Karnataka HC Upholds ITAT Order, ₹6.61 Crore Cash Sales on Demonetisation Day Accepted as Genuine u/s 68 with Supporting Invoices and Stock Records [Read Order]

The High Court of Karnataka, upheld the Income Tax Appellate Tribunal ( ITAT ) order, holding that ₹6.61 crore cash sales on the demonetisation day were genuine under Section 68 of Income Tax Act,1961, supported by invoices and stock records.

The Revenue-appellant appealed against the ITAT order dated 24.02.2025 for the assessment year 2017-18. In this case, Aura Jewels,respondent-assessee, was engaged in retail trading of jewellery, gold, silver, and other ornaments. For AY 2017-18, it filed its return of income declaring gross receipts of ₹21.99 crore, which included cash sales of ₹11.64 crore.

On scrutiny, the Assessing Officer (AO) noticed that cash sales worth ₹6.72 crore were made on a single day, November 8, 2016, the day demonetisation was announced, accounting for over 57% of total cash sales during the year.

The AO considered this unusual and, after allowing ₹0.61 crore as normal sales, treated ₹6.61 crore as unexplained cash receipts taxable under Section 68 of the Act.

The assessee challenged this before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that demonetisation had led to an exceptional rush of customers making cash purchases. It submitted stock records, purchase details, and invoices with barcodes linking each sale to corresponding stock entries, showing that all sales were made from existing inventory.

The AO had rejected these invoices citing the absence of PAN and full customer details. The assessee clarified that all transactions were below ₹2 lakh and therefore did not require PAN disclosure, further noting that similar invoices were accepted in other months.

After reviewing the records, the CIT(A) accepted the explanation, holding that the cash sales were genuine and supported by proper documentation, and deleted the addition of ₹6.61 crore through an order dated 27.03.2023.

The Revenue’s appeal before the tribunal was dismissed, and the tribunal upheld the CIT(A)’s decision.

Justice Vibhu Bakhru and Justice C M Joshi noted that both the CIT(A) and the tribunal had found that the assessee had properly explained the cash receipts and provided records proving the sales were genuine. The issue of whether the cash sales were actually made was a question of fact, which had been decided in the assessee’s favour.

The High Court also observed that the decisions of the CIT(A) and the tribunal were well-reasoned and not perverse.The Court held that no substantial question of law arose and dismissed the appeal.

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