DCIT Vs Budhamal & Sons Jewellers (ITAT Chandigarh)
Demonetisation Deposits: Recorded Sales Cannot Be Taxed Twice
₹1.68 Crore Addition Fails on Facts
The Chandigarh Tribunal dismissed the Revenue’s appeal against the deletion of additions aggregating to ₹1,68,64,210 under section 69A in the hands of a jewellery firm.
The disputed additions involved three distinct issues: cash deposits explained through recorded business sales, a duplicate addition concerning the same bank account, and deposits in accounts that did not belong to the assessee-firm.
The Tribunal upheld the CIT(A)’s findings on each issue. It emphasised that an increase in cash sales during demonetisation could not, by itself, justify treating the deposits as unexplained when the books and supporting records established their business source.
Difference in Reported Deposits Triggers Addition
The assessee, a resident firm engaged in trading jewellery, had declared income of approximately ₹45.15 lakh.
The assessment proceedings examined the sources of cash deposits in its bank accounts, including deposits made during the demonetisation period. The assessment was completed under section 147 read with section 144B on 25 March 2022.
The Assessing Officer observed that aggregate cash deposits were ₹175.45 lakh, whereas the particulars furnished in the return reflected deposits of ₹94.45 lakh. The difference of ₹81 lakh was added under section 69A.
The Assessing Officer also made separate additions of ₹60 lakh, ₹25.14 lakh and ₹2.50 lakh concerning deposits in other bank accounts. The aggregate addition was subjected to the higher tax rates under section 115BBE.
Books, VAT Returns and Cash Balance Explain the Deposits
Before the CIT(A), the assessee explained that the deposits represented regular cash sales duly recorded in its books.
It relied on audited financial statements, the cash book, bank statements, VAT returns and comparative details of sales and deposits. Purchases, sales, opening balances and closing balances were recorded, and the corresponding turnover had been disclosed.
Regarding the ₹81 lakh difference, the assessee stated that the correct deposit amount had not been mentioned while furnishing the relevant particulars. Nevertheless, the deposits formed part of its disclosed business transactions.
The CIT(A) accepted the explanation after examining the supporting material. It also held that cash sales could not be regarded as unexplained merely because they were higher than those in the preceding year.
Increased Cash Sales Do Not Establish Unexplained Income
Before the Tribunal, the Revenue argued that cash deposits had increased substantially during demonetisation and that satisfactory primary evidence of their source had not been furnished.
The assessee relied on the CIT(A)’s factual findings and maintained that the deposits arose from recorded jewellery sales. It also submitted that the Assessing Officer had not demonstrated suppression of purchases, sales or stock, or established a source outside the regular business.
The Tribunal found that the deposits were supported by the cash book, audited financial statements and VAT returns. The assessee had successfully demonstrated that they were sourced from cash available in hand as recorded in the cash book.
It further noted that the CIT(A) had examined comparative sales figures and found that the increase could not be regarded as abnormal.
The Tribunal held that a mere increase in cash sales was not conclusive, particularly when those sales appeared in regular books accepted by the Assessing Officer.
Since the cash sales had already been offered to tax, adding the related deposits again would result in an impermissible double addition. The deletion of ₹81 lakh was therefore upheld.
₹60 Lakh Addition Was a Duplication
The CIT(A) had recorded a categorical finding that the bank account underlying the ₹60 lakh addition had already been considered while arriving at the ₹81 lakh addition.
This factual position remained undisputed before the Tribunal.
Consequently, the separate addition of ₹60 lakh amounted to taxing the same deposit component again. The Tribunal upheld its deletion as a duplicate addition.
Accounts Belonging to Others Cannot Be Taxed in the Firm
The remaining additions concerned deposits of approximately ₹25.14 lakh and ₹2.50 lakh.
Bank certificates established that the relevant accounts did not belong to the assessee-firm. For the ₹25.14 lakh addition, the CIT(A) noted that the account belonged to an individual and that the Assessing Officer had accepted that position in the succeeding assessment year.
The Tribunal relied on the bank certificates and upheld the deletion of both additions. Amounts deposited in those accounts could not be added in the hands of the present assessee.
Accordingly, the Revenue’s appeal was dismissed, leaving the CIT(A)’s deletion intact.
Author’s Comments
This decision demonstrates the importance of a complete reconciliation between bank deposits, cash balances and recorded turnover. Relief followed from supporting evidence and verified factual findings.
The three issues also required different answers. Recorded sales explained the ₹81 lakh deposits; reconciliation exposed the ₹60 lakh duplication; and bank certificates established that the remaining accounts belonged to others.
The ruling should therefore be read as a fact-based decision. It does not grant automatic immunity to every demonetisation deposit described as sales. Here, the assessee established the source through its records, and the Tribunal found no justification for taxing the same business receipts again.
A bank deposit may invite an enquiry, but the addition must survive the books, the reconciliation and the ownership evidence.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT CHANDIGARH
1. Aforesaid appeal by revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-3, Gurgaon on 28.08.2025 in the matter of an assessment as framed by Ld. AO u/s 147 r.w.s. 144B of the Act on 25.03.2022.
2. The revenue has raised various grounds challenging the deletion of additions aggregating to Rs.1,68,64,210/- as made by the Assessing Officer u/s 69A of the Act. The substantive grievance of the revenue relates to deletion of addition of Rs.81 Lacs in respect of cash deposits by the assessee, deletion of addition of Rs.60 Lacs with respect to one bank account and deletion of additions of Rs.25.14 Lacs and Rs.2.50 Lacs relating to bank accounts which, according to the assessee and the Ld. CIT(A), did not belong to the assessee-firm. Having heard rival submissions and upon perusal of case records, our adjudication would be as under.
3. The assessee being resident firm is stated to be engaged in trading of jewellery items. The assessee declared income of Rs.45.15 Lacs in its return of income which was subjected to scrutiny to examine sources of cash deposits in assessee’s bank accounts including deposits during demonetization period.
4. The addition of Rs.81 Lacs u/s 69A stem from the observation of Ld. AO that the assessee made aggregate cash deposits of Rs.175.45 Lacs but it reflected cash deposit of Rs.94.45 Lacs in its return of income. The Ld. AO also made additions of Rs.60 Lacs, Rs.25.14 Lacs and Rs.2.50 Lacs which represent other deposit in different bank accounts. The aggregate addition of Rs.168.64 Lacs was made which was subjected to higher rates of tax u/s 115BBE.
5. During first appeal, the assessee, inter-alia, contended that the deposits represent regular cash sales duly recorded in the books of account. It was contended that purchases, sales, opening balances and closing balances stood recorded in the books and that the corresponding turnover had also been disclosed. The assessee also relied upon its audited financial statements, cash book, bank statements, VAT returns and comparative figures of sales and cash deposits. The addition of Rs.81 Lacs was assailed on the ground that the correct amount was not mentioned while furnishing the relevant particulars. Nevertheless, these deposits formed part of the disclosed business transactions only. The bank account, in respect to which addition of Rs.60 Lacs was made, was stated to be taken into consideration while arriving at difference of Rs.81 Lacs and therefore, separate addition of Rs.60 Lacs was merely a duplicate addition. On the issue of additions of Rs.25.14 Lacs & Rs.2.50 Lacs, it was stated that the concerned bank accounts did not belong to the assessee-firm. In support, bank certificates and other documents were furnished to establish the ownership of those accounts.
6. The Ld. CIT(A), after considering the assessment order and the submissions and documents furnished by the assessee, accepted the explanation so furnished by the assessee. In respect of the cash sales, it was noted that the same was duly substantiated by VAT returns, audited financial statements, cash book and other supporting material. The Ld. CIT(A) further observed that merely because cash sales during the relevant period were higher than those of the preceding year, the sales could not, by that fact alone, be regarded as unexplained. The Ld. CIT(A), accordingly, deleted the addition of Rs.81 Lacs. On the addition of Rs.60 Lacs, it was found that the concerned bank account was already included while computing the addition of Rs.81 Lacs and therefore, separate addition was mere duplication.
7. On the addition of Rs.25.14 Lacs, Ld. CIT(A) took note of the certificate issued by the concerned bank showing that the account belonged to the individual and not to the assessee-firm. The said position stood accepted by Ld. AO in the assessment for the succeeding AY. Similarly, the addition of Rs.2.50 Lacs was deleted on factual finding that the bank certificate established that the relevant bank account did not belong to the assessee-firm. Aggrieved, the revenue is in further appeal before us.
8. It is the contention of Ld. Sr. DR that there was substantial increase in cash deposits during the demonetization period in comparison to earlier year and the assessee had failed to establish the source of such deposits with satisfactory primary evidences. It was further submitted that the additions made by the AO were based upon the information available on record and ought not to have been deleted. The Ld. AR, on the other hand, referred to factual findings of Ld. CIT(A). It was submitted that the cash deposits represent recorded business sales which formed part of regular books of account. It was further submitted that Ld. AO did not demonstrate any suppression of purchases, sales or stock nor brought any material on record to establish that the cash represented income from any source outside the regular business transactions. As regards the remaining additions, reliance was placed upon the bank certificates and the findings recorded by Ld. CIT(A).
9. We have carefully considered the material facts and the factual findings rendered by Ld. CIT(A) in the impugned order. So far as the addition of Rs.81 Lacs is concerned, we find that the same is duly evidenced by cash book and audited financial statements coupled with VAT returns etc. The whole basis of addition by Ld. AO was essentially the difference between the cash deposits reflected in the information available with the Department and the amount as disclosed by the assessee. The assessee’s explanation, however, was that the cash deposits represented proceeds of its regular jewellery business turnover which stood reflected in its books and financial statements. The assessee successfully demonstrated that the cash deposits were sourced out of available cash in hand in the cash book. It is relevant that the assessee has been carrying on the business of jewellery trading. The material referred to by Ld. CIT(A) include audited accounts, cash book, VAT returns and the details of sales and bank deposits. The Ld. CIT(A) has examined the comparative sales figures and has recorded a finding that the increase in cash sales could not be held to be abnormal. We are of the considered opinion that mere increase in cash sales, by itself, could not be conclusive where the sales are recorded in the regular books which has been accepted by Ld. AO. The cash sales have been offered to tax and making this addition would amount to double addition which is impermissible. Therefore, no fault could be found with the adjudication of Ld. CIT(A) in deleting this addition.
10. On the addition of Rs.60 Lacs, Ld. CIT(A) has recorded a categorical finding that the concerned bank account was already been taken into consideration while arriving at the cash deposits of Rs.81 Lacs. This fact remains undisputed before us. Therefore, as rightly held, making this addition would be nothing but a duplicate addition only.
11. The additions of Rs.25.14 Lacs and Rs.2.50 Lacs pertain to bank accounts which do not belong to the assessee firm. The same is evident from relevant bank certificates which Ld. CIT(A) has taken note of. Therefore, these additions could not be made in the hands of the present assessee.
12. The appeal stands dismissed.
Order pronounced on 05.10.2026.
