Cash Sales of Jeweller on Demonetisation Day Held Genuine: ITAT Deletes S.68 Addition as Books Were Not Rejected [Read Order]

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) allowed the appeal, holding that the huge cash sales recorded on 08.11.2016, on the day demonetisation was announced were genuine and could not be treated as unexplained cash credits under Section 68 Income Tax Act, 1961, when the books of account were never rejected.

The assessee, Abhay Chordia engaged in the business of jewellery under the name “Ashok Jewels,” operated a retail outlet at Jodhpur. On 08.11.2016, the first day of demonetisation, the outlet recorded cash sales of ₹4,35,91,454, supported by 347 invoices, all below ₹2 lakh. The cash was deposited in HDFC Bank on 10.11.2016 and 11.11.2016, immediately after banks reopened.

The Assessing Officer found the volume of sales “implausible,” observing that the assessee had booked unusually high turnover on a single evening, without customer details, and held that the sales were “bogus,” introduced to deposit old currency. Without rejecting the books under Section 145(3), the AO added the entire deposit as unexplained cash under Section 68 read with Section 115BBE.

The CIT(A) sustained the addition.

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Before the Tribunal, the assessee submitted that complete books, including day-to-day stock records, cash book, sales register, purchase bills, and stock register, were produced and accepted. It was pointed out that the purchases and stock were duly verified, no defects were recorded, and the sales were reflected in audited books and VAT returns.

The assessee relied on the fact that cash sales were a normal practice and had been regularly made in preceding and subsequent years.

The Bench comprising Dr. S. Seethalakshmi (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member) noted that the assessee had maintained regular audited books, the stock register was produced, and the AO had not pointed out any defect in purchases, sales, or stock.

The Bench held that when books are not rejected and sales are recorded out of accepted stock, cash receipts from such sales cannot be treated as unexplained credits.

The Tribunal also referred to earlier Jaipur Bench decisions in Morrisons Jewellers Ltd. vs

ACIT (2022) and Mahesh Kumar Gupta vs ACIT (2022), where similar demonetisation-day cash sales were held to be genuine when supported by proper books.

The Bench concluded that Section 68 could not be invoked because the sales were already part of the regular audited accounts, and once the books were accepted, the AO could not double tax the same income.

Accordingly, the ITAT deleted the entire addition of ₹4,35,91,454 and held that cash sales on demonetisation day were genuine since the books were never rejected

The Assessee was represented by Dheeraj Borad, while Rajesh Ojha appeared for the Revenue.

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