. 2017-18), ACIT (Central Circle) Agra vs. Bipin Babu Agrawal, (iv) order dated 07.08.2026 passed in ITA NO. 353/Agr/2026 (A.Y. 2017-18), M/s AP Jewellers v. DCIT, by the different benches of this tribunal and (v) order dated 15.05.2026 passed by the jurisdictional Allahabad High Court in Tax Appeal No. 71 of 2026, the PCIT(Central) and Anr. v. Bipin Babu Agarwal, in support of his arguments. Ld AR, thus prays to allow assessee’s appeal.

10. Ld Sr DR for the respondent revenue has submitted that the assessee has failed to prove the identity, genuineness and credit worthiness of the said buyers in respect of the bogus cash sales of Rs. 6,99,438/- and also failed to justify the unexplained excess cash sales of Rs. 72,91,858/-. Ld Sr DR supports the impugned order.

11. In the present appeal, two addition are only under challenge. An addition of Rs. 6,99,438/- deposited during demonetization period as out of bogus sales and an addition of Rs. 72,91,858/- made on account of unexplained excess sales.

12. As regards the addition of Rs. 6,99,438/- on account of bogus sales, assessee explained before ld Assessing Officer that the cash sale of Rs. 1,61,923/- was made to Shri Anil Kumar Gupta, the cash sales of Rs. 1,97,910/- was made to Shri Vipin Kumar Gupta, the cash sales of Rs. 1,40,529/- was made to Shri Ramesh Chand Gupta and the cash sales of Rs. 1,99,076/- was made to Shri Narendra Kumar Gupta. These sales were duly recorded in the assessee’s audited books of accounts. On issuance of notice u/s 133(6) of the Act during the assessment proceedings, all these four persons confirmed the above referred cash purchases from the assessee, however, the assessing officer made addition of above referred total cash sales of Rs. 6,99,438/- in the hands of the assessee, merely for want of source of cash purchase. Ld CIT(A) has confirmed this addition in same pattern as adopted by ld AO. It is important to note that the said sum does neither pertain to loan nor borrowing and “any such amount” referred in the proviso to section 68 of the Act cannot be interpreted ‘ejus dem generis’ so as to equate the cash sales either with loan or with borrowing. Since the identified purchasers confirmed to have purchased in cash, mere non submission of sources of purchases by the third person (buyer) cannot make the said sales bogus which are part of assessee’s books. The addition of Rs. 6,99,438/- as bogus sales cannot thus be sustained in the eye of law.

13. As regards the addition of Rs. 72,91,858/- is concerned, the revenue has taken the average of Rs. 13,54,071/- per month on the basis of assessee’s cash deposit of Rs. 94,78,500/- during April 2016 to October 2016 (during pre monetization period in the 7 months). The assessee’s cash deposit of Rs. 1,00,00,000/- during demonetization period for about 2 months has been ignored and average calculation for cash sale has been made as Rs. 27,08,142/- (13,54,071 x 2) and accordingly excess sales of Rs. 72,91,858/- (1,00,00,000 – 27,08,142) has been added as unexplained excess sale in the income of the assessee u/s 69A of the Act.

14. It is pertinent to mention that ld CIT(A) has observed in para 8.9 of the impugned order as under:

“8.9 It is observed that the books of accounts are audited and not rejected by the AO. Sales are supported by stock records and accepted by VAT authorities. Cash deposits are duly recorded in books and arise from business receipts. The method adopted by the AO based on average sales is arbitrary and not supported by law.

Once sales are accepted, corresponding cash cannot be treated as unexplained u/s 69A. Further, taxing the same amount again results in double taxation, which is impermissible. Accordingly, the addition of 72,91,858/- is deleted.

15. Despite having made the aforesaid observation in favour of the assessee, ld CIT(A) has further proceeded in para 8.10 of the impugned order, justifying the assessing officer for treating excess cash deposit of Rs. 72,91,858/- as unexplained. We fail to understand as to under what made ld CIT(A) to make such contradictory observations in the impugned order. We, however proceeded to examine the issue independently on the basis of material on record.

16. The determination of artificial cash sales by revenue for the period during demonetization on the basis of average of pre-monetization period on monthly basis, cannot be termed as rational for the simple reason that the purchase of huge quantity of jewellery and transaction during demonetisation period recorded in assessee’s audited books of account and matching with VAT return cannot be viewed as abnormal or unnatural.

17. The coordinate bench of the tribunal in M/s Ramlal Jewellers Pvt. Ltd. (supra), held as under:

“12. We find that the only reason given by the ld. AO for treating the entire cash deposited in the bank account is that, there was abnormal growth on the cash sales in the month of November 2016 and corresponding cash deposits from the month of November to December, which alone cannot be the ground when deposits are directly linked with sale duly disclosed in the books. Another point raised by him was that, some of the cash sales made to different parties cannot be identified and the parties who responded were unable to explain the source of their funds. From the perusal of the material placed on record and also the explanation given by the assessee before the ld. AO, it is seen that assessee has maintained regular books of accounts which was subject to audit and has produced the entire sale bills, stock register and purchases and also quantitative tally of sales and corresponding stock. The assessee has also demonstrated that there was a direct correlation of cash outflow from the books of accounts with cash deposit in the bank accounts and also produced day wise stock report, wherein the outflow of stock against sales has been clearly reflected. Apart from that, sales declared under the Maharashtra VAT Act and the VAT return completely tallied with the sales of the assessee shown in the books of accounts. Even the ld. AO before whom all these documents were furnished has not pointed out any discrepancy in the sales bills, sales register, purchases and stock. Neither has he admitted the quantity of purchases at the stock with assessee and the corresponding quantity of sales made by the assessee during the year.

13. Another important fact is that assessee has duly filed cash compliance report with respect to cash sales in Form 61A giving all the details with respect to cash sales. Nowhere, the ld. AO has pointed out that assessee did not have sufficient stocks in its possession or otherwise found any defect in the stock register. If that finding has not been given and no discrepancy has been pointed out, then how the corresponding sales of same stock and quantity can be treated as ‘undisclosed income’ of the assessee. Once, AO has accepted the sales and there is direct nexus with the closing stock and the sales alongwith movement of stock linked to purchases then such credit on account of sales cannot be added u/s.68. If the cash sales have been accepted, then deposit of the same cash in the bank account which is tallying with the entries in regular cash book, cannot be treated as deposits made out of any undisclosed income.

14. Addition u/s.68 on account of cash deposits cannot be made simply on the reason that during the demonetization period, cash deposits vis-a-vis cash sales ratio is higher. If the parties during the period of demonetization has purchased huge quantity of jewellery on cash which has been duly recorded in the books of accounts of the assessee and also tallying with the quantity of stock, then simply because there was a huge cash sales in that particular month cannot be the reason for treating it as undisclosed income from undisclosed sources. Here in this case the parties to whom notices u/s. 133(6) were issued have confirmed the purchases but also filed the purchase bills. The ld. AO cannot disbelieve the purchases made from the assessee simply on the ground that those parties could not submit the source of their funds which is not the requirement of the assessee to prove specifically when assessee is a retail seller of, jewellery and even law does not prohibit any cash sales or there is any requirement to seek any further detail. For this compliance assessee has also filed Form 61A before the ld. AO. Once, it has been established that sales representing outflow of stocks is duly accounted in the books of accounts and there are no abnormal profits during the year, then there is no justification why AO should treat the deposits made in the bank account out of cash sales to be income from undisclosed sources. Thus, aforesaid finding recorded by the ld. CIT(A) which is based on correct appreciation of facts on record and there is no adverse finding by the ld. AO with regard to the availability of stock and quantity of items shown in the stock register and the corresponding sales, no addition can be made. Accordingly, order of the ld. CIT (A) is confirmed and the grounds raised by the Revenue is dismissed.”

18. In Jitendra Kumar Agrawal (HUF) (supra), this tribunal held as under:

“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 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 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 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.

10. 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.

11. 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 ITA No. 613/2010 (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 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. 556lDeV2024): 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.

19. 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.

20. 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 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. 1606IDell2023): The Tribunal held that “treating cash deposits as unexplained exclusively based on entries in the books without rejecting them is lawfully prohibited”.

“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.”

19. In Bipin Babu Agrawal (supra), the coordinate bench of this tribunal held as under:

“4. From the facts, it clearly emerges that the assessee is a dealer in silver and gold bullion and the business model of the assessee is such that it regularly carries out cash sales. This is normal feature of assessee’s business. In fact, in earlier years, cash sales constitute more than 65% of total sales whereas in this year, cash sales are only to the extent of 37% of total sales. Pertinently, the sales made by the assessee are subjected to VAT and the sales are duly reflected in the VAT returns. Apparently, no fault has been found in the sales made by the assessee. which, in fact, has been done by the assessee. These books of accounts have duly been audited under law and the same were furnished to Ld. AO during the course of assessment proceedings. The books have not been rejected and no single effect has been pointed out in the same. The assessee has duly furnished stock register as well as cash book which would show that corresponding entry of purchase and sales was made therein and the same were duly recorded in the books of accounts. The assessee had sufficient closing cash-in-hand as on 08-11-2016 to make impugned deposits in the bank accounts. The sales are supported by sales invoices. The sales made by the assessee were duly credited in the Profit & Loss Account and a separate addition thereof would amount to double taxation which is impermissible.

5. It could also be seen that the assessee has furnished plethora of documents in support of its submissions. The same include Tax Audit Report, audited financial statements and books of accounts including stock details. The cash in hand as available with the assessee has been utilized to make the impugned deposits during demonization period. On all these facts, it could be well said that the assessee had duly discharged the initial onus of establishing the source of cash deposit and the onus was on revenue to controvert the same. However, this onus, in our considered opinion, has remained to be discharged by the revenue by bringing on record adverse evidences to disprove the claim of the assessee. The Ld. AO has merely drawn statistical inferences and alleged that the sales were artificial and inflated. The Hon’ble High Court of Madras in the case of CIT vs. Anandha Metal Corp. (152 Taxman 300) has held that return accepted by commercial tax department is binding on Income Tax Authorities. It is trite law that the additions could not be made merely on the basis of suspicion and probabilities.

6. It could also be seen that Ld. AO did not make addition of sales amount despite alleging it to be non-genuine and therefore, the provisions of Sec.68 could not be applied to the facts of the case since the amounts were realized from the available stock. We concur with the adjudication of Ld. CIT(A) on this aspect also.

7. In the light of all these facts and circumstances of the case, we would hold that Ld. CIT(A) has clinched the issue in correct respective and arrived at correct conclusion. Therefore, we find no reason to interfere in the impugned order.”

20. In appeal against the aforesaid order dated 28.03.2025 passed by the Agra Bench of this tribunal in ITA 156/Agr/2022, Hon’ble jurisdictional Allahabad High Court, vide order dated 15.05.2026, passed in Income Tax Appeal No. 71 of 2026, dismissed revenue’s appeals and held as under:

“3. Having heard learned counsel for revenue and having perused the record, we find no good ground to offer any interference in the present appeal. The assessee is a trader in gold and silver jewellery and ornaments. At the time of demonetisation, it disclosed cash sales amounting to Rs. 9,00,04,277/-, on 08.11.2016. That was disbelieved by the Assessing Authority. The CIT Appeals and the Tribunal had examined the issue and returned categorical finding that the cash sales were supported by sale invoices duly recorded in its books of accounts. The stock register supported the sales disclosed by the assessee. The returns were filed under UP VAT Act, 2008. The entire sales were recorded therein. In short, no adverse material was found by the appeal authority to disbelieve the explanation furnished by the assessee.

4. The above are findings of fact based on material and evidence on record and may not call for interference by this Court. Merely because suspicion may exist, it may not be sufficient for the revenue authorities to base their conclusions thereon. In absence of evidence to support the grounds being pressed, the appeal lacks merit and is accordingly dismissed. No order as to costs.”

21. In M/s AP Jewellers (supra), the coordinate bench of this tribunal, vide order dated 07.08.2026, has held as under:

“11. In the instant case, it is not disputed that the assessee deals in gold and silver ornaments. In such business, the business fluctuations, seasonal demand, market behaviour on festive and marriage seasons etc. are such factors which may lead to sharp variation in sales and the Income Tax Act, does not authorize the assessing officer to substitute actual record of sales with hypothetical or estimated figures based on perception of business trends. Assessee also filed the copies of VAT returns, reflecting the said sales. The VAT returns are part of assessee’s paper book at page no. 222 to 233 along with the acknowledgement receipt no. 16119992242914 dated 20.11.2016 and acknowledgement receipt no. 16119992420310 dated 20.12.2016 relating to the month of October 2016 and November 2016. Ld AR has further explained that the records of sales under the value of two lakhs could legally be conducted in cash.

12. 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. The cash sales are part of regular business transactions recorded in the audited books of accounts. The sales by the assessee were duly credited in the profit and loss account. The details of cash sales are entered in the books and supported by corresponding stock cannot be treated as unexplained cash credit merely because the assessing officer considers the declared volume of sales to be excessive.

13. Respectfully following the binding decision of Hon’ble Jurisdictional Allahabad High Court in Bipin Babu Agarwal (supra), the impugned order cannot be sustained. The aforesaid point is accordingly determined in positive in favour of the appellant assessee and against the respondent revenue. The appeal is liable to be allowed.”

22. In the present case, undisputedly the entire cash sales of Rs. 11,07,31,621/- are duly recorded in the audited books of the assessee and are also accepted by the VAT authorities, vide VAT assessment order, which is part of assessee’s paper book from page 19 to 23. The assessee produced entire sales books, stock registers and purchases and quantitative tally of sales and correspondence stock. The addition u/s 68/69A cannot be made simply because of the reason that during the demonetization period cash deposits viz-a-viz cash sales ratio is higher in absence of any other corroborating and convincing evidence. Mere deposit of huge cash on account of huge sale in a particular month or period cannot be made sole basis for treating the same as unexplained/ excess sale. The facts of the present case are almost identical to the facts of the above referred cases. Respectfully following the aforesaid decisions of the coordinate benches of the tribunal and the decision of the Hon’ble jurisdictional Allahabad High Court in Bipin Babu Agrawal (supra), the impugned addition of Rs. 72,91,858/- cannot be sustained. The impugned additions are accordingly deleted. The aforesaid point is accordingly determined in positive in favour of the appellant assessee and against the revenue.

23. In the result, the appeal of the assessee is allowed.

Order pronounced in the Open Court on- 28..09.2026