DCIT Vs KJS Jewellers (ITAT Chennai)
Accepted Cash Sales Cannot Be Added Again as Unexplained Demonetisation Deposits: ITAT
The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) upheld the deletion of a ₹3,87,46,000 addition under Section 69A of the Income-tax Act, 1961 relating to cash deposited in specified bank notes during demonetisation. The Tribunal held that a separate addition would constitute double taxation where the Assessing Officer had accepted the reported turnover, had not doubted the genuineness of purchases or opening stock, and had not rejected the books of account.
The assessee, KJS Jewellers, was a firm that filed its return declaring total income of ₹2,75,85,610. Its case was selected for scrutiny under CASS, and the Assessing Officer examined the cash balance and deposits during the demonetisation period.
The Assessing Officer considered the cash balance of ₹3,87,96,431 as on 8 November 2016 abnormal compared with ₹66,65,739 on the corresponding date of the preceding year. He also questioned the increase in cash sales during October and early November 2016 and the accumulation of cash instead of its deposit into bank accounts.
The CIT(A) accepted the assessee’s explanation and deleted the disputed addition. The Revenue challenged this relief before the Tribunal.
Higher cash balance alone does not establish unexplained money
The CIT(A) observed that cash holdings could vary depending on business requirements. The relevant question was whether the accumulated cash came from known sources, rather than whether it exceeded the balance on the same date in the previous year.
The assessee explained that its cash balance arose from cash sales made during the preceding months. The CIT(A) held that a year-on-year increase, by itself, did not establish that the cash balance was non-genuine. The Tribunal upheld this reasoning.
Seasonal sales explained the increase in cash receipts
The Assessing Officer had compared average monthly sales of approximately ₹2.5 crore to ₹3 crore during April to September 2016 with cash sales of ₹6,33,66,791 in October 2016 and ₹2,52,49,813 between 1 and 8 November 2016.
The assessee explained that jewellery sales were seasonal. Salem catered to customers from surrounding agricultural areas, where purchases for marriages and religious functions increased after September. It submitted that a similar seasonal pattern existed in earlier years.
The comparative details showed cash sales for September to December of approximately ₹8.17 crore in 2014, ₹17.92 crore in 2015 and ₹12.38 crore in 2016. The CIT(A) accepted the explanation after considering the sales data, and the Tribunal found the reasoning justified.
Assessing Officer’s comparison of bank deposits was factually incorrect
The Assessing Officer had also stated that the assessee deposited 90% to 95% of its regular cash sales into bank accounts during April to August 2016.
However, the CIT(A) found that cash sales during this period amounted to ₹14,11,78,308, against which bank deposits were ₹1,68,75,000, or approximately 12%. After accounting for cash withdrawals of ₹38,50,000, net deposits were ₹1,30,25,000, approximately 9% of cash sales.
The CIT(A) therefore rejected the Assessing Officer’s comparison. It also found that the subsequent increase in cash holdings was supported by recorded cash sales that had been included in the reported turnover and accepted in assessment.
Separate addition would tax the accepted sales again
The Revenue argued that specified bank notes received from customers after 8 November 2016 lacked legal validity under the demonetisation notifications and could not provide a satisfactory explanation for the deposits.
The Tribunal upheld the CIT(A)’s deletion on the findings concerning the source of cash and the accepted books and turnover. It noted that the Assessing Officer had not doubted the genuineness of purchases or opening stock and had not rejected the books of account. The CIT(A) had also found no cogent evidence establishing that the recorded cash sales for October and November 2016 were bogus.
Since the Assessing Officer had accepted the turnover, including the relevant cash sales, the Tribunal agreed that adding the related bank deposits separately under Section 69A would constitute double taxation of the same amount.
Accordingly, the Tribunal upheld deletion of the ₹3,87,46,000 addition relating to specified bank note deposits and dismissed the Revenue’s appeal.
Cases Discussed:
- Laxmi Jewellery Chennai Pvt. Ltd. Vs DCIT — ITA No. 384/Chny/2022, ITAT Chennai, order dated 11.10.2023 (cited in the CIT(A)’s findings reproduced by the Tribunal).
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT CHENNAI
This appeal filed by the revenue is directed against the order dated 12.12.2025 passed by the Commissioner of Income Tax (Appeals), Chennai-20,for the assessment year 2017-18.
2. The revenue raised ground nos.1 to 3 challenging the action of the ld.CIT(A) in deleting the addition made on account of unexplained money u/s. 69A of the Act.
3. The brief facts of the case are that, the assessee is a firm and filed return of income declaring a total income of Rs.2,75,85,610/- which was processed u/s. 143(1) of the Act. According to the AO, the assessee’s case was selected for scrutiny under CASS and issued statutory notices u/s.s 143(2) & 142(1) of the Act. In response to which, the assessee filed various details which are reproduced from page no. 1 to 13 of the paper book. Considering the same, the AO opined with reference to closing cash in hand as compared to 08.11.2015 is abnormal the cash in hand as on 08.11.2016. Accordingly, the claim of cash in hand as on 08.11.2016 was disallowed and added an amount of Rs.3,87,96,431/- to the total income of the assessee. The ld.CIT(A) considering the return submissions filed on 21.04.2025, 21.05.2025, which are reproduced from page no. 4 to 7 of the impugned order held the order of AO is not correct in making a separate addition u/s. 69A of the Act as the AO accepted turnover reported by the assessee. Aggrieved by the order of the ld.CIT(A), the revenue is before us.
4. The ld.DR, Ms. Nayani Swapna, CIT, submits that the order of ld.CIT(A) is erroneous on facts of the case and in law. The ld.CIT(A) erred in deleting the addition of Rs.3,87,46,000/- made on account of unexplained money u/s.69A of the Act on account of deposit of the same in specified bank notes as per notifications dated 08.11.2016 and 09.11.2016 of Government of India. The ld.CIT(A) erred in holding that the above deposits were legal when as per the notifications, the cash received by the assessee in SBNs from its customers after 08.11.2016 had no legal validity as the SBNs were declared not legal tender in these specified transactions and the assessee deposited the same SBNs specified in bank accounts which were not recognised as legal tenders by the Government order thereby, rendering the transactions null and void legally, thereby she argued vehemently cannot be accepted as the satisfactory explanation to explain the source of cash deposits in the assessment proceedings. She prayed to set aside the order of the ld.CIT(A) and allow the grounds raised by the revenue.
5. The ld.AR, Mr. H. Yashwanth Kumar, Advocate, supported the order of the ld.CIT(A) particularly reasons recorded in para nos. 6.4 to 6.13 of the impugned order.
6. Heard both the partied and perused the material available on record. We find the assessee shown cash balance as on 08.11.2016 to an extent of Rs.3,87,96,431/-, wherein the AO while comparing the same as on 08.11.2015 held the same to be abnormal. The ld.CIT(A) considering the same the details of month-wise cash sales and cash deposits from 01.04.2016 to 08.11.2016 which are reproduced in page no.8 of the impugned order, held the same as acceptable by recording reasons therein from para no. 6.4 to 6.7 of the impugned order. For ready reference and for better understanding the relevant portion is reproduced herein below:
“6.4. The first reason cited by the AO is that the closing cash in hand as on 08.11.2015 was Rs.66,65,739/- only, whereas the cash in hand as on 08.11.2016 was Rs 3,87,96,431/- With regard to this observation of the AO, it is noted that there is no bar on the amount that an assessee can keep as cash in hand. The cash in hand may vary from time to time depending on the business needs of an assessee. The only issue that needs examination is whether the appellant had accumulated the cash in hand out of known sources of income. In this regard, the appellant has submitted that the cash in hand of Rs.3,87,96,431/- was generated out of the cash sales made in the preceding months. Further, it is noted from the assessment order that the appellant had furnished the details of month-wise cash in hand as under.
The AO has merely compared the cash in hand as on 08.11.2016 with the cash in hand on the same date in the preceding year i.e. as on 08.11.2015 and held that the cash in hand as on 08.11.2016 is abnormal and unreasonable. I am of the opinion that merely because the cash in hand as on 08.11.2016 is higher when compared with the cash in hand as on 08.11.2015, one cannot lead to the conclusion that the increased cash in hand is not genuine.
6.5. The next reason cited by the AO for making the addition is that the appellant’s average monthly sales from April 2016 to Sep 2016 was only Rs.2.5 to 3 crores, whereas, in the month of Oct 2016, the appellant had shown the cash sales of Rs.6,33,66,791/- and the cash sales from 01.11.2016 to 08.11.2016 was shown at Rs.2,52,49,813/-. In this regard, the appellant has submitted that the jewellery business is a seasonal business and the sales may vary from month-to-month. The appellant has also submitted that Salem is a rural hub and caters to farmers in and around the city who are dependent on the vagaries of the monsoon and therefore, they consider purchase of gold in view of upcoming marriages and other religious functions only post September. The appellant has further submitted that the AO had called for a large volume of transactional data, which the appellant had duly submitted. It was also submitted that the AO has used the data selectively and ignored the fact that the increase in volume from September onwards is a regular feature and has happened during the previous years also. In support of its claim, the appellant has furnished the details of cash sales for the relevant period i.e. September to December as under:
| S.No | Year | Cash Sales (Rs.) |
|---|---|---|
| 1. | 2014 | 8,16,88,288 |
| 2. | 2015 | 17,91,85,026 |
| 3. | 2016 | 12,37,85,625 |
6.7. The next reason stated by the AO for making the addition is that the appellant had deposited 90 to 95% of regular cash sales into the bank accounts from April 2016 to Aug 2016, whereas, the appellant’s cash in hand capacity continuously increased from Rs.1,35,80,704/- in September 2016 to Rs.2,38,42,477/- in October 2016 & Rs.3,87,96,431/- as on 08.11.2016. In this regard, it is noted that the total cash sales of the appellant for the period from April 2016 to August 2016 is Rs. 14,11,78,308/-, out of which the appellant had deposited Rs.1,68,75,000/- in its bank accounts. Thus, it can be seen that the cash deposited is only around 12% of the cash sales from April 2016 to August 2016. Further, it is also noted that the appellant had also withdrawn Rs.38,50,000/- from April 2016 to August 2016. Meaning thereby, the net deposit from April 2016 to August 2016 was only Rs. 1,30,25,000/- (Rs.1,68,75,000 Rs.38,50,000), which is only around 9% of the total cash sales from April 2016 to August 2016. Thus, it can be seen that the observation of the AO that the appellant had deposited 90 to 95% of the regular cash sales into bank accounts from April 2016 to August 2016, is not factually correct. Further, it can be seen that the cash in hand had increased from September 2016 to November 2016 due to the cash sales made by the appellant during that period, which has duly been offered as sales in the return of income and assessment was also completed by accepting the sales amount reported by the appellant. Therefore, I am of the opinion that merely because the cash in hand had increased from September 2016 to November 2016, it cannot be a reason to treat the cash deposits during the demonetization period as unexplained money.
7. On perusal of the above, we note that the ld.CIT(A) discussed the issue with reference to reasons cited by the AO in making the subjected addition. On perusal of the findings in para no. 6.4, 6.5, 6.6 & 6.7, we find reasons recorded by the ld.CIT(A) with reference to closing cash in hand, average monthly sales, percentage of deposit of cash and source of cash deposits are justified with reference to facts and circumstances of the present case. Further, the ld.CIT(A) by placing reliance on the order of ITAT Chennai Benches in the case of M/s. Laxmi Jewellery Chennai Pvt Ltd. vs DCIT in ITA No. 384/Chny/2022 dated 11.10.2023, held AO cannot deny source of cash deposits out of cash sales. The relevant part is reproduced herein below:
“The similar view was also taken by the Hon’ble jurisdictional ITAT in the case of M/s. Laxmi Jewellery Chennai Pvt Ltd. vs DCIT in ITA No. 384/Chny/2022 dated 11.10.2023. On the basis of the above discussion, it can be seen that it has been held in various judicial decisions that when the assessing officer has not doubted the genuineness of purchases or opening stock, and has not rejected the books of accounts u/s 145(3), then the Assessing Officer cannot deny the source of cash deposit out of cash sales and thus he cannot make any addition under section 68 or 69A of the Act. Further, there is no cogent evidence in possession of the AO to hold that the cash sales recorded for the month of October & November 2016 were bogus. By respectfully following the ratio laid down in above cases by the Hon’ble jurisdictional ITAT and in view of the fact that AO’s findings are merely on the basis of incorrect comparisons, which has already been discussed in detail in this order, I am of the view that when the AO has accepted the entire sales and not found any discrepancy in the availability of stock, no addition could be made on account of cash deposits in the banks which is part of such sales. Since the AO has accepted the turnover reported by the appellant including the cash sales for the month of October & November 2016, making a separate addition u/s 69A of the Act is tantamount to double taxation of the same amount. Accordingly, the AO is directed to delete the addition of Rs.3,87,46,000/- u/s 69A of the Act with respect to cash deposited in SBNs during the demonetization period and the ground of appeal is allowed.”
8. On perusal of the above, we note that admittedly AO has not doubted the genuineness of purchases of opening stock and not rejected the books of accounts, thereby, in our opinion, the finding of the ld.CIT(A) in holding making a separate addition u/s. 69A of the Act constitutes double taxation of the same amount when the AO has accepted the turnover reported by the assessee. Therefore, we find no infirmity in the order of the ld.CIT(A) and it is justified. Thus, ground nos. 1 to 3 raised by the revenue are dismissed.
9. In the result, appeal filed by the revenue is dismissed.
Order pronounced on 15thOctober, 2026 at Chennai.
